Chapter 12 Case Study: Idaho and the Decision for Local Taxes

Voters often lament paying taxes despite enjoying the services and goods that funding supports. From a taxpayers’ perspective, disagreement on a “fair” tax (even whether it should be progressive or regressive), dissatisfaction with the distribution of expenditures, or even a distrust of the government responsible for prioritizing the expenditures are all reasons to dislike taxes. For communities, however, pooling together resources to provide services for all residents is an essential feature of government and a unique provision that separates the public sphere from the private sphere. Taxes are collected at multiple levels of government and fund policies adopted at those levels.

In Idaho, residents of cities get to choose whether to implement a sales tax in their community. Based on general attitudes toward taxes, you might think that they would be universally unpopular and voters would never choose to adopt one. Yet many cities voluntarily opt into them to support their revenue. The decision to tax sales in some cities in Idaho rests largely on the city’s tourism stream and the funding that sales taxes can generate in those communities. Cities like Sun Valley, Idaho, rely on tourism as a major part of their economy. Sun Valley is a resort city located centrally in the state that boasts breathtaking mountain ranges outfitted with ski lodges, shopping, and a golf course.

While residents would not be able to avoid paying sales tax, a town that is heavily reliant on tourism may choose to tax hotels, dining or restaurant options, or transit that would be more likely to be used by a tourist than a resident. This shifts the burden of the tax cost from the voters to the visitors. Idaho’s tax code includes a flat 5.8 percent individual income tax rate and corporate income tax rate with a 6 percent state sales tax rate.^[1] Though cities can choose to add their own local taxes to that sales tax, only twenty-two of them do, and the combined average rate of sales tax (local plus state) is only 6.03 percent.^[2]

Because local governments are under the purview of state governments, they are able to pursue their own policies to the extent to which they are allowed by the state. Cities in states with home rule (the ability of the city to self-govern) have additional options to pursue (or not pursue) policies that fit their unique interests and needs as a community. While the concept of home rule enables this flexibility, it also means there will likely be inconsistencies across communities in what policies they enact and even the extent to which they are empowered with home rule by the state. Larger cities may be given more flexibility and autonomy, whereas smaller cities may not.

Critical Thinking Questions

If you were leading policy in your local community or state, what type of tax(es) would you prefer to create your state funding? What factors would you need to consider?

Does the shift of sales tax onto the tourism industry seem democratic? In what ways could it be helpful for a community, and how might it be harmful?

What are other areas that local government has decision-making authority over? (Think about your daily interactions with government, as likely most of these involve cities, counties, or special local districts.)

With what you know, what policy arenas or specific policies do you think local governments should have authority over? What about those reserved to the states? What differentiates the two?