Utah Legislative Update: February 18, 2020
As we reach the midpoint of the 2020 Utah Legislative Session, the state budget has emerged as this year’s theme. In early December 2019, the Legislature met in a Special Session to pass comprehensive tax reform that included several income tax cut measures, an expansion of sales tax to a few services, and restoration of the full state sales tax rate on food. The resulting tax reform bill ended a nearly year-long tax reform effort. However, a ragtag group filed a citizen referendum shortly after the bill was passed to ensure the tax bill appears on the November 2020 ballot. Despite the holiday season, the group managed to meet the signature threshold by using the return of sales tax on food as the rallying cry. Faced with the inability to craft a 2020 state budget while the awaiting a final voter decision in November 2020, legislative leadership made the decision to open the 2020 General Session with a repeal of the Special Session tax bill to return the state budget to the status quo. The repeal bill (HB185) was passed on the second day of the session and signed by the Governor on the third day.
The failure of tax reform efforts means Utah’s budget in the 2020 session will again feature significant revenue growth in the Education Fund (state income tax) while the General Fund (sales tax) revenue growth remains modest. There is nearly $726 million in revenue growth in the Education Fund, which is constitutionally earmarked for Public and Higher Education. The General Fund has only $128 million in revenue growth, yet is tasked with funding transportation, Medicaid, criminal justice, state parks, environmental quality, and economic development. The imbalance between the two funds means that while teachers will likely see raises, Highway Patrol Troopers and state employees will likely see only modest cost of living increases in a booming economy with 2.5% unemployment. The imbalance between the two budget funds also has led creative legislators and lobbyists to convert any spending bills or tax incentives to income tax credits rather than sales tax exemptions.
Many components of the comprehensive tax bill have been introduced as individual components bills, such as an exemption on social security income and an income tax cut for low income families. Governor Gary Herbert is retiring at the end of his term and has indicated that he views the next try at tax reform as a job for the winner of the 2020 Gubernatorial race. The sentiments of State Senate Leadership seem to signal agreement with the Governor that no tax reform efforts will be undertaken in the 2020 session. However, State House Leadership has cautioned that the structural imbalance between the Education and General Funds is likely to grow and waiting for a solution that rebalances revenue should not be delayed until the 2021 session.
Final revenue estimates to be released at the end of February may be the deciding factor on whether the sales tax growth in the wake of the 2018 Main Street Fairness and Marketplace Facilitator reforms can provide enough growth in the General Fund to prop up the bulk of state spending without other tax interventions. Either way, the rain cloud of tax reform and budget hangs over the 2020 session, dampening its mood and pace.
Utah Legislative Update: January 23, 2020
By Kate Bradshaw and Billy Hesterman
Governor Herbert and Legislative leadership announced Thursday morning that the recent tax bill passed in December’s special session (SB 2001) will be repealed.
In a joint statement, the Governor, House Speaker Brad Wilson, R-Kaysville, and Senate President Stuart Adams, R-Layton, explained that the bill must be repealed so the Legislature can craft a state budget without the threat of having to redo the budget after the people vote on the bill in November.
Following passage of the bill, a referendum effort has taken place to put the bill on the November 2020 ballot for the people to either approve or repeal from state law. More than 115,000 signatures were needed to place the bill on the ballot, as well as a certain number of signatures coming from 15 of Utah’s 29 counties, and it appears that those supporting the referendum have obtained enough signatures to put the bill before the people. Rather than wait for the people to vote on the legislation, Herbert, Wilson, and Adams have determined it is best to repeal the bill now and move forward.
The statement explained that legislation to repeal SB 2001 will be introduced on the first day of the 2020 legislative session, next Monday, and is expected to pass both chambers and be on the Governor’s desk for his signature by the end of next week.
“The original challenge we worked to address lies before us still,” said the leaders in the released statement. “Crafting the right policy is critical to our state’s long-term success. Utah has never shrunk from a challenge and, working together, we will chart the right path forward. We will take time to reset and address this issue in the future in a way that allows all Utahns to fully understand the challenge we face, engage in the debate over the best solutions and, ultimately, enact policy that best positions Utah for decades to come.”
What this means for now is Utah taxes will remain at their current status prior to the passage of SB 2001. It is unclear if lawmakers will attempt to make any tax changes this year in light of the backlash from SB 2001.
Utah Legislative Update: December 19th, 2019
The Utah Legislature gave final approval to the tax bill produced by the Tax Restructuring and Equalization Task Force on December 12th.
The final legislation is similar to what was approved by the task force with slight changes made in the Utah Dependent Exemption which calls for a rebate for 2019 individual filers that is equal to approximately half of the per dependent credit amount which will be paid the first quarter of 2020. It also adjusted the grocery tax credit, which was created to offset the cost of increasing the sales tax charged on unprepared food. The grocery tax credit will now also include a payment in July to all income tax filers below 100% of the federal poverty level.
These two additions are one-time payments to individual taxpayers only available in 2020.
