On November 25th, the Tax Restructuring and Equalization Task Force met again to go over further proposals. While the primary focus was to hear from the public about the various proposals, a second draft of the tax reform legislation was released.
The updated bill featured a changed list of services that would start to collect and remit sales tax. The services that would be newly applicable to sales tax was trimmed down by eliminating the proposal to tax the maintenance of real property and vet services.
The Task Force also eliminated the proposal to cap the vendor discount related to sales tax collection by retailers. Traditionally, retailers have received a 1.31% discount for their costs associated with collecting the sales tax on behalf of the consumer.
Finally, the proposed income tax rate cut was adjusted from 4.58% to 4.64%. The Task Force chairs, Sen. Lyle Hillyard (R – Logan), and Rep. Francis Gibson (R – Mapleton), along with members of leadership have been striving to ensure that virtually everyone receives a tax cut in some form. Therefore, they have been working to add exemptions and deductions to the income tax for both individuals and families, which is the reason for an increase in the general income tax rate.
Your Taxpayers Association applauds the efforts of the Task Force, the Chairs, and legislative leadership to ensure most Utahns receive an overall net tax cut, but still strongly encourage a more significant cut to the income tax.
Our research has found that many businesses looking to locate or expand to Utah strongly take the income tax into account. In addition, a lower income tax rate benefits born-and-raised Utah businesses, that may not have received a special deal in order to lure them into the state. As Utah’s business climate grows, so do its families and individuals prosper with the expanded growth.
The Task Force proposal continues to restore the state portion of the sales tax on food, which your Taxpayers Association strongly supports and has since its removal in the 2000’s. The proposal also includes a grocery tax credit of $125 per exemption, with a phaseout starting at 138% of the poverty level.
Along with the revisions to the proposal, Task Force staff presented three possible additional options, based off of the most current proposal. These three additional options were tweaks to that current proposal.
Their presentation was based on analysis from the Legislative Fiscal Analyst (LFA), which shows the current proposal delivers a tax cut to 73% of residents, with an increase in the dependent/individual exemption to $2,500, the grocery tax credit,and an income tax rate cut down to 4.64%.
Option 1 was to increase the share of Utahns who would see a tax cut to 85% versus the current 73%. That would be done through an additional tax exemption for joint filers with no dependents and dropping the income tax rate to 4.66%. This option would increase the net tax cut from $80 million to $110 million.
Option 2 would be to increase the share of Utahns seeing a tax cut to 88% with a total net cut of $124 million. That would be done by not only adding the additional exemption for joint filers with no dependents. Also,the grocery tax credit of $125 per person up to 4 people and then $50 thereafter, but changing the phase out to start at 175% of the poverty level instead of 138%. That option would also lower the income tax rate to the 4.64% level.
Option 3 would be the same as option 2, however the income tax rate cut would be to 4.66% and therefore the total tax cut would only be $102 million instead of $124 million.
Another meeting was scheduled for December 9th and a special session is rumored to be planned for December 12th to vote on and pass the tax reform package.