Not everyone knows why Utah’s economic outlook has been ranked first in the nation 12 years running, the best place to do business, highest job growth, lowest unemployment, and repeatedly #1 on the Family Prosperity Index.
While many factors have affected the positive outcomes which produced these rankings, informed analysts recognize the influence of wise policies advanced by Utah’s Legislature and its Governors over the past three decades. But the highest recognition is owed to the voters of Utah who have elected so many courageous and visionary policymakers with the strength to put principle above popularity, work tirelessly to create popularity for sound principles, and enact the best policies based on those principles.
During the debate over Utah’s 2007 Tax Reform package and after its passage, naysayers complained about the process and claimed the changes were done to primarily benefit businesses and the rich. After the changes took effect, those naysayers became silent, recognizing that the changes benefited everyone. When the housing bubble burst that December creating the Great Recession, Utah was the least affected and enjoyed the fastest recovery, in large part due to those tax reforms and the rainy-day funds which had been set aside from ending balances over the years.
In the recent Special Session of the Utah Legislature, Governor Herbert and the Legislature showed similar wisdom and courage in the face of loud accusers as they modernized Utah’s tax code. These improvements will set the state on sound footing for future economic growth and revenue stability, ensuring funding for education, transportation and other essential services.
I have great confidence in the voters of Utah. I believe they will reject both the ill-informed petition organizers and opportunistic candidates who are seeking to repeal this important landmark legislation.
Essential Next Steps
Utah’s enviable business tax and regulatory climate, which has made Utah one of the best states to raise a family, was created by visionary policymakers. Through the 2018 Single Sales Factor legislation, Utah has made its corporate tax system competitive with states which don’t impose income taxes. The state has also systematically eliminated tax pyramiding by removing sales taxes from business inputs in nearly all major NAICS code categories.
However, the state 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.
The Basin is infamous for the boom and bust cycles which have resulted from the crude oil price rollercoaster. Former Senator Kevin Van Tassell describes the $300,000 boom cycle homes built to house the families benefiting from the high-paying oil field jobs, only to see those families walk away from their mortgages when the next bust cycle hits, leaving the homes to be sold off for as little as one-tenth of their original value.
Years ago, the coal counties of Carbon, Emery and Sevier faced similar threats when the lower cost of producing strip-mined coal in Wyoming and Montana threatened the price competitiveness of Utah’s deep-mined coal. Among other actions, the Utah Legislature removed sales taxes on all of the equipment needed to employ mine workers and rejected attempts to impose severance taxes on coal, ensuring the economic viability of families in Utah’s coal-dependent counties. This mining sales tax exemption also ensures the international competitiveness of Utah’s metal mining operations such as Rio Tinto’s Kennecott mine and smelter operation, ensuring the continuation of these high-paying jobs. Non-metal mines continue to thrive throughout the state supported by the mining sales tax exemption.
The Legislature’s decision to exempt solar and wind power generation equipment from sales taxes has led to billions of dollars of investment in Utah wind and solar farms, vastly increasing the property tax base of schools and local governments in Beaver and Millard Counties.
Data centers, which can contain as much as $1 billion investment or more in a single site, and require constant replacement of data storage equipment, benefit from the Utah Legislature’s sales tax exemption on this equipment. The location of these facilities in the Beehive State adds tremendous new property tax base for schools and local governments without adding to school enrollments due to the low number of employees necessary to operate the facilities.
Passage of the 1995 manufacturing sales tax exemption ensured the Micron’s initial investment of more than $1 billion in Lehi and ultimately led to Utah’s Silicon Slopes tech boom. The three-year-life manufacturing exemption in 2018 ensures that manufacturers in northern Utah continue to provide jobs for Utah families.
Time to End Tax Pyramiding for Oil & Gas and Electrical Generation
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, including sand. This sales tax combined with a hefty severance tax makes capital investment less attractive and leaves the region victim of ongoing boom and bust cycles.
Plans are being laid for a railroad to Carbon County to connect the Uintah Basin with the rest of the nation and make it’s high quality waxy crude available to other markets. Once the rail link is combined with the elimination of the sales tax on machinery and materials, it is estimated that the current 80,000 barrel a day production could be increased to 400,000 barrels a day. This would ensure jobs and economic viability of the region and would mitigate the boom and bust cycles of the past.
As Utah coal-fired power plants in Carbon, Emery, and Millard Counties are replaced by clean fuel natural gas generation it is important that Utah eliminates the punitive sales tax on that machinery and equipment.
Fortunately, the Legislature will be considering legislation to correct these tax flaws in the 2020 General Session of the Legislature. Senator Ron Winterton’s (Roosevelt) bill to eliminate sales taxes on inputs for oil and gas, electrical generation and pipelines has already been approved by the Public Utilities Interim Committee as a committee bill. This long overdue legislation has the full support of your Taxpayers Association.