Idaho's Grocery Tax
The Gathering Storm: Idaho's Last Stand Before the Tax That Locked
How a 1935 ghost, an education crisis, and information poverty produced sixty years of food taxation
When Idaho adopted its sales tax in 1965, it taxed food—just as Texas, Wisconsin, and Indiana, adopting a few years earlier, had all exempted it. The evidence suggests Idaho never discussed the alternative. Federal reports documenting other states' food exemptions had circulated for three years, but Idaho's leaders were focused on whether to adopt any sales tax at all, not on how to structure it. The pre-conditions that made adoption possible—a 1935 referendum defeat, an education funding crisis, intra-party warfare over Goldwater, and three prior failures—also constrained every design choice. The features engineered to pass the tax became the features that prevented its reform for sixty years. In 2026, Idaho remains one of four states taxing groceries at the full rate, and a ballot initiative seeks to accomplish through direct democracy what the legislature has blocked for decades.
Encircled and Desperate
By 1964, Idaho was the last western state without a sales tax. Washington, Utah, Wyoming, and Nevada had all adopted—every one taxing food. Only Oregon and Montana shared Idaho's holdout status, and neither would ever adopt a sales tax. The pressure on Idaho came not from interstate competition but from internal fiscal collapse: an education funding crisis that was draining teachers to neighboring states and overcrowding classrooms. Governor Robert Smylie spent two years building a constituency for action, touring the state in 1963 with his sons to meet parents who described schools failing in the shadow of Sputnik. The crisis was real and measurable—House Bill 222 would eventually quantify the education funding gap at $26 million. But Smylie faced constraints that went beyond fiscal arithmetic. His opposition to Barry Goldwater's 1964 presidential candidacy had created factional enemies within his own party, and a Goldwater-aligned activist named Gwen Barnett was already recruiting a primary challenger.
The Ghost of 1935
Idaho had tried a sales tax before—a 2% levy enacted in 1935 and struck down by voters in 1936. That referendum defeat created political poison that haunted fiscal policy for three decades. When Smylie finally assembled the conditions for adoption in 1965, the ghost shaped every design choice. The rate stayed at 3%—just one point above the rejected 2%. The bill offset property and income taxes by $26 million. A $10 income tax credit addressed regressivity. Revenue was earmarked for education. And a mandatory referendum gave voters the final say. Every feature was a lesson learned from 1935's failure. Every feature also made the resulting tax harder to change.
The Question Nobody Asked
The most important finding about Idaho's 1965 design is what is absent from the record. After extensive review of legislative histories, newspaper archives, and Smylie's autobiography, no evidence exists that anyone in the 38th Idaho Legislature discussed whether to exempt food. The federal Advisory Commission on Intergovernmental Relations had documented Texas's and Wisconsin's food exemptions in 1962. The information was available. Idaho's leaders were not looking for it. When the only question debated is whether to adopt a tax, no one asks how to structure it. The $10 credit was not even called a "grocery credit"—that rebranding came forty-three years later, in 2008, when legislators facing repeal pressure renamed it the "food tax credit" for the first time.
What Other States Did Differently
Texas, Wisconsin, and Indiana all adopted sales taxes between 1961 and 1963. All exempted food. All saw their governors pay severe political prices—lost elections, abandoned ambitions, permanent unflattering nicknames. Texas's Governor Daniel allowed the tax to become law without his signature and lost reelection the next year. Wisconsin's Nelson compromised on a selective tax excluding food and clothing, then left for the U.S. Senate. Indiana's Welsh saw his lieutenant governor break a Senate tie to pass the tax, and Welsh became "Sales Tax Matt" for the rest of his career. The Indiana Supreme Court affirmed that food exemption served the proper purpose of mitigating sales tax regressivity.
Idaho's Smylie lost his 1966 primary 61-39% while voters approved his tax by the same margin. The political cost of a sales tax was inescapable regardless of food treatment. Idaho paid the same political price but made a different structural choice—or rather, made no structural choice at all, accepting the default of taxing everything. The lesson from 1935 that Idaho's leaders internalized was "keep the rate low," not "narrow the base." That was the wrong lesson applied to a changed landscape.
How Adoption Engineering Becomes Lock-in
The 1965 design embedded three features that would make reform impossible for sixty years. Revenue reliance: once food generated substantial revenue (currently estimated at $400 million annually), exempting it required replacing the funds—a proposition that grew more daunting as the rate doubled from 3% to 6%. The credit workaround: rather than exempting food, Idaho repeatedly increased the income tax credit—from $10 in 1965 to $120 per person today—creating just enough political relief to forestall structural change each time pressure built. And defending constituencies: the education earmark meant school administrators, teachers, and parents would oppose any revenue threat, not because they supported taxing food but because they defended schools.
The dynamic is self-reinforcing. Each credit increase validates the credit approach and weakens the case for exemption. Each year of revenue collection raises the switching cost. Each new class of students educated with grocery tax revenue adds defenders who cannot imagine the system working differently. In 2001, a bipartisan bill passed the Idaho House 104-1, then died in the Senate without a hearing. In 2017, the legislature passed repeal only for the governor to veto it. The mechanisms designed in 1965 to overcome one political obstacle—the 1935 ghost—became the mechanisms that sustain a different political obstacle: the impossibility of reform.
By 2026, Idaho is one of four states still taxing groceries at the full rate—down from roughly 75% of sales-tax states when Idaho adopted. A citizen-led ballot initiative is gathering signatures to place repeal on the November 2026 ballot, attempting to break through direct democracy the lock-in that legislative gatekeepers have maintained since 1965. The sixty-year arc from unexamined default to entrenched anomaly reveals how policy choices made in information-poor environments—choices that were never really choices at all—can prove more durable than deliberate design.