‘I hate it’ — As grumbling about sales tax overhaul grows, Utah lawmakers work behind the scenes to refine the proposal

(Rick Egan | Tribune file photo) Jim Ferrin speaks out against the sweeping tax overhaul bill during its first public hearing in a committee meeting, Friday, March 1, 2019. Ferrin is a financial adviser who says the legislation would harm his business.

Debate on a major proposed overhaul of Utah’s tax system was postponed Tuesday as lawmakers worked to craft new language that would satisfy critics and ease reservations around a scheme to shift about $340 million in state receipts from the education fund to the less-restrictive general fund.

The bill’s House sponsor and House Speaker Brad Wilson, R-Kaysville, visited the House Democratic Caucus on Tuesday to pitch the latest variations of the tax plan, which now includes a combined $75 million cut in sales tax revenue, a three-year rollout of new taxes on service-oriented businesses, and provisions intended to maintain growing levels of funding for public education.

Wilson said it may seem counterintuitive, but the bill is in the best interest of public education despite its estimated $340 million cut to the state’s education fund. Enacting the bill, HB441, would generate an equivalent amount in new sales tax revenue to spend on higher education, he said, while establishing a tax base that mirrors the modern economy.

“We’ve been pulling money out of education for 30 years to offset that,” Wilson said. “What this bill does is it stops the need for that to continue to happen.”

But Wilson’s remarks came after a meeting of the minority party that included overt criticisms of the bill, and the process that created it. Rep. Carol Spackman Moss, D-Holladay, said she had received a “flood” of emails from small business owners objecting to a significant broadening of sales taxes on services.

(Christopher Cherrington | The Salt Lake Tribune)

Moss referred to feedback from the owner of a coin-operated car wash, whose machinery isn’t equipped to charge customers a tax, or budget hair salons where employees would likely be required to dip into their take-home tips to satisfy the law.

“A piano teacher, do they have to now charge sales tax? It’s just endless,” Moss said. “I’m really concerned about all these small local businesses that are really the heart of our economy.”

A new list of to-be-taxed services include housekeeping, pest control, computer services, even funerals.

The proposed sales tax expansion has drawn criticism from many corners of the business world — lawyers have accused the Legislature of trying to impose a “misery tax” and television broadcasters have said it could drive them out of business. On Monday, the American Society of Travel Advisors chimed in, estimating that HB441 could cost an average Utah travel agency more than $13,000 per year in new taxes.

“Travel agency revenue is already subject to income tax, both by the state of Utah and by the federal government. If passed, this proposal would make Utah one of only a handful of states in the nation to impose triple taxation of this nature,” the society’s CEO, Zane Kerby, said in a prepared statement.

The bill’s sponsor, Rep. Tim Quinn, has explained that lawmakers set out to “piss everybody off equally” in the business world so they weren’t playing favorites.

While the majority caucus’ discussions around the tax proposal have been closed to the public and news media, one Republican lawmaker inadvertently voiced his reservations about the “pressure” being applied by legislative leaders in a reply-all email sent to a large number of his House colleagues and obtained by The Tribune.

“There is some pressure being placed on legislators, especially new legislators, to pass 441,” Blanding Republican Rep. Phil Lyman wrote in response to a frustrated resident. “I don’t like the bill and have spoken against it. It will be an interesting debate for sure!”

Lyman later sent a follow-up email to his colleagues saying that he meant no offense by his remarks and looks forward to a healthy process as the bill moves forward.

Asked about it by The Salt Lake Tribune, Lyman responded, “Since sending the email, those who are most passionate about passing the bill have let me know that they will not ask me to do anything but vote my convictions. I certainly plan to speak on the bill when it is brought up. This is a big bill that has had a ton of work done on it.”

Quinn said in a Tuesday interview that the forthcoming bill update contains a new, bifurcated rollout plan for the proposed sales tax reforms.

For all transactions that are already covered by the state’s 4.7-percent sales tax, the rate will go down across several years, dropping to 3.1 percent by 2022. And for all the service transactions that would be newly taxed, the rate would increase gradually, ultimately matching the overall 3.1 percent tax rate by 2022.

The tax reform plan initially introduced by Quinn would’ve knocked the sales tax rate down in two steps, to 3.9 percent on Jan. 1 and 3.1 percent on Oct. 1 and would’ve applied those rates uniformly to traditionally taxed goods and the newly taxed services.

Quinn said the new, two-pronged approach would help buffer against unintended consequences.

“It’s just to say if we’ve messed up, we’ve had very little economic impact both negatively or positively to the state, to the person collecting and remitting or to the person paying,” Quinn said.

The proposed income tax cut from 4.95 percent to 4.75 percent will remain the same in the new bill, expected to be made public this week, he added. It could contain new “hold harmless” language crafted to quell fears that lowering the rates on the income tax — the main state revenue stream for public education — would put Utah students on the losing end.

But Quinn said it’ll all even out, since rebuilding the state’s sales tax will enable legislators to stop using the education fund as a crutch.

Utah’s public schools are among the lowest-funded in the nation, based on per-student spending. While originally dedicated to supporting kindergarten-12 schooling, the education fund has over the course of two decades taken on more and more of the burden for funding higher education.

Quinn, R-Heber City, said the hold harmless language will say that new sales tax revenues flowing into the general fund should be directed toward the state’s colleges and universities. That change should stop higher education from gobbling up more income tax dollars each year and free up these revenues for grade schoolers, Quinn said.

The governor and legislative leaders have stressed that any changes to the tax code should be either revenue-neutral to the state or offer a net cut in taxes paid by residents.

But Rep. Marie Poulson, D-Cottonwood Heights, suggested the nuanced impact of the bill is lost on the public, who are just now seeing the specifics of the proposal after weeks of closed-door negotiations.

“Even if it does [save people money] it’s rushed,” Poulson said.

Rep. Elizabeth Weight, D-West Valley City, said she is to the point of feeling “resentful” that Republican leaders are describing the process of drafting HB441 as inclusive when no Democrats were invited to participate.

“I hate it,” she said.

House leaders Tuesday met with representatives of the Utah Education Association and other groups within the state’s education community, which have questioned the need to cut income taxes — earmarked for education — in order to bolster the state’s sales tax receipts.

Austin Cox, with the group Our Schools Now, said he was encouraged by the proposed changes to HB441.

“Any tax cut must come from the general fund," he said. "Not the education fund.”

Heidi Matthews, president of the Utah Education Association, said she understands the desire to address the states’ shrinking sales tax base. But the union remains opposed to HB441, she said, because it cuts the state’s revenue source for public education.

“It’s a gamble,” Matthews said. “We need to grow the investment [in education], not just hold it steady.”