Large families — particularly those above the median income level — stand to benefit the most from a proposed tax overhaul that initially would cut Utah revenue collections by a combined $75 million.
Under the proposal released Friday by legislative leaders, Utah’s sales tax on groceries and motor fuel purchases would go up, with those and other revenue-generating changes offset by income tax credits and an overall income tax rate cut from 4.95% to 4.7%, or lower.
The plan — assembled by House Majority Leader Francis Gibson, R-Mapleton, and Sen. Lyle Hillyard, R-Logan — is a mashup of many ideas explored by a legislative task force this year in the wake of a failed reform effort by lawmakers. But the recommendations of the task force chairmen were met with skepticism Friday by educators, anti-poverty advocates and some tax policy watchdogs.
The changes, if enacted, are projected to see a $400 drop in the taxes paid each year by a family of four earning $60,000, according to a state fiscal analysis.
“Our main goal through the entire tax reform process is to restructure our complex tax system to fit into our modern economy in order to be able to provide Utahns in all socioeconomic statuses a substantial tax break,” Gibson said Friday in a prepared statement.
House Speaker Brad Wilson, R-Kaysville, has made clear he wants to slash income taxes as soon as possible, telling his caucus earlier this week that he hopes for a reduction by New Year’s Day. That would require the Legislature to convene in a special session in the coming weeks to address at least some elements of the reform plan.
Poverty advocates have begged lawmakers not to raise the sales tax on food from its current 1.75% to 4.85%, arguing this increase would disproportionately fall on low-income people who spend a larger share of their earnings on groceries. To soften the blow, the plan released by Hillyard and Gibson includes an income tax credit of up to $150 per person, relief that would phase out for higher earners.
Utahns would be required to file additional tax documents to claim that credit, the proposal states. On Friday, Gibson dismissed criticisms that the complexity of a separate taxing form would lead to residents failing to receive their rebate.
“It’s your name, where do you live [and] sign it,” Gibson said. “Pretty simple.”
On Friday, the advocacy organization Utahns Against Hunger launched an online petition opposing an increase in grocery taxes. Gina Cornia, Utahns Against Hunger’s executive director, suggested it’s hard for lawmakers to understand the financial realities of low-income families.
A once-a-year grocery tax credit is well-intentioned, Cornia said, but it does little to help with the monthly economic pressures faced by Utahns.
“You can’t pay partial rent. You have to pay 100 percent of your rent and it just isn’t enough to say once a year we’ll do this rebate for you,” she said. “And the fact that they know they need to soften the blow means they know that this is the wrong thing to do.”
Proposed services to be taxed
• Property maintenance, installation and repair (landscaping, painting, cleaning, etc).
• Veterinary services.
• Newspaper publishing.
• Taxis, limousines and ride-sharing services (Uber, Lyft, etc.).
• Scenic and sightseeing tours.
• Portrait photography and photofinishing.
• Sports and recreation instruction.
• Exam preparation and tutoring.
• Fine arts, driving, language and miscellaneous schools (e.g. yoga studios, public speaking training).
• Motor vehicle towing, parking lots and garages.
• Personal services (e.g., wedding planning, dating services).
• Software services.
• Streaming media.
• Shipping and handling of taxable sales.
The tax proposal would also extend the sales tax to previously untaxed parts of the service economy, such as landscapers, veterinarians, taxis and limousines, peer-to-peer ride-sharing and yoga studios. It would roll back a list of sales tax exemptions and boost the car rental tax from 2.5% to 4%.
And ultimately, once technology advances, a transportation user fee could replace the sales tax on gas as a source of funding for the state’s roads, the plan states.
In addition to cutting the income tax rate, Hillyard and Gibson want to provide an income tax credit for Social Security recipients, significantly expand the dependent exemption from $565 to $2,500 per child and end the practice of supporting school meal programs with proceeds from state liquor sales — currently to the tune of roughly $50 million.
Each of those changes — as well as the grocery credit — would impact the amount of state revenue available for investment in public education. Utah currently ranks last in the nation for its per-student school funding.
The co-chairmen have also recommended repealing a constitutional provision that dedicates all income tax revenue to public and higher education. Amending the state’s guiding document would require a two-thirds support by the Legislature and the approval of Utah voters.
Such a change would empower lawmakers to spend the state’s income tax dollars on things other than schools, but the tax reform plan insists lawmakers are intent on “holding public education harmless” and maintaining current school spending levels.
Utah’s income tax collections have shown healthy growth in recent years, generating a roughly $1 billion surplus in 2019. Despite the constitutional provision, public education spending increased by roughly half that amount last year as lawmakers withdrew sales tax revenue from the state’s higher education budget to supplement spending on other noneducation government programs.
Brad Bartels, executive director of the Utah Education Association, said the teachers union is encouraged by some aspects of the task force chairmen’s proposal — particularly the adjustments to sales taxes — but is concerned about adjustments to income tax collections and spending.
“Any cut to the income tax, we think, hurts students,” Bartels said.
He emphasized that Utah schools face a teacher shortage and increasingly large class sizes. The needs of education are significant and growing, he said, and require sustainable investment.
“We haven’t closed the door to any of this,” Bartels said, “but we are concerned by the income tax provisions in the proposals.”
Proposed sales tax exemptions to be repealed
• Life science research facility construction materials.
• New airport construction materials in a county of the second class.
• Ski lift electricity.
• Temporary sporting event vehicles and college athletic event admissions.
• Student textbooks (excluding college book store sales).
• New alternative energy electricity production.
• Gold, silver and platinum coins or bars.
• Coin operated laundries and exterior car washes.
• Unassisted amusement device use.
• Locomotive fuel purchases.
• Salt Lake City International Airport construction materials (after 2022).
On Friday, Utah Taxpayers Association Vice President Rusty Cannon said his organization — which advocates for lower taxes — was encouraged by the proposal, particularly its cut to the income tax rate. But he added that the state should go further than the $75 million reduction proposed by the task force chairmen.
“It should be $200 million,” Cannon said.
But Heather Andrews, Utah director of the anti-tax Americans for Prosperity, said she was concerned by the complexity of the recommendations, which call for the repeal of some tax exemptions while leaving others in place and raising taxes on some, but not all, service-based businesses.
“Number one, it should be clear and simple so taxpayers can easily figure out and see where their money is going and how it’s being spent,” she said. “This [proposal] seems to create more problems.”
Andrews said taxpayers should continue reaching out to their state representatives and taking advantage of opportunities for public comment.
“This isn’t a done process,” she said, “so they need to remain vocal.”
The tax reform task force will next hold a series of meetings on the recommendations by Hillyard and Gibson. Those meetings will be held at the state Capitol on Oct. 22, Nov. 7 and Nov. 21.
In a prepared statement, Hillyard said tax policy can be complicated, but the task force process allows for public input and the resolution of concerns.
“I’m glad to have this initial proposal public now so we can begin to scrutinize and find areas of concern. Our guiding principles have been and continue to be to find the best tax policy structure to support our growing economy for years to come."