In its September meeting, the Revenue and Taxation Interim Committee discussed Utah’s current sales tax exemptions.
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.
Utah has 89 sales tax exemptions, which include these exemptions for business inputs. But the others also help Utah taxpayers in some circumstances by reducing complexity, lowering end consumer costs, avoiding double taxation, or to promote behavior.
According to the national Washington, D.C. based Tax Foundation, Utah ranks 27th in the country for sales tax breadth. Essentially, roughly 34% of all purchases made in the state are subject to the sales and use tax.
For example, Utah exempts sales tax from purchases of prescriptions, which lowers the consumer cost for what can be vital expenses.
Tangentially related, Utah policymakers decided over a decade ago to reduce the sales tax on food, from the statewide general sales tax rate down to 1.75%. While food is a vital expense, it also significantly reduces the volatility on the sales tax as a whole.
In recessions like the one the country is experiencing, restoring the sales tax on food (as had been proposed in 2019’s tax reform efforts), could have led to the avoidance of cutting important government services, such as health care for the needy, public safety, and social work for individuals experiencing homelessness.
These sales tax exemptions can also be used to avoid double taxation, such as removing the sales tax on gasoline purchases. While taxpayers do still pay a federal and state gas tax, the sales tax is not applied to sellers of gasoline, and those savings are passed onto the consumer.
While a reexamination of certain sales tax exemptions are important to ensure efficiency, it is crucial that policymakers remember that many sales tax exemptions provide benefits to the consumer, families, and Utah businesses and contribute to the strengthening of Utah’s economy.