The final legislation contains the following:
- Reduces the individual and corporate income tax rate from 4.95% to 4.66%
- Increases the Utah Dependent Exemption amount per dependent from $565 to $2,500
- Allows joint filers with no dependents to claim one exemption
- Create an income tax credit for social security income
- Create a grocery tax credit for low-to-middle income residents to offset the increase of the sales tax on unprepared food (this credit is ongoing as opposed to the grocery tax change referred to at the beginning of this email which is a one time payment to taxpayers)
- Exempt menstrual products
- Exempts consumable used in repair, cleaning and maintenance of tangible personal property from the sales tax base
- Increase the sales tax rate on unprepared food from 1.75% to the standard state rate of 4.85%
Creates an Earned Income Tax Credit (EITC) for individuals identified by the state as suffering from intergenerational poverty
Repeals certain sales tax exemptions:
- Electricity to ski resorts
- Vehicles used for temporary sporting events
- Admissions to college athletic events
- Textbooks purchased by a student (not including a college bookstore; seller sales primarily textbooks)
- Primarily unassisted cleaning of tangible personal property
- Use of unassisted amusement devices
- Vending Machine food sold for $1 or less under certain circumstances
- Certain car washes
- Sales to a public transit district
- Fuel sold to a common carrier railroad and used in a locomotive engine
- Newspapers or newspaper subscriptions
- Address list or database used to send direct mail
- Database access for viewing or retrieving information
Construction materials for life science research facility (Exemption repealed in 2027)
Tax on Fuels:
- Adds state sales tax to motor fuel purchases
- Tax would be imposed at the distributor level on the average daily rack price of gasoline (calculated annually) at the existing state sales tax rate (4.85%)
Increases the cents per gallon tax on Diesel by $0.06 in 2020 and then $0.10 in 2022
Broadens the sales tax base by charging sales taxes on certain services:
- Installation of tangible personal property when part of a taxable sell but not when installed permanently to real property
- Pet boarding, pet grooming, and pet daycare services
- Personal transportation service
- Motor vehicle towing
- Parking lots and garages
- Dating referral services
- Identity theft protection
- Streaming media
- Shipping and handling when part of a taxable sale
- Electronic security monitoring of real property
Increase the state motor vehicle rental tax from 2.5% to 4%
You can read the full legislation here: https://le.utah.gov/~2019s2/bills/static/SB2001.html
This concludes the work of the Tax Task Force for 2019 but Senate President Adams did state the task force will continue to meet in the future to discuss potential changes to Utah’s tax code. We expect that in the 2020 General Session the legislature will consider additional tax changes that will involve removing the constitutional earmark of income tax for education and instead allow property tax changes for funding education. Those changes could include allowing the property tax levies that fund education to increase automatically without requiring the taxing entities to hold truth-in-taxation hearings with the public prior to those increases. It is unclear how much support there will be for this plan, but that is one proposal that is being discussed.
November 7th - Tax Restructuring Task Force
The Tax Task Force finally unveiled the working draft of the tax reform bill yesterday in advance of the late afternoon task force meeting on Thursday, November 7th. The meeting featured some feisty comments, particularly from Sen. Curt Bramble, about the lack of time to properly review the draft bill in advance of the hearing and that one media outlet seemed to have the details of the bill before members of the task force. The staff presented the bill and the task force members were able to ask questions of the staff and co-chairs on various policy issues in the bill. The public was invited to offer comment at the end of the meeting and many organizations and individuals did so. The bill draft on the State Constitutional Amendment for the Education income tax earmark was not presented and the co-chairs asked that comment on that issue wait for a later meeting.
The meeting adjourned with no motions taken to adopt the draft or to make amendments. Sen. Lincoln Fillmore made the motion with an explanation that the draft bill had evolved from the October proposal and since the task force members had not had the bill early enough to prepare formal amendments, any amendments would be on sentiment not substance and were therefore unhelpful to the process. He proposed delaying amendments to the next meeting so they could be prepared by legislative staff and address actual portions of the bill.
The bill was largely what had been presented and adopted in the Oct. 22nd meeting with a few notable changes I’ve listed below:
You can access the full text of the bill draft here: https://le.utah.gov/Interim/2019/pdf/00004761.pdf
A short summary of key provisions of the bill prepared by the legislative staff can be found here: https://le.utah.gov/interim/2019/pdf/00004769.pdf
A list of the current tax exemptions that the bill would repeal and their associated dollar value can be found here: https://le.utah.gov/interim/2019/pdf/00004770.pdf
The targeted income tax cut was increased to $80 million with a rate of 4.58% from the earlier proposal which was $75 million tax cut.
Maintenance and repair of real property is still included in the expanded sales tax, but with an exclusion for capital improvements. Specificity around what is or is not a capital improvement was discussed and is a part of the bill that is likely to evolve. IREM has taken the postion of asking the Commercial Properites are exempt from this provision due to the the fact that commercial property owners are not “end users”. A failure by the legislature to exempt services provided to commercial properties from any contemplated new taxes would result in double taxation through tax pyramiding. You can view the letter to legislators here. If you would like to add your signature to the letter email, [email protected]
The trucking industry brokered a compromise on diesel fuel from the earlier proposal to instead create a new excise tax on diesel of $0.10 per gallon rather than accept the repeal of the existing sales tax exemption on diesel.
UDOT would be required to change the occupancy threshold for the HOV lanes to 3 people and alternative fuel vehicles would no longer be able to use the HOV lanes with the required number of passengers and/or a HOV pass.
A significant change that had not been discussed in the October meeting was a proposal to decrease the rate and cap the vendor discount (this is the portion of sales tax a vendor is allowed to keep to offset the burden of being a tax collector). The current rate is 1.31% of sales tax uncapped. The draft bill proposed changing the limit to 1.2% and capping the vendor discount at $400,000 of sales tax collected.
There is one additional hearing currently scheduled for November 21st at 5:00 p.m. but the co-chairs did hint that additional hearings could be added with early December still the target for a Special Session.