We’re just a few weeks away from the 2021 Legislative Session, and your Taxpayers Association has been very hard at work for months. We’ve been working with legislators, our members, and the public to identify tax issues that need solving.
It’s impossible to guess what will happen over those 45 days, but the Association knows its legislative priorities will make positive changes to Utah and its taxpayers. Here are some of the policy changes we’ve been working on.
Changing the Paradigm on Tax Cuts
Representative Jeff Moss has legislation that will begin to shift the paradigm on how tax cuts are considered in any given year in the future when it comes to budgeting and government spending. His bill will add an additional step for the Executive Appropriations Committee each December to decide whether or not to set aside money for any tax cuts for the upcoming budget year. 
This will help shift the mindset of legislators from discussing spending first and tax cuts later, to discussing tax cuts first, and then prioritizing spending based on the remaining revenues after that. This will make a significant impact on ensuring Utah continues to be run in the fiscally conservative way it has been for decades. That fiscally responsible mindset has put Utah at the top of the country for economic growth and helped the state weather storms far better than other less fiscally responsible states. It will help reduce wasteful and out of control government spending by aligning Utah’s priorities where it should be, with the taxpayer in mind first and foremost.
Targeting the Most Burdensome Tax On Small Business – Tangible Personal Property Tax
With Senate Bill 18, Senator Wayne Harper (R-Taylorsville) has proposed legislation that will provide a massive amount of tax relief and compliance relief for small businesses all across the state. Senate Bill 18 would raise the amount of property that is exempt from Personal Property Tax from the current $15,000 level to $50,000. In addition, the bill would make the entire amount of the first $50,000 of property exempt from the tax, versus the current law that makes all property taxable once a taxpayer goes over the $15,000 amount.
The beauty of this tax cut is found in the details of who really pays the majority of this tax. While thousands of small businesses deal with the annual nightmare of counting their tables, chairs, computer terminals and knives and forks to pay a very small amount of tax, the vast majority of tax is paid by the very large property taxpayers. Analysis from the Office of the Legislative Fiscal Analyst shows that moving the exemption up to $50,000 eliminates over 52,000 small businesses from this burdensome tax. That is over 62% out of the more than 83,000 businesses that are currently taxed. That is massive relief, not only from the burden of paying the tax, but also the burden of doing the inventory of items every year and being subject to pesky audits that often mean no meaningful change in the tax that is owed.
The good news is that this change only reduces property tax revenue in the entire state by approximately $17 million. That is just .005% of total property tax revenue collected statewide. Even for the largest county in the state, Salt Lake County, it is only 0.5% of the total property tax revenue they collect. This is a small fraction of total revenue and can easily be adjusted for with prudent budgeting.
This bill will provide massive overdue relief for small businesses that have been hit hard by the pandemic.
Leveling the Playing Field On Transportation Taxes
Your Utah Taxpayers Association has always been an advocate for users paying their own way when it comes to water and roads. The more you use or drive, the more you should pay, and on the flipside, those that conserve should pay less. Every state in the nation faces a critical problem with transportation funding. The gas tax is dying a slow death. As fuel efficiency continues to increase and electric vehicles proliferate, the revenue collected from the gas tax continues to flatten and eventually decline on a net basis. This is happening along with sharply escalating road construction costs and increased miles driven as Utah’s population continues to grow.
While the average gasoline vehicle driver, which makes up about 98% of the fleet on the road, pays an average of about $380 per year in state and federal gas tax when they purchase gas, electric vehicle owners pay only a gas tax replacement fee each year they register their vehicle. That fee is currently only $120 for electric vehicles, $52 for plug in hybrid vehicles and $20 for gas hybrid electric vehicles. That is simply not fair. Electric vehicles use the roads just as much and cause just as much congestion as any other vehicle. They should be paying their fair share.
In addition, there is currently no financial motivation for electric vehicle drivers to enroll in the “Ride Usage Charge (RUC)” program. Electric vehicle drivers can enroll in the program and track their mileage and pay on a per mile basis instead of paying the flat fee. If they drive less, they could pay less than the flat fee. However, based on the parameters of the program, if one drives more than 8,000 miles per year, it is better to just pay the flat fee and not bother with the tracking. There are hardly any drivers that drive less than 8,000 miles per year. If fees are higher in order to make them fair and pay for their road usage, drivers will be motivated to enter the RUC and if they can prove they drive less, they will pay less as they should. This will provide the momentum the RUC program needs to develop into the alternative to gas tax in the decades to come.
Your Taxpayers Association will be supporting legislation this year which levels that playing field by raising the fees electric vehicle drivers pay to bring them towards parity with what gas vehicle drivers already pay for their road usage. It is the right thing to do and absolutely necessary for the future of our transportation funding.
