Utah Legislature repeals tax reform in pair of overwhelming votes

(Trent Nelson | The Salt Lake Tribune) Lawmakers in the House Chamber vote to repeal the tax package they passed last month during a special session, at the state Capitol in Salt Lake City on Tuesday, Jan. 28, 2020.

It took less than an hour Tuesday for the Utah House and Senate to undo a year of work on tax reform, with the two chambers voting nearly unanimously to repeal a divisive piece of legislation and go back to square one.

The twin votes — 70-1 in the House and 27-0 in the Senate — were held back-to-back shortly after the state elections office announced that a referendum campaign targeting the controversial reforms had secured at least 117,154 signatures, enough to qualify for the November ballot. Gov. Gary Herbert signed the repeal bill a few hours later.

But that vote is now moot — and expected to be dismissed, although state law currently does not specify how election administrators should proceed — after the Legislature’s retreat from its bill, which was approved just last month during a special legislative session.

And legislative leaders say the broader question of how the state should be taxed remains unresolved, but that new reform efforts are likely to be put off until at least next year.

“We will be back,” said Rep. Francis Gibson, R-Mapleton, the House Majority Leader. “It is inevitable.”

This is an election year for all House members and half the state senators, while Gov. Gary Herbert, who vocally supported the tax reform package, is not seeking reelection in November.

Tax reform history

The original bill was projected to cut overall tax collections by $160 million, largely through a reduction in the income tax rate, an expansion of the per-child dependent exemption, and the creation of new tax credits. But the bill also would have raised sales tax revenue by increasing the levies on food, services and fuel.

House Speaker Brad Wilson, R-Kaysville, was a key driver in the effort to update the state’s tax code, setting a goal of a statewide tax cut during the 2019 session, supporting the creation of a legislative task force, and later urging the call of a December special session to enact the changes before the new year.

But Wilson and Senate President Stuart Adams, R-Layton, failed to secure two-thirds majorities for the reform bill in their chambers, leaving the legislation vulnerable to a referendum effort that attracted a bipartisan array of grassroots advocates and community organizations.

During his opening remarks on the Legislature’s first day Monday, Wilson criticized referendums as being divisive and uninformed, and suggested such citizen-driven legislating is potentially “ruinous” to the principles of a democratic republic.

“We must find new ways of both listening and explaining to our constituents the issues that we face and the decisions we make to address them,” Wilson said. “We are not foes on a political battlefield. We are all Utahns committed to getting public policy right.”

The governor sounded a very different note in a statement after signing the repeal bill Tuesday evening.

“I commend the many legislators and people of Utah who participated so fully in this process. I remain hopeful that working together we will be able to modernize our tax code and provide long-term stability to fund education, Medicaid, and other essential services,” Herbert’s statement said.

Rep. Keven Stratton, R-Orem, was the lone lawmaker to vote against repeal on Tuesday. He told The Tribune the process around tax reform had been "an absolute disaster” and "a train wreck,” but that he would have preferred to see the positive elements of the tax package put forward individually to pass or fail on their own merits.

“I had my pruners sharpened and my saw ready to go to work to prune and trim," Stratton said.

Stratton also said he was not made aware of leadership’s plans to repeal the tax package until after Wilson, Adams and Herbert had released a joint announcement to the public.

“I think I would have chosen a different course,” Stratton said. “The governor, the speaker and the president did what they felt was the right thing to do. You can’t criticize someone for doing what they think is the right thing to do.”

Rep. Tim Quinn, who sat on the task force assigned to craft the reform package, similarly said he wasn’t notified of the repeal plan before the public announcement went out. But he added that he wasn’t bothered by the timing.

“To me, it was just another bill,” said Quinn, R-Heber City.

However, the legislation’s collapse did leave him feeling that his panel’s work — which involved months of hearings and a statewide listening tour — was something of a waste, he said.

Republican Rep. Phil Lyman, who opposed an early and unsuccessful legislative effort to broaden the sales tax on services, said he disagreed with the underlying premise of the larger reform effort — that the state is facing a sales tax crisis. The Blanding accountant said he had crunched the numbers on his own and didn’t see a pressing need for an overhaul, but that he didn’t feel like the tax reform task force engaged with his questions.

“I never did feel like I could get someone to listen to it,” he said. “It was more like, ‘If you don’t like it, then vote against it.’ ”

While Lyman last year told a constituent that lawmakers were feeling top-down pressure to support tax reform, he said Tuesday that he doesn’t expect any repercussions because of his original opposition to the effort. But he added that House leadership might have to rebuild trust among the rank and file after the failure of two major tax reform attempts.

“Speaker Wilson is really an outstanding person, nothing but integrity, and he’s passionate,” Lyman said. “So communication will fix whatever problems there are. I hope.”

Jonathan Ball, who directs the state’s legislative fiscal analyst office, gave House Democrats an overview of the state’s budget situation in the aftermath of tax plan repeal Tuesday. He said lawmakers are starting out this session with $726 million in new revenue from the Education Fund, and $128 million in new revenue from the general fund.

Ball said the repeal hasn’t clouded the budget process, and added that the whiplash would have been much worse if the tax changes had taken effect only to be overturned soon after by a referendum vote in November.

During Tuesday’s brief debate in the House, Gibson said he appreciates the referendum process, adding that “it is a check on what we do.” But he also pushed back against criticism that lawmakers rushed their reform bill by passing it during a one-day special session, saying he would fiercely defend the work that went into creating the bill.

“I love the state. I love this body,” he told representatives. “I appreciate all of you for indulging us over the last 9 months that we tackled this issue.”

And in the Senate, Sen. Lyle Hillyard, R-Logan, told his colleagues that repealing the bill would allow them to go back to their constituents during the 2020 election cycle and ask residents what tax changes they would be willing to support.

“It’s easy to criticize what we chose to do and pick bits and pieces out of it,” Hillyard, a co-chairman of the tax reform tax force, said. “But I can assure you, we face a crisis when it comes to the general fund.”

A recently released revenue report from the state Tax Commission actually showed collections of sales tax, which go into the general fund, up 10.3% during the first six months of the budget year. But a Tax Commission spokeswoman said those numbers can’t be counted on to continue, because some of the money is earmarked for Medicaid expansion and some is due to relatively new tax collection on online sales.

“These two changes are one-time impacts that do not change long term trends in the sales tax base,” said spokeswoman Tammy Kikuchi.

Learning from voters

Fred Cox, a Republican and former lawmaker who led the referendum campaign, said he expects the signature total to continue to grow as county clerks verify petition forms. And he said his group will be watching lawmakers and will continue to oppose the negative elements of the reform plan, like increasing the tax on groceries and fuel or moving money out of the Education Fund, which is supported by income taxes.

“We do not want this bill to come back in pieces during this session or next [session],” Cox said.

Cox added that lawmakers have between now and the November election to learn from the referendum and listen to their constituents.

“If the voters perceive that they didn’t learn, they can vote them out,” Cox said. “And they will.”

In a prepared statement, members of the Senate Democratic Caucus praised the work of the referendum campaign and the civic engagement of Utahns who added their signatures to petitions. The statement said that verification of signatures should continue, despite the repeal of the underlying law, so that everyone who added their name to the effort can be counted.

“We have stood with the people against the food tax and poor public policy related to tax reform,” the Senate Democrats said. “People in this state have a right to have their voices heard, especially with matters affecting their basic necessities and everyday lives.”

Tribune reporter Bethany Rodgers contributed to this article.