In Utah: special session on sales tax exemptions

Legislators in Utah are expected to hold a special session on tax reform beginning December 12.

The proposal to be discussed includes an expansion of the state’s sales tax base, axing some of the biggest sales tax carve-outs and replacing them with a cut to Utah’s flat income tax, a credit for grocery sales taxes for low- and middle-income taxpayers, and a state Earned Income Tax Credit.

According to Jared Walczak at the Tax Foundation, the following goods and services would be taxed:

• Unprepared foods (currently taxed at a lower rate);

• Motor fuel and special fuels (with a new 10 cent per gallon excise tax on diesel fuel);

• Installation of tangible personal property when part of a taxable sale;

• Pet boarding and pet daycare services;

• Most non-governmental transportation services, including ridesharing

• Parking and towing;

• Certain primarily digital services, like streaming media, identity theft protection, and dating services;

• Electronic security monitoring (of real property);

• Shipping and handling when part of a taxable sale;

• Certain entertainment activities, like admissions to college athletic events or playing arcade games;

• Certain entertainment-adjacent purchases (electricity for ski resort lifts, vehicles used at temporary sporting events);

• Certain cleaning services (car washes and “unassisted” cleaning services); and

• Newspapers and textbooks.

The revenue from base broadening, along with an increase in the car rental tax (from 2.5 to 4 percent), would support:

• An income tax rate reduction, bringing individual and corporate rates from 4.95 to 4.64 percent;

• An increase in the Utah dependent exemption from $565 to $2,500;

• A new grocery tax credit of $125 per household member for lower- and middle-income households;

• A new Social Security Income tax credit; and

• A new state earned income tax credit worth 10 percent of the federal credit.

A similar change geared toward property taxes may be off the table for the moment in Lincoln, but it could come up again if senators find they can’t afford to pay for the property tax reductions taxpayers are demanding.

Utah’s approach is different since they already have fairly low property taxes (ranked the 5^th best by the Tax Foundation). But since Utah’s constitution dedicates all of its income tax revenues to education, lawmakers are concerned they will be shortchanging other government services if the sales tax base doesn’t keep pace with the state’s economy.

Overall, taxes would be expected to decrease by around $80 million.

As a year-end special session, Utah legislators might come up short of passing a plan. But Republicans do currently hold supermajority control in both legislative chambers.

It will be interesting to see how the outcome may shape the tax debate in Nebraska.