Utah’s tax burden has decreased significantly in past quarter century, report says

(Steve Griffin | Tribune file photo) Then-Americans for Prosperity-Utah State Director Evelyn Everton speaks about the "Our Schools Now" tax hike proposal during a news conference on October 12, 2017.

Utah’s state and local tax burden decreased significantly in recent years — and is at its lowest point in a quarter century, according to a Utah Foundation report released Tuesday.

It looked at data from 1993 through 2016 (the most current available) and calculated how much state and local governments spend as a percentage of overall personal income.

Utah’s tax burden in 2016 was $103.86 per $1,000 of personal income. About a decade earlier, in 2007, it was $126.71 per $1,000.

The report found that back in 2003 and 2004, Utah had the sixth highest tax burden among the states. But by 2016, that had fallen to No. 31.

The report said a main reason for the change is that “Utah’s personal income is growing faster than tax revenues.”

That is driven by two factors: it’s second-in-the-nation population growth from 2007 to 2016, and its higher-than-average wage increases as the state’s economy was among the hottest in the nation since the Great Recession.

(Chris Detrick | Tribune file photo) Construction continues on new buildings in Vineyard City, Utah in 2017, the fastest growing city in the state.

“Personal income is rising, and citizens are keeping more of what they earn,” said Foundation President Peter Reichard. “However, population growth is also a driver, and maintaining public services and infrastructure in the face of that growth can be a fiscal challenge.”

The report said about one-third of the increase in personal income is from population growth, and two-thirds is from higher salaries.

Among different types of taxes and “mandatory fees” (such as sewer rates) from governments, property taxes are the only one that increased from 2007 to 2016. But most of that occurred between 2008 and 2011 during the Great Recession. They have since declined gradually.

The report notes that Utah’s Truth in Taxation Law keeps property tax revenues constant by allowing automatic rate increases when property values decline — as they did during the recession. That meant a higher portion of personal income then went to pay for them.

The report said Utah’s sales tax burden fell by a third over the past quarter century, and by 27% in the last 10 years.

It said the long, steady decline of the sales tax burden comes as more money in transactions goes to services (which generally are not taxed), and fewer are for goods (which are taxed). Also, many online purchases had escaped taxation until recent legal and policy changes.

Such problems are among reasons the Utah Legislature is looking at tax reform.

In addition to changes in consumer spending patterns affecting sales taxes, Utah’s sales tax on food was dramatically reduced in 2006.

The report said Utah’s income tax saw a steep slide from 2007 to 2010 — after 2006 legislation that reduced the top rate to 5% — from an average burden of $30.83 to $24.11 per $1,000 of personal income. But it said it has crept back up since then but is still 13% lower than its 2007 peak. Utah’s income tax, which is dedicated to education, was slashed to a top rate of 5% around the time of the drop.

The report also said that Utah’s motor fuel tax burden saw the sixth largest drop in the nation between 2007 and 2016.

Laws passed in 2015 and 2017 to raise gas taxes and index them to inflation helped stop some of the erosion. But the state still collects less because of increasing fuel efficiency of cars, and more conversion to hybrids and alternative-fuel vehicles.

Francisco Kjolseth | Tribune file photo) Crews work to install a total of four electric car charging stations at Liberty park in Salt Lake on Wednesday, Jan. 18, 2017.

The state this year raised registration fees on alternative-fuel vehicles to make up for some of the loss, and is about to start an experiment to allow their owners to volunteer for a pilot program to charge a tax on vehicle miles driven instead of registration fees. Officials have said an eventual transfer to a tax on vehicle miles driven may be likely for all drivers.