Lawmakers are looking at repealing exemptions, taxing more services and levying excise taxes as they seek solutions to what they believe is a broken sales tax structure.
And no part of the economy should be excused from contributing, state Sen. Lincoln Fillmore told Senate Democrats on Tuesday.
“I am trying to unify the Legislature behind the idea that nobody is that special, and we need to make sure that all the activity in the economy generates and supports the services that are needed in our economy,” said Fillmore, who’s part of a work group to design tax reform legislation.
The stakes could be even higher in view of new, disheartening state revenue numbers. Sen. Jerry Stevenson on Tuesday said the new figures shaved $300 million or so from the state’s projected $1 billion budget surplus.
But the bad news could give tax reform a boost this session, Fillmore, a South Jordan Republican, said in an interview following his presentation to the Senate Democratic Caucus.
“Maybe that provides some impetus and helps everybody understand that what we’re dealing with is really an urgent problem, and it’s an urgent problem with immediate consequences,” he said.
A bill to implement tax reform is still in development, Fillmore said during his presentation. But the work group has looked at repealing 16 of the state’s 88 sales tax exemptions. The largest and most controversial of those would be for hay, water and vehicle trade-ins, he said, and eliminating all 16 could generate an additional $119 million if sales tax rates were to remain at current levels.
He also talked about expanding the sales tax to services, offering the construction industry as one example of a sector with significant untapped revenues.
A sales tax expansion might not be appropriate in all parts of the economy, such as for financial services, Fillmore said. In those cases, lawmakers might consider excise taxes as one possible alternative.
Lawmakers have talked about pairing a sales tax expansion with some type of cut, whether it’s to income taxes, sales taxes or some combination of the two. Gov. Gary Herbert in his State of the State address proposed slashing the state’s sales tax rate from 4.85 percent to 1.75 percent; Fillmore said he doesn’t believe a reduction this dramatic is possible and would require imposing taxes on real estate transactions, health care and gasoline.
During Tuesday’s meeting, Sen. Gene Davis pushed back on the idea that lawmakers should accompany tax reforms with any cuts at all.
“If you have the need, why are you lowering the rate?” the Salt Lake City Democrat asked.
Fillmore said the goal of the tax changes is not to “generate scads more money” but to create a healthier tax structure that can adapt to a changing economy.
The principles that have steered the work group’s discussion have become talking points for state leaders in recent weeks — most agree on the need for broadening the tax base and putting the sales tax on a stronger revenue trajectory. The revenue source has weakened, they say, as consumer spending has shifted from taxed goods to largely untaxed services.
Making matters worse, the state will soon lose one of its primary tools for propping up the general fund, which is supported by the sales tax. Fillmore estimated that this budgetary flexibility could vanish within the next couple years.
Fillmore said he anticipates a tax reform bill — which will be sponsored by Republican Rep. Tim Quinn of Heber City — will be drafted by next week.