Scrapped tax overhaul bill haunts new round of talks about state’s financial stability

(Francisco Kjolseth | The Salt Lake Tribune) Constituents make their voices heard as they take a turn at the mic during the Utah State Legislature Tax Restructuring and Equalization Task Force's town hall in Kearns on Thursday, June 27, 2019. The task force is traveling Utah on a statewide listening tour to hear suggestions, concerns and receive input from constituents, local officials, business owners, stakeholders, community leaders and any who want to be involved in the process to review ways to best address the stateÕs outdated tax structure.

State legislators have made it clear they’ve gone back to the drawing board on tax reform after this year’s breakdown of a bill that would’ve expanded the sales tax to a wide array of service-related transactions.

But the bill’s ghost was very much present at a Thursday town hall in Kearns, where a newly formed task force of state lawmakers gathered to hear public input.

Speaking to the group, Don Shelton, a South Jordan financial adviser, described the administrative nightmare he’d face if the state tacked a sales tax onto his services; it would mean redoing a mountain of client contracts and keeping track of differing sales tax rates across the state.

“It’s a terrible thing that could not possibly be simple,” said Shelton, who also serves on the South Jordan City Council.

Other speakers worried that the state would start to tax water or establish a real estate transfer tax — two other elements of the bill that lawmakers ditched earlier this year.

Addressing these fears, Sen. Kirk Cullimore, a Draper Republican who serves on the task force, promised attendees that the group is truly “starting with a clean slate” rather than recycling old legislation.

“This part of the task force is a listening tour,” he said.

Lawmakers created the 10-member task force in the last legislative session, after they’d scrapped the sweeping bill meant to modernize the state’s sales tax. The legislation, HB441, would’ve applied the sales tax to services ranging from accounting to engineering, an idea that elicited alarm from lobbyists and businesspeople in affected industries.

In the face of that opposition, state officials ultimately abandoned the bill in favor of a lengthier process that would allow for greater public involvement. Earlier this week, the task force began a weekslong listening tour that will take them across the state to hear from Utahns, with Thursday’s town hall the second stop on their journey.

Rep. Francis Gibson, R-Mapleton, a task force co-chairperson, assured attendees at the Element Event Center that the town hall was no “dog- and-pony show” and that lawmakers don’t have a preconceived idea about how they’ll tackle tax reform.

The meeting opened with a presentation explaining why the state is considering tax reform to begin with: Utah is experiencing a growing population and mounting needs. Meanwhile, the state’s sales tax — which supports most government functions besides education — is becoming increasingly obsolete as consumer spending patterns change, leading to sluggish revenue growth.

While income tax revenues are generating large budget surpluses, those funds are constitutionally earmarked to support public and higher education.

But Michele Jones, a Magna math teacher representing the Utah Education Association’s board of directors, took issue with the presentation, saying the slides “make it look like education is burgeoning with money from the income tax fund.” To the contrary, schools are struggling to keep up with a rising student population, she said.

“We need a sustainable, growing fund that affects our students today. Not in 10 years. Not in 20 years,” Jones told the task force.

Another education advocate urged the group not to tamper with the constitutional earmark for education, an idea that has been floated by some lawmakers to create more budgetary flexibility.

Jones wasn’t the only meeting attendee to bring a critical eye to the meeting materials — which included a graphics-packed video and glossy brochures depicting the state’s budget challenges and “outdated tax structure.” The question, at least to a few attendees, was why lawmakers have already arrived at the conclusion that the state’s tax structure is broken.

“Shouldn’t this task force’s first job be to determine if a problem exists before considering a massive reform of Utah tax policy?” one person wrote on a comment card.

Sen. Lyle Hillyard, who is co-chairperson of the task force along with Gibson, said he trusts the information he’s been getting from legislative staff.

“I have no vested interest in this other than I want to have good policy. I want Utah to be able to stay well-managed, and I want to be able to handle the needs that come,” the Logan Republican said.

Local government officials spoke up in favor of protecting or bolstering their revenue streams. Salt Lake County Mayor Jenny Wilson asked the task force to consider modernizing property tax laws, allowing local leaders to make inflationary adjustments without having to go through the costly Truth in Taxation process.

Representatives from the Utah League of Cities and Towns asked the task force to take care when altering the sales tax, also a source of revenue for municipalities.

“Utah cities have a diverse sales tax base, and the impact of rate reductions will likely have divergent impacts,” said Brett Graham, a Holladay City Council member.

Attorney Steve Clyde asked legislators not to roll back the sales tax exemption for water.

“The sales tax [on water] is hard because it impacts those who can least afford it and doesn’t necessarily do a great deal toward curbing water consumption,” said Clyde, who specializes in water law.

The task force is heading south next on its listening tour, with town halls planned in Richfield and St. George on Friday and Saturday.