Gov. Gary Herbert, Senate leader call for Utah to follow feds’ lead on taxes, but it doesn’t look like that will happen

Lawmakers would serve the state well to prioritize changing the tax code while they undertake a six-week policy blitz this year, Gov. Gary Herbert told them in his annual State of the State address Wednesday night.

Senate President Wayne Niederhauser, too, called it a “once in a multidecade opportunity” for Utah to piggyback off the federal tax bill Congress passed last month and revamp the state tax code for the first time in more than 10 years.

But major tax change would appear to be dead on arrival in this legislative session.

There’s too little time to vet proposals that have yet to be written, especially when tax experts are still trying to figure out the effects of the massive federal tax law.

“You’ve got to have public buy-in, and there’s got to be transparency on what you do,” said Sen. Curt Bramble, a Provo Republican and certified public accountant who sits on the Senate’s tax committee. “Just from that perspective, the tyranny of the clock, it would seem difficult to have something comprehensive and have it be refined and ready for prime time if we haven’t even drafted it yet.”

The same federal tax bill that gave lawmakers an opening to tinker with taxes in an election year also left analysts struggling to understand what the federal changes will mean for Utah’s general fund. It will take about two years for the Internal Revenue Service to interpret the new and complicated law, leaving some uncertainty for the law’s effect on Utah.

Legislators are tamping down expectations about the chances of any major change beyond tinkering around the periphery of the state tax code.

Sen. Howard Stephenson, the Draper Republican who chairs the Senate Tax and Revenue Committee, said he agreed with Bramble’s outlook.

“The governor is really interested in taxing services and lowering the rate,” Stephenson said. “Whether we can accomplish that this session, I don’t know.”

During his annual address, Herbert said lawmakers “already know that we need to update our tax code.”

“You already know that we need to strive to keep tax rates low and revenue reliable by broadening the base,” Herbert told the gathering of lawmakers Wednesday night.

The Salt Lake Chamber, one of the state’s leading business groups, called for updating the tax code to adapt to an economy in which people rely more on services that aren’t subject to sales taxes instead of hard goods that are taxed.

“It’s a question of political will,” said Michael Parker, who works on public policy issues for the Salt Lake Chamber. “We have known the answer to this for a long time.”

Taxing some of the myriad services, from health care to lawn care to haircuts, that don’t charge sales tax now would add a stable revenue stream and broaden the tax base. But it’s also politically unpopular. House Speaker Greg Hughes, R-Draper, says it’s unlikely to happen before the end of the session.

“I don’t think it’ll happen this year. I don’t,” Hughes told The Salt Lake Tribune. “The more you have, you can lower rates and broaden the base, I think there’s a way to do that. But I have a hard time believing we’re going to roll over the top of some of those stakeholders” whose services aren’t taxed now.

Instead, legislators might spend the next five weeks trying to ax some of the more than 100 tax breaks they’ve given to people, businesses and industry over the years, even as they’re debating whether to add more.

There are also sales made online that could mean more money in the state’s coffers — but only if tax is collected. The state is watching a case in the U.S. Supreme Court that will determine the future of online sales tax collections before changes, if any, would be made.

Several Republicans have identified various tax cuts for businesses they say will burnish Utah’s image as a state that’s friendly to large employers. Lawmakers are considering lowering the taxes paid by international businesses that move to Utah by implementing what’s known as single sales factor.

“That’s not overall reform,” Stephenson said. “That’s for us to remain competitive.”

Instead, legislators might spend the next five weeks trying to ax some of the more than 100 tax breaks they’ve given to people, businesses and industry over the years, even as they’re debating whether to add more.

There are also sales made online that could mean more money in the state’s coffers — but only if tax is collected. The state is watching a case in the U.S. Supreme Court that could determine the future of online sales tax collections before changes, if any, would be made.

Several Republicans have identified various tax cuts for businesses they say will burnish Utah’s image as a state that’s friendly to large employers. Lawmakers are considering lowering the taxes paid by international businesses that move to Utah by implementing what’s known as single-sales factor.

“That’s not overall reform,” Stephenson said. “That’s for us to remain competitive.”

Cutting exemptions and taxing services would “be wholesale reform in my mind,” said John Valentine, chairman of the Utah Tax Commission and a former legislator who spent 25 years in the House and Senate.

The commission is still analyzing the new federal law, which President Donald Trump signed late last year, but early estimates show that the state may actually bring in up to $80 million more as a result of the law. That could lead lawmakers to push for possibly lowering the personal income-tax rate, which is 5 percent.

“I believe that both the House and Senate members in general would be motivated not to have our population pay $80 million in new taxes just because of federal reform,” Niederhauser told The Tribune.

But Hughes said he doesn’t want to create “an appetite with the public over tax reform,” noting the challenges, including the uncertainty over exactly how much federal changes will bring.

“In such a short session coming into this right now, that’s a little bit more of an unknown, for me at least,” said Hughes, who added that there will be tax bills, but “I don’t think they’re widespread reform, so to speak.”