Just as Utah lawmakers prepare to discuss “tax modernization,” the Tax Foundation, a Washington, D.C.,-based think tank, issued a report urging Utah to “blaze a trail” for other states by imposing sales tax on services. Curiously, the report parrots the same misleading talking points used by Utah lawmakers to justify what would amount to the largest expansion of tax policy in Utah’s history.
The Tax Foundation report concludes that imposing sales tax on services is needed to “modernize” Utah’s tax system. However, the report fails to consider the most fundamental questions of sound tax policy.
Question 1: “Is there a need?”
The Tax Foundation, and Utah lawmakers, declare that Utah sales tax collections are not keeping pace with the state’s needs. Not so! Sales tax collections in Utah have been steadily rising, with current collections at all-time highs. In 2018, sales tax collections per household were up a whopping 68%, as compared to 2010.
Data also shows that sales of taxable goods are not declining but, rather, are at an all-time high. Yes, modern technology has produced new services, but it has also produced a myriad of new goods. Just because something new exists does not mean it should be taxed.
Question 2: “Are we spending money wisely?”
Although our lawmakers avoid this question like the plague, it is a principle as old as tax policy itself. In 1933, the year sales tax was first instituted in Utah, wise pundits commented that it is “not so much that any particular tax should be tinkered with as it is that every possibility of reducing the tax burden should be thoroughly explored. Elimination of unessential operations of the state government is the first step in this direction. It should be obvious that only in this way can there be downward tax revision.” — Salt Lake Telegram, Tax Tinkering, Jan. 18, 1933.
Over the past 20 years, Utah governmental spending has risen three times faster than Utah’s population. Our lawmakers clearly have a spending problem. The task force should include runaway spending in their analysis of Utah tax policy. Unfortunately, they have already publicly stated that they will not do so.
Question 3: “Is the new tax efficient?”
It has long been understood that sales tax is one of the most expensive taxes to administer. A sales tax on services would add tens of thousands of people to the sales tax rolls, thus requiring the state to hire a sizable number of new employees and invest millions annually to administer and enforce the new tax. Another needless growth of government.
Off the record, some lawmakers quietly admit that non-compliance may rise as high as 40% as Utahans convert to a cash-based, underground economy to avoid the tax. Lawmakers further admit that businesses, large and small, that do comply, will have to absorb the heavy regulatory costs of compliance as they are effectively sub-scripted as tax collectors for the state (including the grandmother who teaches piano lessons).
Utah tax burden is at an all-time high. Utah has no need to impose sales tax on services. We must insist that our lawmakers do the truly hard work of cutting spending and resisting the urge to tax everything. A sales tax on services is unneeded, inefficient, and would devastate Utah’s economy.
If the Tax Foundation believes sales tax on services is good policy, perhaps they should “blaze the trail” by imposing it in Washington, D.C., before suggesting that Utah do so.
Brett W. Hastings is a Utah resident, attorney and co‑founder of Utah Legislative Watch.