Back in 2008, I was interviewing then-Gov. Jon Huntsman when he caused a bit of a stir. Fresh off a years-long process to flatten the income tax, the governor now was setting his sights on expanding who would have to pay sales tax.
He was proposing taxing doctors, lawyers, accountants and even carpet installers — service providers who have traditionally been exempt.
"Ultimately, we've got to come to grips with the reality that the service sector is increasingly a big part of our economic base and it's left out of the tax regime," he said.
It wasn’t a new idea. It had been kicked around for years. In the decade since proposals have surfaced again and again and each time any serious effort was killed before it even started to take shape.
Now, Gov. Gary Herbert is the latest governor to push the Legislature to tax services. The money it would generate, Herbert suggests, could be used to slash the sales tax on other purchases.
In tax vernacular, it broadens the base by taxing more transactions but lowers the rate. It makes the tax revenues more stable and recession-resistant.
On the whole, it is a very good idea. Not only that, it’s a reform that is badly needed and has been going back to the Huntsman years.
That’s because our economy is changing. Utahns are spending less money on tangible goods — things that are generally taxed — and a lot more on services.
According to research by the University of Utah’s Gardner Policy Institute, in 1960, 53 percent of household spending was on goods. In 2017, that figure had fallen to 31 percent. And, during that same period, the percentage spent on services has grown from 47 percent up to 69 percent.
Now, we do tax some things that are traditionally considered services, things like hotels, dry cleaning and car repairs. Utah taxes 64 of the 176 sectors that generally fall into the “services” category, according to the Federation of Tax Administrators, which is about the national average.
But if you go get a haircut, you won’t pay sales tax. Or if you get a massage, go tanning, hire a landscaper or cleaner. If you’re building a house or if you’re buying a house, there’s no sales tax. The same is true if you hire a lawyer or visit a doctor or have your appendix removed.
Part of the problem has been that broadening that sales tax starts to mess with some of the most influential entities on Capitol Hill — lawyers, doctors and homebuilders. You can see why past proposals never got much traction.
It’s also because sometimes there is a logical argument not to tax certain segments of the economy.
Rep. Steve Eliason, who co-chaired a tax reform working group, said he wouldn’t support imposing a sales tax on health care expenses or homebuilding. He argues health care and housing costs are such essential needs and the costs are rising so fast already that tacking on a sales tax further burdens families.
How about, as Herbert has suggested, taxing cosmetic surgery? An idea worth considering, for sure. In fact, an advantage of the sales tax is it tends to be fairly progressive inasmuch as wealthy Utahns who spend on big-ticket items or luxury purchases pay their share. It’s why the governor has frequently cited limousine rides as another area ripe to be taxed.
But in an increasingly complex economy, there are about a million different moving pieces and special considerations.
Complicating things further, there are more than 90 specific sales tax exemptions in Utah law, special carve-outs that maybe made sense at the time and maybe don’t right now. Here’s one that hits close to home: Since 1937, newspapers and newspaper subscriptions have enjoyed a sales tax exemption. It saves publishers about $2.4 million.
Is it worth keeping? I think it is. But what about purchases of tickets for the Heber Creeper historic railroad or college athletic events? These are discussions that need to be had.
It’s unrealistic to think legislators will take an idea the governor pitched in his budget in December and restructure large segments of the state’s economy by the time they adjourn in March.
Herbert didn’t bring legislators a fully baked cake — he barely brought them the ingredients. This is going to take a lot of work. But even if we don’t get sales tax reform this year, the governor deserves credit for starting — or re-starting — a conversation that we should take seriously and is long overdue.
Editor’s note: Salt Lake Tribune owner and Publisher Paul Huntsman is the brother of former Gov. Jon Huntsman.
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