My friend and former seatmate, Stephen Hartgen, recently shared his opinion on why citizens should not be allowed to approve an alternative to property taxes to fund their local governments (city or county). I share many of his concerns that more taxes will not assure fiscal restraint. However, having a diversified stream of revenue sources has always been an important business practice. Idaho local governments do not have the option to allow the question to be placed on the ballot. Which would place the final decision to impose such a tax with the voters.
It has often been said that income, sales and property taxes provide for a stable three-legged stool. Income taxes will grow as personal income grows. The resulting increase in personal incomes will allow for increased personal spending and sales taxes. Property taxes are the only tax that local governments control. There is statewide pressure to find alternatives to property taxes. Unfortunately, property taxes are based upon the value of an asset, not its liquidity or the owner’s ability to pay. Whether you have income or not, property taxes are due. If you do not have the cash flow to pay property taxes, the property is subject to tax liens.
Income taxes and sales taxes relate directly to the cash flow of the taxpayer. If you have the income, personal income taxes are carved out of the income. If you are purchasing tangible goods, a sales tax is added to the cost. In many states where there is a local option tax, a 1% additional sales tax would increase a $10 purchase by 10 cents and a $100 purchase by $1. Idaho’s local governments do not have the authority to adapt their revenue streams to a more balanced option. Property taxes are still their primary income. There is a share of the state sales tax that is returned to local government, but it is not based on the local economic activity that generates the sales tax. It is based upon a comparison of property values and population to the rest of the state. Communities like Twin Falls contribute a disproportionate share of state sales tax than is returned in the form of revenue sharing.
Giving the people an option on how to pay for local services is very democratic and is available across the country. In most states, local authority is delegated under the “Cooley Doctrine” which provides the local government more local authority. Local governments in Idaho are limited in their taxing options by the state legislature; the “Dillon Doctrine.” When we consider the states’ right of sovereign rule, the Dillon states do not provide a similar sovereign authority to local governments. We often hear state leaders complain about too much federal control in Washington D.C. Idaho’s local leaders complain that the state keeps too much control in Boise.
You have free articles remaining.
The legislative problem is compounded by the rural versus urban divide. Local option “sales” taxes are most desired in communities with significant volumes of retail sales. Rural legislators in districts without a strong retail base ask, “what is in it for us?” And claim “this is taxation without representation”. This has been and remains a barrier to getting local authority delegated from the state to local governments. Local governments would need a change in state law to place a local option sales tax initiative on a ballot.
Local option sales tax does exist in Idaho, but only for resort communities with a population under 10,000. Cities and counties would like is a similar opportunity to deal with their own unique challenges of daily population surges from retail, commercial, and industrial activity.
I believe that Stephen Hartgen is partially correct, that the current thinking about “Local option sales tax is a flawed idea.” However, the flaw is a closed vision of how it could be implemented. What if the law required that these new revenues must offset some level of property taxes? What if the revenues collected in a jurisdiction, like the City of Twin Falls, were also shared with Twin Falls County and the other bordering counties connected by state highways? A local option sales tax could add that third leg to the local government revenue stool, address the impacts of growth and reduce property taxes.
City and County Associations seem to compete for this authority. They must work together, or there will never be a day when the legislature provides local governments the authority to place such a question to their voters. I support the concept of providing the governments closest to the people more options. However, if counties and cities continue to jockey for advantage, there will not be the political will to move legislation forward. Local governments need to embrace a plan that will provide a win-win. I believe it will need to include property tax relief.