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My Corner: What Every Taxpayer Needs to Know about Utah’s Current Tax Reform Process

The first wave of the Tax Restructuring and Equalization Task Force town hall-style meetings have been held and there are more to come before the Task Force sits down to fulfill its purpose. Its stated purpose when these meetings began are to “Assure sustainable, adequate, and flexible funding to meet the needs of Utah citizens, including education, public safety, social services, transportation, recreation, and environmental quality”. 

Your Taxpayers Association has attended all of the town hall meetings and intends to attend the remaining meetings.

The Task Force was established by the Utah Legislature through passage of HB 495 (Schultz, Hemmert) following public outcry against HB 441 (Quinn) when it was unveiled only ten days before the conclusion of the 45 day 2019 session. In its original version, HB 441 would have imposed hundreds of millions of dollars in tax increases and decimated the Utah economy by imposing massive pyramiding through taxes on business services. 

In his testimony at the Box Elder public hearings, Association Vice President Rusty Cannon warned the Task Force about the danger of tax pyramiding which had been a major component of HB 441.  He said any new taxes on services must be limited to final consumption. He also argued that whether the sales tax base is expanded or not, the most urgent tax policy change needed to sustain Utah’s economic leadership is to cut income tax rates. 

These meetings often begin with an introduction to the “problem” as some in the Legislature see it. Their monologuing generally lasts about an hour, leaving a paltry 90-seconds for the public to speak their minds. 

The Task Force released a two-page statement of Vision, Purpose, Principles, and Process were available to all attendees. Several members of the public who came to testify before the Task Force referred to them as they made their 90 second statements. 

Some of those testifying at the town meetings asked how a state with over a billion dollar surplus coming into the 2019 legislative session can claim a revenue problem.  Several others brought data showing that Utah state spending is growing much faster than inflation and population combined. 

I am encouraged by the eight Guiding Principles adopted by the Task Force in its organizing meeting. These principles are essentially those which have guided your Taxpayers Association over the last four decades as we have worked to establish policies to make the Utah economy number one in the nation: Competitive, Sufficient, Sustainable, Stable, Flexible, Fair, Simple, and Transparent. If the Task Force adheres to those principles we can expect it to deliver sound recommendations to the Legislature.

While the statement of Vision, Purpose, Principles, and Process is a sound roadmap for arriving at optimal tax policy, the expanded wording of Process Item (2) raises concerns because it appears to create a biased argument of insufficient funding for essential services going forward.   “Substantiate the revenue imbalance due to a shifting economy and validate the demands of current and projected population growth on the state budget for continued investment in education, transportation, water, air quality, public safety and health care.”

During my comments at the Salt Lake County hearing I presented the task force with the graph which had been presented by Taxpayers Association Board Chair Morris Jackson at the Utah Taxes Now Conference.

While Utah population over the last three decades grew 86% and K-12 Student enrollments grew by 55%, all of the taxes in the three legged stool grew much faster even in real dollars.  Inflation-adjusted state and local sales tax revenues grew by 127%, inflation-adjusted Property Tax revenues grew by 132% and inflation-adjusted combined corporate and individual income tax revenue grew by 209%. I reminded the task force that Utah has a legislatively created silo/earmark problem, not a revenue problem.

As can be seen from the chart, Utah’s property tax is recession proof due to your Taxpayers Association’s success in passing the Truth-in-Taxation (TnT) law in 1985 which limits the “certified rate” to the previous year’s property tax revenue plus new growth. This certified rate kept budgets secure even during the housing bubble recession which began in 2008. TnT also protected taxpayers over the years from excessive property tax hikes.  It caused Utah’s property tax ranking among the 50 states to drop from 24th highest in 1985 to 36th today. In spite of this, inflation-adjusted property tax revenues have grown 46% faster than Utah’s population. Does Utah have a revenue problem?

It is significant to note that inflation adjusted state and local sales tax revenue grew much faster than population (127%) in spite of significant exemptions including manufacturing equipment, mining equipment, wind & solar power generation, data centers and others.  The steep growth slope in the income tax (209%) was actually in large part due to the economic growth induced by these sales tax exemptions. Does Utah have a revenue problem?  

Important to the work done by the legislative members of the Task Force is the expertise brought by its four non-voting members.  Steve Young, an attorney at Holland & Hart, is one of the most respected sales tax experts in the state. Dr. Gary Cornia is a former State Tax Commissioner who helped craft Utah’s Truth-in-Taxation law, a nationally recognized property tax expert and recently retired Dean of the Marriott School of Management at Brigham Young University. Keith Prescott is a CPA tax practitioner who has served many years as a member and chair of the Tax Review Commission. He assisted in producing the sales tax studies of 2004, 2005, and 2009. Kristen Cox is the executive director of the Utah Governor’s Office of Management and Budget (GOMB). Previously, Kristen served as the executive director of the Department of Workforce Services (DWS) where she led an effort to reduce costs by nearly 40 percent while simultaneously improving quality during a time of significant caseload growth of almost 60 percent due to the 2008 economic recession.

These four non-voting experts are expected to make their most significant contribution to the work of the Task Force as it begins the post town meeting phase of its process.  It is important to note that Young, Cornia, and Prescott have past records suggesting opposition to business tax pyramiding.  

Cox, on the other hand has strongly supported business-to-business taxes where services are not integral to production of the product. For example, integral to manufacturing are component parts and machinery. The Governor’s Office argues that accounting, engineering, janitorial and security services, and advertising are not integral to production and therefore should be taxed.  Your Taxpayers Association’s most important task in this process will be to oppose this position. We believe that the bright line to avoid sales tax pyramiding is the IRS code on deductibility of business expenses.

The Salt Lake Chamber had also supported HB 441 during the legislative session, which called for tax pyramiding. Hopefully, the Chamber’s position has changed as the Task Force begins its process. 

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