What is the purpose of the task force?
The Tax Restructuring and Equalization Task Force is charged with making recommendations to the Legislature on how to ensure the state has sustainable, adequate, and flexible funding to meet the needs of Utah citizens. These needs include education, public safety, social services, transportation, recreation, and environmental quality. The task force will hold town hall meetings around the state to gather public input on these important issues.
Why is tax restructuring and equalization necessary?
Utah is growing and changing at a rapid pace, and its tax system isn’t keeping up.
In the state’s modern economy, people purchase more services than goods. Unlike goods, most services are not subject to sales tax. The state of Utah uses sales tax revenue to fund most government services, including the programs that are most impacted by the state’s rapid growth—transportation, environmental quality, housing, and recreation.
On the other hand, income tax revenue in Utah is growing much faster than the economy. Income tax is more volatile than other revenue streams, and while sales tax can be used to fund any government service, including education, income tax can only be used to fund education.
Is Utah’s sales tax base declining?
No, Utah’s sales tax base is not declining. It’s growing but not as fast as the state’s economy. Over the 20 years between 1997 and 2017 Utah’s sales tax base has increased by 4.6% per year (Average Annual Growth Rate (AAGR)); however, the sales tax base is growing slower than Utah’s economy. Over that same period, personal consumption expenditures (5.5% AAGR), personal income (5.8% AAGR), and gross domestic product (5.8% AAGR), all measures of Utah’s economy, have grown faster.
Is Utah’s tax base keeping up with the economy?
Over the long-term, Utah’s sales tax base is not keeping up with the economy. Two measures of the state’s economy – personal income and state-specific gross domestic product (GDP) – both increased at an average annual growth rate of 5.8% between 1997 and 2017. Taxable sales – or Utah’s sales tax base – grew by 4.6% per year on average in that same time period. As a result, Utah’s sales tax base has declined from 58.0% of personal income in 1997 to 45.3% of personal income in 2017. Similarly, the sales tax base has declined from 45.4% of GDP in 1997 to 36.8% of GDP in 2017.
What about Utah’s revenue surplus?
During the 2019 General Session, revenue forecasters predicted $1.1 billion in revenue growth over an 18-month period, including about $160 million in surplus collections from the prior fiscal year. This new revenue came disproportionately from income tax, highlighting the underlying imbalance in our tax structure. Because revenue is strong, now is the preferred time to address the revenue source imbalance while enacting a tax decrease and avoiding a future crisis.
Is there a “fiscal cliff”?
In this case, “fiscal cliff” is a term Governor Gary Herbert used to describe the point at which 100% of higher education will be funded from the income tax. Since 1997, higher education has been funded by both sales tax and income tax revenue. This flexibility in how higher education is funded has been used to deal with the imbalance in our tax structure. Once higher education is fully funded from income tax revenue, the Legislature can no longer address disparate income tax and sales tax growth rates by reducing General Fund (sales tax) money to higher education and replacing them with Education Fund (income tax) money. Governor Herbert’s budget recommendations would have presented an immediate fiscal cliff, but the Legislature enacted a different budget and shifted near-term funding sources to create some additional time to address the imbalance.
On what does Utah state government spend sales tax revenue?
The Legislature has a lot of flexibility in how it spends state sales tax revenue. The main uses of sales tax revenue include law enforcement and the courts; Medicaid, child care, and other social services; air quality, water quality and other environmental protections; transportation, trails, and access to recreation; housing and homeless services; and some higher education.
What are the options to address the challenge?
There are many options to address the issue, and they fall into four main categories: adjust tax rates, modify the tax base, eliminate statutory and constitutional restrictions on how revenue can be spent, and reduce government services and investments.
Can the Legislature and Governor resolve the challenge by cutting spending?
The Legislature and Governor could temporarily avoid the consequences of the underlying challenge by reducing spending, but that won’t change the imbalance among revenue sources.
Are the Legislature and Governor raising taxes?
The Legislature and Governor are addressing a revenue imbalance among tax sources. Some possible solutions would raise taxes on certain transactions and lower them on others, but the Governor and Legislature are proposing the decreases be greater than the increases resulting in an overall tax cut.
What’s happening with HB 441 from last session?
HB 441 was a bill the Legislature considered during the 2019 General Session that would have addressed the imbalance in the state’s tax structure by broadening the sales tax base to include most services, lowering the sales tax rate, and providing income tax relief through lower rates and the expansion of certain credits and exemptions. HB 441 did not pass. The task force may choose to consider some of that bill’s provisions, but the task force plans to consider all other options as well.
Do other states tax services?
Almost all states with sales taxes—including Utah—tax some services. For instance, Utah citizens pay sales tax on dry cleaning and car repair services. A few states have broadly-based taxes on most services including Hawaii, New Mexico, and South Dakota.
How can I share my thoughts about this issue?
Citizens are encouraged to participate in task force town hall meetings and to communicate with the task force via its home page. Voters should also contact their elected legislators vai https://le.utah.gov
Where and when will the town halls be held?
Eight town hall meetings will be held around the state in the following locations:
Brigham City (June 25)
Kearns (June 27)
St. George (June 29)
Richfield (June 28)
Davis County (July 8)
Roosevelt (July 9)
Moab (July 20)
Lehi (July 30).
For details, visit the the home page of this site.
When will there be a special session?
No date has been set for a Legislative Special Session. The Governor and Legislative leadership will determine the need for a special session after the task force has completed its work.