Tax Reform Proposal Couples More Sales Taxes With Income Tax Cut
Utah lawmakers are proposing new sales taxes on a list of items and services. At the same time, they plan to cut the state income tax rate and significantly boost tax breaks for children and dependents.
A legislative tax reform task force released its draft tax reform proposal Friday morning after months of study and input-gathering. Officials say growth from the sales tax has not been keeping pace with other economic growth in the state, and they want to restructure the state tax code to stabilize revenues.
“I think we’ve been fair,” said House Majority Leader Francis Gibson, R-Mapleton, who serves as co-chair of the task force. “We’ve tried to give everyone in the state of Utah [a] lower tax burden, either through income tax … or some sort of tax credits.”
Over the next month, the task force will hold three public hearings — scheduled for Oct. 22, Nov. 7 and Nov. 21 — to gather input on the proposal. Gibson said they are aiming for a special session in December in order to have new tax systems in place by 2020.
Utahns will pay an estimated $75 million less in taxes under the proposal. Here’s a look at what’s in it:
The bulk of the proposal includes imposing the state’s 4.85% sales taxes on new, currently untaxed services ranging from home repairs to streamed media, such as Netflix.
New services lawmakers are considering taxing include:
- Home maintenance and repair (landscaping, cleaning, painting, etc.)
- Veterinary services (with an exception for agriculture)
- Streamed media and software as a service
- Test prep and tutoring
- Misc. schools and instruction (yoga studios, public speaking training)
- Portrait photography and photofinishing
- Taxi, limousine and ridesharing services
- Vehicle towing
- Parking lots and garages
- Newspaper publishing
- Tour operators and sightseeing transportation
- Shipping and handling when part of a taxable sale
At the same time, lawmakers are looking at ending sales tax exemptions on things like precious metals and electricity used to power ski lifts. Exemptions on coin-operated laundromats, car washes and tickets to college athletic events would also be removed.
Unprepared food is currently taxed by the state at a lower rate, 1.75%. As part of the proposal, lawmakers are looking at restoring the full 4.85% state sales tax on food. Critics argue that would disproportionately affect lower-income individuals and families.
“Low-income families spend 34.1% of their budget on groceries, middle income households spend 13.4%,” said Gina Cornia, executive director of Utahns Against Hunger. “No one should have to choose between paying rent or utilities over food.”
While Utahns pay a $0.30/gallon gasoline tax at the pump, fuel is currently exempted from the sales tax. That would change under the new proposal, with gas distributors paying the full sales tax on fuel. That cost would likely make its way back to motorists in the form of higher gas prices.
The task force co-chairs say the sales tax on fuel would be temporary while the state looks at other ways to fund transportation costs in the future, likely through increased vehicle registration fees or fees per miles traveled.
The proposal includes a cut of “at least 0.25%” to the state income tax rate for individuals and corporations, currently 4.95%. Under the Utah Constitution, all income taxes in Utah fund public schools, and some Democrats have said an income tax cut would be “a difficult sell.”
“That’s basically saying, ‘We‘re going to take money from public ed and higher ed,’ House Minority Leader Brian King, D-Salt Lake City, said earlier this week. “That’s not the direction, I think, people in the state of Utah want to go.”
Under the proposal, parents would get a $2,500 annual exemption per dependent – up from the current $565.
As part of this proposal, the task force has recommended moving the school lunch program and its funding sources, including liquor sales, from the education fund to the general fund.
Lawmakers have also set their sights on removing the constitutional earmark that funnels income tax revenue to the education fund. Some Republican lawmakers have argued this will give the legislature more flexibility in spending, while critics worry it would result in less money for public schools when Utah is already ranked last in the nation in per-pupil spending.
If at least two-thirds of lawmakers vote to remove the constitutional earmark, Utah voters will get the final say during a general election (and as soon as November 2020).