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Efforts Towards Major Tax Reform in Utah Stalls, Work to Continue Throughout the Year

Throughout the 2017 General Session your Taxpayers Association was working alongside legislative leaders to put major tax reform efforts in place that would broaden and strengthen Utah’s tax base, while lowering the overall rates on sales, income, and corporate income taxes.

Unfortunately, it was announced late in the Session that many of these proposals would not be addressed during the 2017 General Session. However, legislative leaders announced that these discussions would continue in the coming months, and your Taxpayers Association will be heavily involved in those discussions.

Here’s a summary of the proposals that were discussed during the Session.

The first of these efforts proposed was to make Utah’s income tax more flat. Lawmakers had been looking at various scenarios that would phase out credits and deductions and lower the overall rate. If done correctly, this could play a role in attracting new business to the state of Utah, while keeping more money in Utahns’ wallets.

One key area within the income and corporate income tax reform is a pillar of the Utah Taxpayers Association’s Utah 2.0 initiative – expansion of single sales factor apportionment for the corporate income tax. This change in the way Utah calculates the corporate income tax would have decreased the tax burden on Utah businesses, by only using sales that occur within Utah to calculate the income taxes due to the state.

In doing this, Utah would be sending the message that if businesses choose to locate in Utah by bringing their jobs and purchasing property in the state, their overall tax burden will be lower compared to other states.

This isn’t just good for business, all Utahns would benefit from this apportionment change through the creation of new jobs. These new employment opportunities would add to Utah’s personal income tax base that funds the education system, as well as ensuring that those students and the growing population have high-paying, quality jobs in the future.

We were at the forefront of discussions on expanding the single sales factor apportionment to additional Utah businesses. The Association has led efforts to ensure this expansion is targeted to protect businesses that add great value to the state and implemented to prevent winners and losers being created in the tax code.

Another proposal would have aligned the sales tax on food with the general statewide sales tax. Currently, Utah charges 4.7% sales tax on all purchases, but a reduced 1.75% rate on unprepared food. Legislative leaders had floated the idea of increasing the tax charged on food but lower the overall rate to make the change revenue neutral to the state.

The reduced rate on unprepared food took place in the mid-2000’s during Governor Huntsman’s tax reform package. Your Taxpayers Association expressed concerns about bifurcating the sales tax rate at that time, as food is a stable base for the sales tax.

This stability prevents a need for tax increases when economies ebb and flow. The Association supports an alignment of the two taxes as long as the move is revenue neutral overall to the state.

Unlike the previous two proposals, changes to Utah’s gas tax passed during the legislative session.

In 2015, the Legislature increased the gas tax by five cents, and also put in place an index that allows the tax to rise an additional ten cents as the price of gas increases. That index included a threshold based on the average wholesale price of fuel. Once that threshold is passed, it would trigger the index and allow the state
to increase the gas tax rate as the price of gas increases. That threshold is $2.45/gallon (wholesale price). The Legislature is looking to lower that threshold to $1.78 to allow for the index to start sooner so to allow the gas tax to increase.

The Taxpayers Association argues that user fees, such as a gas tax, should more fully fund Utah’s road systems. Currently, Utah’s general fund, subsidizes the state’s roads by more than $500 million. Allowing this index to take effect will allow the Legislature to decrease its dependence on general fund dollars to
build and maintain roads.

Also considered were bills that included freezing the statewide property tax levy; which would allow Utah’s schools to collect additional funding through a tax increase on Utah’s property owners, eliminating the sales tax penalty on business inputs that last less than three years for manufacturers, and equalizing the playing field among all retailers by requiring out-of-state online retailers to collect and remit sales taxes on all purchases made by Utahns.

It is vital that tax reform is done in a thoughtful and strategic manner to ensure Utah’s economy remains strong for years to come. We will push for sound principles of taxation when any of these issues come up throughout the year and into the 2018 legislative session.



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