Eliminating Sales Taxes on Business Inputs – Oil, Gas, and Electrical Generation and Software
Utah’s past legislatures have made a concerted effort for over two decades to remove sales taxes on business inputs, or what is required by a business to make a final product.
Your Taxpayers Association has strongly supported the use of sales tax exemptions in order to avoid tax pyramiding, which has helped establish Utah as the state with the best economic outlook for 12 years running, according to ALEC’s Rich States Poor States annual ranking.
However, Utah still imposes punitive sales taxes on oil & gas exploration and production and non-renewable electric generation. Unfortunately, this has had an adverse effect on the eastern part of the state, most prominently the Uintah Basin counties of Duchesne and Uintah.
Utah has a history of eliminating sales taxes on business inputs. For example, passage of the 1995 manufacturing sales tax exemption ensured the Micron’s initial investment of more than $1 billion in Lehi. The “three-year-life” manufacturing exemption legislation in 2018 ensures that Utah manufacturers continue to provide jobs for Utah families.
Unfortunately, the oil and gas operations in the Uintah Basin and other oil and gas counties such as San Juan continue to pay punitive sales taxes on all of their machinery and materials consumed in the process. This sales tax combined with a hefty severance tax makes capital investment less attractive and leaves the region victim to ongoing boom and bust cycles.
Utah also has not eliminated sales taxes on business inputs on software services. As Utah’s tech sector continues to employ more and more Utahns, this exemption needs to be provided to continue the boom that the industry is experiencing.
The Association is strongly supportive of upcoming legislation that will fix this issue and lead to stable, strong growth and economic prosperity for those areas in Utah that desperately need attention.
Ensuring Taxpayers Have the Information They Need When Facing a Property Tax Increase
Over the summer, the Association discovered that some taxing entities had been using a loophole in state law to avoid providing their taxpayers with the transparency required under Utah’s Truth-in-Taxation law.
Under Utah law, taxing entities are required to publicly provide an adopted budget each year. This is especially important when the entity is considering a tax increase. Taxpayers absolutely must have all the necessary information and deserve to know what a proposed tax increase is being used for.
In this specific circumstance, a taxing entity, which serves 1.5 million people in Utah, proposed a tax increase, but argued that they were not required to post their budget online because the tentative budget hadn’t been “officially” adopted. They argued the official adoption is done in August, during the Truth-in-Taxation meeting. By that time, it is too late for taxpayers to understand what is in the budget and to determine whether the proposed increase is valid. This is a very clear case of obeying the letter of the law, but definitely not the spirit.
Rep. Jeff Moss has legislation to fix this loophole to ensure taxpayers are well informed not only for proposed tax increases, but during each year’s budgeting process.
Local School Property Tax Equalization
Senator Lincoln Fillmore has legislation to create a permanent remedy to the gross inequities in public education spending per student based on the school district in which the student lives. Poor districts tend to have higher tax rates while property taxpayers in rich districts generally enjoy lower tax rates.
Currently, the district with the largest tax base per student generates 36 times more money per student on the same tax rate as the poorest district. However, that district with the largest tax base per student also has the lowest tax rate in the state, one third the rate of the district with the highest tax rate. The Legislature should increasingly equalize the property tax yield per tax increment levied by the poor districts by using a portion of the annual growth in state education funds. That’s what Senator Fillmore’s bill would do, without increasing taxes for anyone.
Newly-sworn in Governor Cox is Utah’s first governor who is committed to permanently correcting these funding inequities. In his campaign for governor, he said, “Addressing this inequity isn’t just about tax policy or education reform. It is a moral imperative that strikes at the heart of Utah values.”
Tax Increment Financing Amendments
For decades, Utah school districts with high tax rates and low tax base per student have experienced a significantly higher level of property taxes diverted for tax increment financing (TIF) proposals when compared to the wealthier districts with lower property tax rates.
Your Taxpayers Association argues that legislation is necessary to protect the poorest school district’s participation in TIF incentives for developers.
The school districts which are property poor, meaning low assessed value per enrolled student, tend to have the highest tax rates and therefore have more money taken from them through TIF than the same project in wealthier districts. The bill would set a maximum participation of a school district at the average statewide school tax rate. This would set a limit on the amount that can be taken from school children in the lowest funded schools in the state.
Under the current law, Tooele School District, which has the second highest school tax rate in the state and yet is one of the lowest in per student funding, would potentially contribute twice the amount to the developers of a new project than the exact project would receive from Salt Lake School District and three times more than Park City School District.
The bill would not inhibit economic development in districts protected by limiting the TIF to the statewide average school tax rate. A project in Tooele School District, for example, would still generate to the developer 92% more than the same project in Park City School District and 43% more than Salt Lake City School District.
This bill does not implement a statewide limit on the percentage of the tax increment which can be taken for all Utah school districts. It simply protects taxpayers and school budgets in about a third of Utah’s 41 school districts; those with high property tax rates.