Some people believe state level taxation demands the “three-legged stool” of property, income and sales taxes. Yet, some neighboring states to Idaho do not have either sales taxes or income taxes. In Florida right now, there are no personal income taxes, and Governor Ron Desantis is talking about eliminating residential property taxes by 2026.
In Idaho, property taxes are used to fund local governments like counties and cities. The annual cost of local governments in Idaho is about $2.3 billion, while the current state level expenditures are about $14 billion – 7 times the cost of local government. State-level expenditures are funded by sales and income taxes and other fees, taxes and federal monies that flow to the state.
As an example of state-level expenses, Idaho’s expenditures for all of the public schools exceed $3 billion a year, an amount that is $1 billion more than the total governmental costs of all of Idaho’s counties, cities, fire districts, sewer and water districts, cemetery districts, public libraries and more – those governments which are funded by your property taxes.
In 1863, President Abraham Lincoln issued the proclamation that established the Idaho territory. The first taxes in the territory were property taxes, and until 1881, they were collected by the county sheriff.
Other forms of taxation in the Idaho territory were poll taxes on each male inhabitant, with half of the poll tax going to the territorial government and half to the county. Poll taxes were literally “head” taxes. You were taxed simply for existing and living in the Idaho territory.
The Idaho Territorial Legislature also enacted license taxes of $5 for every Mongolian miner, while Chinese miners were assessed a license tax of $2.
After Idaho became a state in 1890, property taxes were the main form of county revenue, and property taxes were also used to generate state revenue.
At that time, sales and income taxes did not exist.
During the Great Depression, state revenues were under pressure since they depended on property tax revenues. In 1931, the Idaho legislature passed the Property Tax Relief Act, which created the State Tax Commissioner and the first state income tax. Under the new law, property taxes were to be reduced by the amount of revenues the state received from the new income tax rate.
In 1931, property tax revenues generated for the state’s purposes were $2,250,000 per year. With passage of the “Property Tax Relief Act”, those dropped to a statutorily set $1,250,000 per year in 1932. Theoretically, property owners experienced a reduction of property taxes starting with passage of the income tax. But they also began to incur the burden of paying income taxes.
In 1935, just 4 years after introducing the first income tax, the Idaho legislature passed the first sales and use tax in Idaho. The rate was 2%. However, the voters rejected it in a referendum at the polls the following year in 1936.
Sales tax got rejected another couple of times in the legislature in subsequent years, and then in 1965, Governor Robert Smylie, the incumbent Republican, introduced several proposals in his state-of-the-state address.
He wanted a state parks department, a junior college system and a state water resource board. He also introduced the idea of a new sales and use tax. The legislature passed it with a rate of 3%.
That new Idaho Sales Tax Act prohibited property taxes from being used for state revenue.
At the time, Governor Smylie said “The only practical and the only feasible means of meeting the needs of our schools and our state government, if you regard yourselves as liberals, you should be supporting this legislation because we cannot do those things for the people that we ought to be doing for the people without this kind of legislation.”
At the next general election in 1966, voters upheld the new sales tax with 61% of voters in support, but they dumped Governor Smylie in favor of another Republican.