As the global COVID-19 pandemic continues to roil society and the economy, some data are starting to emerge on the economic damage and how it relates to state tax revenue in Utah. Not only will this data help inform policymakers, but it should also teach us some important lessons as adjustments are made to budgets and spending. Some of the data are quite surprising, specifically the taxable sales in Utah.

At your Taxpayers Association’s annual Taxes Now Conference on June 19th, State Tax Commission Chair John Valentine presented data on state tax receipts, comparing March and April of 2019 with March and April of 2020. Certain areas of the economy have been hit hard, specifically the tourism industry which includes hotels and airlines, as well as the arts. 

The hardest hit revenue streams have been the Transient Room Tax (hotels) down 86% year over year, aviation fuel down 74%, and Arts Entertainment and Recreation down 74% as well. As the population stayed home in March and April, purchases of fuel also declined 34% while diesel fuel held a bit more steady as the trucking industry continued to feed the supply chain.

However, the silver lining in the data is twofold: First, “nonstore retailers” or online sales tax revenue grew at a rapid pace of 11% year over year and a whopping 75% in March 2020 compared to March of 2019. Wise actions by previous legislatures in recent years to capture sales taxes from online purchases as well as brick and mortar stores can now be seen as rather brilliant. Policymakers recognize the reality of online shopping and what an integral part of the economy it will be as the future unfolds. Food and beverage stores (grocery stores) also grew 16% year over year and ballooned 37% in March 2020 compared to March 2019. We all know that from seeing empty shelves and long lines at stores during the stay at home phase of the pandemic. Secondly, the dollar amount of sales between the online sales and grocery stores combines to around $648 million, while all of the other categories that were down only amount to a total of $147 million combined. So, the lion’s share of the sales tax revenue to the state of Utah continues to grow at a relatively good pace even during this terrible pandemic.

This resulted in Utah’s total taxable sales only shrinking 0.8% year over year in April, dropping from $4.83 billion in April 2019 to $4.79 billion in April 2020. That is shocking given the economic mayhem that has ripped through our economy. We should note that there will be a significant drop in income tax revenue and that further makes the point that states should not heavily rely on income tax revenue for operations by hiking income tax rates and killing economic growth in the state. California has made this mistake by relentlessly raising their state income tax rate in an  attempt to squeeze more out of higher income taxpayers, only to find that taxpayers flee the state and when the economy hits a wall, income tax revenue drops off a cliff and leaves policymakers grasping for solutions. Typically they look for proposals to hike other taxes on property and sales to make up the shortfall.

Policymakers and taxpayers should pause for a minute and consider what this teaches us. These data show how important it is to have a “broad tax base” (having as many items taxed from different sectors of the economy) that collects revenue from various sources that are not correlated with each other during economic cycles. This allows for a lower sales tax and income tax rates for all taxpayers and stabilizes funding for core government functions. Utah wisely steered it’s tax structure in this direction in recent decades. The wisdom of this policy is right in front of our eyes in this time of crisis and economic instability.

Policymakers in Utah should take note so this lesson is not forgotten anytime soon.