There are few issues that gain the attention of the business community more than taxation and changes to the tax code. As we begin 2020, with the legislature’s recent action in this area, and significant public discussion about what the bill actually does and does not do, the Salt Lake Chamber would like to provide a summary of the new law and how it will impact you and your business.
Of significance, the new law:
- cuts tax rates;
- creates tax exemptions for some and limited increases for others;
- offers tax benefits for low income individuals;
- raises the existing sales tax rate on food from 1.75% to 4.66%;
- projects an anticipated $348 million tax savings through a cut in the personal and corporate income tax rate from 4.95% to 4.66%;
- removes $18 million in taxes on social security;
- enacts an earned income tax credit;
- increases the dependent exemption from $565 to $2,500 per person; and,
- provides joint filers with no dependents the ability to claim one exemption where they have not before.
The area that has received the most attention is the increase in the existing sales tax rate on food, and understanding the legitimate concerns that change would raise, the Chamber worked with focus groups and Chamber membership following the 2019 Legislative Session to recommend that low-income individuals and families be held harmless by any increase. The law addresses our concerns. Food provided by SNAP, WIC, and charitable organizations is not subject to food tax. Additionally, low income individuals and families will receive a $125 per person grocery tax credit. Portions of that credit will be made available beginning in July.
The law places a sales tax on items that have previously been exempt. Services like ride sharing, software, streaming services, and pet grooming will now be subject to sales tax. Taxing these services is intended to modernize Utah’s tax system by reflecting our changing economy and capturing items that were once products and are now services.
Additionally, the law addresses the enduring problem with the way transportation is funded in our state. It stops the practice of funding transportation by taking more than $600 million in sales tax revenue and instead will fund the system through a sales tax on motor fuel. Currently gas tax accounts for only about half of the funding dedicated to transportation. The Chamber has long supported moving to a more user-based funding system for transportation. The phased in sales tax will help us move in that direction.
Chamber members have asked about what a referendum pertaining to the new tax law would mean and how it would affect its implementation. If sufficient signatures are gathered to call a referendum, the entirety of the law would be placed on hold until a general election is held on in the fall. The effect would be that none of the provisions of the law could go into effect until the outcome of that election. If the vote fails, the provisions of the bill will go into effect at that time and the new tax rates would presumably be retroactive to the dates established in the bill.
If the referendum vote is successful, the law will not go into effect at all and the legislature would begin the process of once again restructuring the tax code with all options on the table, including those provisions the Chamber worked to keep out of the bill. Everything, including tax pyramiding on business inputs and taxing business services, would again be part of the conversation. The process cannot remove one part of the bill without removing all of it.
A successful referendum to remove the sales tax rate on food will also bar the implementation of a lower income tax rate, the cut on taxes on social security, and the increase in the dependent exemption, among other provisions.
We recognize the continued need for the legislature to address imbalances in our tax structure as Utah prepares for the future. We must have a stable foundation for our economy to continue to thrive. The new law addresses the concerns the Chamber raised through the interim and incorporates the majority of the Chamber’s suggestions. We recognize that, like all policy, it needs constant work and can always be improved.
We also know that for you and your businesses, certainty in the law is nearly as important as the policy itself. It is difficult to plan and run a business without an understanding of the rules or confidence in consistent economic objectives. For this reason, the Chamber is opposed to the current referendum effort, firm in our belief that changes are better made through the legislative processes. We also believe that it is detrimental to businesses and families to leave them operating under suspended tax laws that could or could not be enacted retroactively.
We know this will be an evolving process. We are closely watching the process, will remain constructively engaged and keep you updated concerning its developments–always welcoming your continued counsel and support.
Please contact our policy team if you have any additional questions.
You can see a list of impacted exemptions and services here.