The Utah Legislature’s 45 day General Session ended at midnight on Friday, March 5. Here are some of the most important tax issues your Taxpayers Association accomplished.
Three Prongs of Tax Cuts Advance – Social Security, Military Retirement and Dependent Exemption
House Bill 86 (Brooks/Harper) – Social Security Amendments, delivers a social security tax cut to Utah’s senior citizens. HB 86 raises the amount of income that is exempt from tax from $35,000 for joint filers to $50,000. This delivers an $18 million state income tax cut to those that are receiving those benefits. Passed House 72-0, Senate 27-0.
2 Sub Senate Bill 11 (Harper/Pierucci) – Military Retirement Income Tax Amendments, will eliminate state income tax on military retirement benefits in Utah. Utah will join 46 other states that do not tax those benefits as many retirees from the various branches of the military settle into retirement after completing their service to our country. Senate Bill 11 delivers a $24 million tax cut to those receiving those benefits. Passed Senate 27-0, House 69-2.
Senate Bill 153 (Fillmore/Moss) – Utah Personal Exemption Amendments, further restores the state tax exemption for dependents that was lost in the 2017 federal tax reform bill. That loss created a state income tax hike on Utah taxpayers with dependents. SB 153 raises that exemption from $565 per dependent to $1,750. This will provide a tax cut of $54 million to taxpayers with dependents. SB 153 has passed the Legislature. Passed Senate 28-0, House 70-2.
Governor Cox has indicated that he will sign all three of these tax cuts.
SB 18 – Relief on Business Personal Property Tax for 39,000 More Small Businesses (Harper/Lisonbee)
5 Sub Senate Bill 18 will help an additional 39,000 small businesses in Utah be free from paying property tax each year on their business personal property. It raises the amount of exempt property from $15,000 to $25,000 and continues to exempt items that are under $500 and not critical to the business activity.
Since the vast majority of tax on personal property is paid by large taxpayers, raising the threshold to $25,000 delivers relief to more than 50% of businesses that currently pay the tax with a tax cut of around $2 million statewide. Passed Senate 26-0, House 67-0.
SB 95 – Eliminating Tax Barriers for the Production of Software (Fillmore/J. Moss)
Your Taxpayers Association has long argued for a broad sales tax base and a low sales tax rate. The exception to this is using these exemptions as tools to eliminate tax pyramiding. Economists from across the country, as well as the Taxpayers Association, have strongly urged against taxing business inputs, and Utah and its policymakers have generally followed that advice.
The term “business inputs” refers to purchases that businesses make as a part of their production or operations. Tax policy experts nearly universally agree that sales taxes should be imposed at the final stage of consumption only, and not during the various stages of production or development.
SB 95 looks to expand this exemption for the production of software. As Silicon Slopes 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. Passed the Senate 28-0. The House did not consider the legislation.
HB 209 – Vehicle Registration Fee Revisions (Christofferson)
This legislation would have simply increased registration fees for electric, hybrid and plug-in hybrid vehicles.
The Association has long stood for the principle that users of a service ought to be responsible for the payment to maintain and provide the service. In this circumstance, roads and transportation infrastructure.
When a traditional-fueled vehicle fills their gas tank, the tax on gasoline is automatically calculated into the total price of a gallon of gas. That gasoline tax is then used to pay for the maintenance of both state and local roads.
Alternate-fueled and electric vehicles do not pay the gasoline tax, and therefore are not contributing their share of the usage of the roads. While they do pay a registration fee which does contribute to the transportation infrastructure, it is not nearly to the point of equity with traditional-fueled vehicles.
HB 209 simply would have asked that these types of vehicles are paying more of their contribution to the maintenance of roads.
The Association certainly understands the benefits of electric, hybrid, and alternate-fueled vehicles to Utah’s air quality, and HB 209 continues to provide a discount for drivers of these cars. If HB 209 were to pass in its current form, these alternate-fuel vehicles would still see a roughly 20% discount from their traditional-fueled counterparts.
Some have framed this as an attack against air quality and the environment, which it is not. This is simply about making sure Utah’s roads can be improved and paid for as alternate fuel vehicles increase in popularity.
In addition, there is currently no financial motivation for electric vehicle drivers to enroll in the “Road 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.
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.
You can learn more about the fees by viewing this spreadsheet the Association has put together. Failed in the House 27-44.
SB 206 – Providing Tax Relief for All Utah Taxpayers Through an Innovative Approach that Also Protects Public Education Funding (Fillmore)
Senate Bill 206 would have delivered a $253 million dollar tax cut to Utah taxpayers. It would cut the individual and corporate income tax rates from 4.95% to 4.75% for 2021 and 2022 using only one time revenue in the state budget. Then, if revenue comes in strong enough at the end of fiscal year 2022, the rate cut would have become permanent at 4.75%.
It is noteworthy that $253 million is only 17% of the current one time surplus of $1.5 billion.
This innovative strategy allows education to be fully funded and ensures there is ample revenue for state government before the cut can become permanent. Passed Senate Revenue and Taxation Committee 5-2. The full Senate did not consider the legislation.
HB 140 – Transparency for Taxpayers Following Increased State Collection After Federal Changes (Thurston/McCay)
In addition to pushing for transparency for Utah taxpayers in the event that federal action increases the amount the state collects in taxes.
This is spurred by the 2017 federal tax reform, which eliminated the dependent exemption. The Legislature did not immediately make a change to protect taxpayers, which led to the state collecting millions in revenue it had no specific action in order to receive.
HB 140, in the case of federal action that increases the state’s collection on taxes, would have put that new revenue into a restricted account until the Legislature decides whether to spend it or return it to taxpayers.
This bill would have helped taxpayers understand when taxes increase due to federal action, and require the Legislature to set a policy when the new revenue is collected. Passed House 42-27, Failed in the Senate 8-21.
SB 65 – Creating Everlasting Efforts to Redevelop Cities at Taxpayer Expense
Under current law, community reinvestment areas (CRA) (also known as redevelopment areas), end after a certain period of time. A CRA board (often the city council), will approve an area to be redeveloped based on blight, economic development, and sometimes housing.
CRAs can use tax increment financing (TIF) to build infrastructure or to be provided to the developer. The CRA board is required to set an end date for the project, at which point the tax increment financing ends and the newly generated property tax revenue returns back to the taxing entities.
Under SB 65, this process would flip. The CRA could levy a property tax that is used for economic development. That revenue could then be used indefinitely for new redevelopment areas.
Your Taxpayers Association believes that tax increment financing should only be used in the case of “but for”. Essentially, TIF can be used if an area is not likely to be developed or redeveloped on its own merit. Creating a separated property tax levy to endlessly use for redevelopment will lead to taxpayer waste as municipalities search for areas that don’t necessarily need to be redeveloped. Passed Senate 22-5, Passed House 52-18.
View our entire 2021 Session Watchlist to see all tax-related bills the Association engaged on.