‘Historic’ $480 million tax cut signed by Gov. Cox. Here’s how it will impact Utah taxpayers.

Utah’s food tax will not be cut unless voters agree to a constitutional amendment that will change how lawmakers spend income tax revenues.

(Leah Hogsten | The Salt Lake Tribune) Gov. Spencer Cox is joined by from left, Sen. Jerry Stevenson, R-Layton, Senate President Stuart Adams, R-Layton and House Speaker Brad Wilson, R-Kaysville for the ceremonial signing of 6 bills in the Capitol Gold Room, Mar. 22, 2023.

Gov. Spencer Cox affixed his signature to the “historic” $480 million tax cut package approved by Utah lawmakers earlier this month. While most of those reductions will be in effect for the 2023 tax year, one big part is on hold until after the 2024 election.

The primary piece of the tax cut puzzle drops Utah’s corporate and personal income tax rate from 4.85% to 4.65%. Those state cuts primarily benefit the top 5% of wage earners, or those who make more than $235,000 per year, who will see a yearly average income tax reduction between $1,000 and $3,000, according to the Legislature’s Office of Legislative Fiscal Analyst. Utahns who make over $638,000 per year, or the top 1% of earners, will see a reduction between $5,000 and $9,500.

Most taxpayers will see their income tax bill shrink by $500 or less annually.

The tax reduction package also expands an income tax exemption for Social Security recipients and widens the state’s earned income tax credit for low-income Utahns.

(Screenshot) A graph by the Utah Legislature's Office of Legislative Fiscal Analyst about the impacts of a 0.2% tax cut. The graph shows the average dollar impact across all Utah tax filers by income group.

In the final weeks of the 2023 session, lawmakers shoehorned an additional tax reduction measure into the bill, eliminating the state portion of the income tax on food. That part only takes effect if voters approve a change to Utah’s Constitution that will be on the 2024 ballot.

“This will benefit every person in our state in some way. We know there are many that are struggling to make ends meet. They will be helped by this,” Cox said at a Wednesday afternoon news conference.

The nearly half-billion-dollar tax cut package was fueled by more than $2 billion in surplus revenue. House Speaker Brad Wilson, R-Kaysville, said that is the reason tax reductions became a top priority.

“There’s plenty of things we could have found to put the money into. But our businesses are incredibly productive, personal incomes are growing faster than almost anywhere in the country. I think all of us believe the reward for all that hard work from the citizens of Utah would be to let them keep more of their own hard-earned money in their own pockets, not in government coffers,” Wilson said.

Constitutional amendment

The state Constitution splits Utah’s budget into two pieces. Income taxes can only be used for public and higher education and social services for children and disabilities, while sales and gasoline taxes fund everything else in the budget.

That bifurcation has created an imbalance in Utah’s budget. Most of the recent excess revenue in the state budget came from higher-than-expected income tax collections. Other sources of revenue are growing much more slowly, and legislative leaders are warning expenses will soon outstrip their ability to pay for them.

As a fix, lawmakers are proposing opening up the restriction on income taxes, allowing them to shift those revenues to other parts of the budget after lawmakers meet certain goals for public education funding.

(Leah Hogsten | The Salt Lake Tribune) Gov. Spencer Cox shares a laugh with Rep. Mike Schultz, R-Hooper and other members of the Utah Legislature during the ceremonial signing of 6 bills in the Capitol Gold Room, Mar. 22, 2023.

If that constitutional change is approved, the provision nixing the 1.7% state sales tax on groceries will take effect on Jan. 1, 2025.

Sales taxes on groceries provides an estimated $211 million per year in revenue. According to lawmakers, expanding the constitutional earmark for income taxes will give them enough budget flexibility to make up that lost revenue.

House Majority Leader Mike Schultz, R-Hooper, explained lawmakers could not cut the sales tax on food without that constitutional change.

“We have to balance our budget. We don’t get to throw darts at a dartboard and hope it works. If we eliminated this tax without the constitutional change, it would speed the pace where we hit a cliff, and we could no longer meet some state needs,” Schultz said.

Legislative fiscal analysts estimate removing the 1.7% state sales tax on food will cut taxes for a household that spends $6,000 annually on groceries by approximately $105 per year.

(Leah Hogsten | The Salt Lake Tribune) A table laden with Utah House and Senate bills awaits Gov. Spencer Cox's signature in the Capitol Gold Room, Mar. 22, 2023.

Ahead of signing the bill into law, Cox said he anticipated the effort to remove the state food sales tax would happen next year because of the requirement for it to be placed on the 2024 ballot. He said the successful passage this year was a welcome surprise.

“We always knew that there would have to be a change to the constitution for that to happen, just because of the structure that we have, the only way that could happen is in 2024. I felt like we probably wouldn’t be able to do that until next year,” the governor said.

Clarification • This story has been updated to clarify the yearly average income tax reduction for Utah taxpayers, according to the Legislature’s Office of Legislative Fiscal Analyst. A graph from the office has been added.