Utah lawmakers passed a package of new tax laws late Thursday night that gives an income tax cut and a sales tax hike to virtually every resident in the state.
The changes follow months of discussion by lawmakers, advocates and special interest groups, and should bolster the state’s general fund ahead of budget talks when the Legislature reconvenes next month.
But the bill — and the decision to pass it in a December special session — was met with widespread opposition outside the Legislature, particularly for its impact on education funding and grocery costs.
Here’s what we know about the future of the reform plan.
Will the governor sign it?
In calling the Legislature into special session, Gov. Gary Herbert said that passing the reform bill would be “the first in a series of steps” toward creating a tax structure that can support the state in the future. And on Thursday, after the bill passed, Herbert released a statement commending lawmakers for their “courage and forward thinking” and saying the bill improves the stability and equity of Utah’s tax system.
“We have meaningful work yet remaining,” Herbert said. “However, these steps will improve the future of our state and its people. I look forward to signing it.”
When does it take effect?
Next month, sort of.
State law imposes a 60-day window between when a bill is signed by the governor and when it takes formal effect in state code. But if a bill is approved by two-thirds majorities in both the House and Senate, it can become law immediately.
Legislative leaders failed to secure a two-thirds majority — an initial vote in the Senate barely cleared that threshold, but one senator left before a final vote was held — which led to some confusion among Capitol watchers and members of the media over when, exactly, the bill would become law.
But Senate President Stuart Adams, R-Layton, said that because the bill deals with annual taxation rates, the bill has the practical result of taking effect on Jan. 1 even though it won’t be formally enacted as state law until mid-February.
Adams said the question of when workers will see their paychecks increase as a result of smaller withholdings depends on their approach to taxes and that of their employers. And the changes to the sales tax — including the much-debated hike in grocery taxes — won’t be seen until April after the state’s Tax Commission is able to develop and put in place new rules and procedures.
“It’s always anticipated that the earliest date the sales tax could go back on food would be April 1,” he said.
Are you getting a check in 2020?
Maybe, depending on how much money you make and whether you have children.
One of the last changes made to the tax bill is a system of preemptive rebates — or “prebates” — that will result in two rounds of checks mailed out to Utah taxpayers, first in the spring and then again in the summer.
The first prebate reflects the state’s new per-child dependent exemption, which was increased from $565 to $2,500. But taxpayers won’t see that higher exemption until spring 2021 when they file their 2020 taxes, so lawmakers appropriated $60 million to partially refund parents based off of their 2018 filings.
It is not yet known exactly how large a slice of that $60 million individual taxpayers will receive, and the dependent exemption begins to phase out for incomes over $70,000.
“Anybody making less than $70,000 will receive some sort of check,” said Abby Osborne, the House chief of staff.
The second prebate will be mailed out in July and is meant to offset the higher sales tax on food. Lawmakers have created a new grocery tax credit of $125 per person — for the first four people in a household — and lower-income Utahns will get a check for one-fourth of that amount (or roughly $30) in 2020, with the full credit awarded annually after that.
Both prebates will be distributed automatically to tax filers, but individuals who don’t file taxes but otherwise qualify will need to claim their credits. Lawmakers have appropriated $500,000 for outreach to those individuals.
Can the bill be repealed?
Yes. But will it be repealed? That’s unlikely in the short term.
Despite being unpopular with certain groups, the tax bill secured comfortable margins in both the House and Senate. State code allows for a law to be overturned by a citizen referendum — if the Legislature falls short of a two-thirds majority — but doing so requires the collection of more than 115,000 signatures throughout the state in less than two months.
The last time a bill was successfully overturned by referendum was in 2007, with the voters striking down a law that created private school vouchers.
House Minority Leader Brian King, D-Salt Lake City, said his fellow lawmakers appeared to recognize that the bill was unpopular. And he suggested that unpopularity could grow with time, making its future as state law uncertain.
“The more I found out about it, the less I liked it,” King said. “That may prove true for the general population.”
Is tax reform finished?
Far from it.
During floor debate Thursday evening, Adams emphasized that the bill leaves in place a legislative task force that studied taxation throughout the year and created the reform proposal.
Republican leaders have made clear that the general session, which starts in January, will include changes to the way public education is funded, most likely in the form of a constitutional amendment that could repeal or dilute the earmarking of income tax revenue for school spending.
Such a change would require approval by Utah voters in November, and a draft proposal to replace the earmark with automatic, inflation-based property tax hikes was not included in the special session and is likely to spark division in the tax-conscious Legislature.
Additionally, task force co-chairman Sen. Lyle Hillyard, R-Logan, told his colleagues Thursday that the bill does not resolve the issue that launched the tax reform debate earlier this year — economic activity is shifting away from the purchasing of goods to spending on services, which is eroding the state’s sales tax base.
“I’m disappointed, quite frankly, that we’re not able to tax more services,” Hillyard said.