The elephant in the room, at this point in Utah’s general legislative session, is the long-awaited comprehensive tax reform package. As you may recall, our President and CEO, Lane Beattie urged for tax reform to be the central focus of the session in early February and it appears this is coming to fruition.
As a matter of policy, the Salt Lake Chamber supports tax policies that strengthen Utah’s economy and properly balance tax with simplicity, efficiency, fairness, revenue sufficiency and transparency. A modern economy is leaving Utah’s tax system behind and it must be modernized.
To be clear, this is a significant policy decision in a very limited amount of time, and we are watching these fluid developments carefully. As such, we have remained in near constant communication with the House and Senate leadership teams and the Governor to ensure that these reforms meet today’s needs, make our state more competitive and create greater equity and efficiency.
Below is a brief summary of many of the current proposals or concepts being discussed:
Reforms to Make our Tax Code Meet Today’s Needs:
Utah has demanding education, infrastructure, public safety and human service needs. Modernizing Utah’s tax code would allow for more priorities, specifically education to receive enhanced funding over the next decade.
Personal Income Tax Reforms – This is one of the two most significant outstanding issues on tax reform. Lawmakers are looking to create a flatter income tax by phasing out deductions and credits more quickly for higher-income brackets — and lower overall tax rates. This will broaden our base and generate more revenue earmarked for education as our economy continues to grow.
Increasing the Food Tax and Earned Income Tax Credit – This is the second most significant outstanding issue. There are still discussions of restoring the sales tax on food to its full rate with a targeted tax-credit to protect low-income families. Our Chief Economist, Natalie Gochnour also shared her perspective on this issue, as legislators look at a number of options on this front.
Twenty-six states and the District of Columbia have earned income tax credits.
Property Taxes – The Legislature may freeze the basic levy property tax so that the rate doesn’t decrease as property values rise. This would build on the inflationary adjustments made in 2015. The basic levy is the state-mandated tax used for public schools. Utah Foundation research found that the effects of tax and policy changes over the past 20 years have resulted in annual, inflation-adjusted reductions in revenue of over $600 million from the basic levy property tax. New revenues would fund education.
We anticipate that these issues will be among our Priority Votes for the session in an effort to modernize our tax code, while also enhancing education funding.
Updating the Motor Fuel Tax – S.B. 276 updates the gas-tax to begin indexing in the next few years, as was intended in 2015. The bill will also dedicate the equivalent of 35% of any future revenue generated beyond 29.4 cents per gallon to reduce state sales tax dollars going into the Transportation Investment Fund. This will allow more legislative flexibility to reduce general fund earmarks to use for other priorities, specifically education, with a net-neutral to net-positive effect for transportation funding.
We support this bill as one of our Priority Votes for the session.
Making our Tax Code More Competitive:
Corporate Tax Apportionment Reform – There are several bills (H.B. 377, S.B. 229, S.B. 132) which seek to reform the state’s apportionment formula. These advance expanding single-sales factor to more businesses in the state, this type of apportionment formula benefits companies that invest in Utah and export goods and services.
We anticipate one, or some, of these proposals will be amended and advanced as part of the final deal on tax reform and are reserving our full support till we understand the implications of such amendments.
Collection of Remote Sales and Use Taxes – S.B. 110 advances two concepts of “nexus” to require online retailers to collect use taxes due by Utahns. Firstly, the bill mimics laws from Alabama and South Dakota’s “economic nexus” which instead of focusing on physical presence, sets a bright-line sales threshold. Both of these states are collecting revenue from these proposals. The second provision is an “affiliate nexus” or “click-through nexus” provision, which relates to web-traffic within a state that generates online sales. The state may be challenged in court on these provisions.
We support this is bill as one of our Priority Votes for the session.
Another bill, S.B. 83, also addresses these issues by imposing notice and reporting requirements on certain sellers that do not collect and remit sales and use tax for certain purchases. This is similar to a Colorado law upheld in the federal district court with jurisdiction over Utah. We are also supportive of this bill.
**As a reminder, the Salt Lake Chamber has extensive principles on this issue. Over the past several decades, Utah’s sales tax base has been eroded due to changing purchasing patterns, the digitization of goods, legislated exemptions and remote sales. The Office of the Legislative Fiscal Analyst estimates in FY2016 $227 million in sales taxes could remain uncollected from online sales. We have supported these bills under these principles. Especially without federal action, we support the Legislature setting to set a clear standard that the significant financial burden on the state of Utah and its local governments is unacceptable. **
Tax Exemptions for Manufacturing Inputs – S.B. 197 in its original form addressed the unfair sales tax penalty on manufacturing inputs which last less than three-years of useful life. This is the right policy for the state of Utah. However, due to the overall cost, the bill now is limited to exempting sales taxes on manufacturing inputs for refineries that upgrade to produce Tier-3 fuels. Utah’s Division of Air Quality estimates advancing Tier-3 fuel will immediately reduce vehicle emissions by roughly 7 to 11 percent. This this bill enhances Utah’s overall competitiveness and significantly improves our air quality.
We are supportive of the bill as one of our Priority Votes for the session.
Making our tax code fairer:
Studying Exemptions and Incentives – Over the next year, H.B. 25 will allow the legislature to study many of the more than 170 exceptions to the tax code and inducements to incentivize behavior. The bill also establishes the Economic Development Legislative Liaison Committee (EDLLC) to improve coordination and review of our incentive programs. We support the study aspects of the bill and will be working with stakeholders to ensure the EDLLC enhances, and does not inadvertently impede, the effectiveness of our incentive programs.
Services Based Economy – There is a slim possibility that a bill could also be released as part of an overall package to address the portions of the largely untaxed service sector. Select examples include lobbying services, personal care services (haircut, nail salon, massage, etc.) carpet cleaning, health clubs, tanning salons, telemarketing services and others. In addition to these examples, amore extensive study ought to be expected on professional, medical, construction and advertising services in the years ahead.
If you have questions about these proposals please contact Michael Parker via e-mail at email@example.com