Central Utah residents weigh in on redoing Utah state tax system

By Suzanne Dean

Publisher

7-4-2019

 

RICHFIELD—Utah’s state tax structure, much of which was set up in the 1930s, isn’t working any more, people attending a town hall in Richfield were told last week.

In fact, legislators on the Tax Restructuring and Equalization Task Force, which was set up at the end of the last session after the Legislature came to an impasse on tax reform, told a gathering of about 100 people at the Sevier County Fairgrounds Exhibit Hall that the tax system, including types of taxes and tax rates, needs to be reexamined and revised.

But people who spoke at the town hall were not excited about the idea of diversifying sources of revenue by starting to charge sales tax on services such as plumbing, construction, beauty salons and even attorneys.

A representative of agriculture expressed opposition to a proposal that has been floated to tax culinary water.

Mike Styler of Millard County, a former state legislator, said he feared such a tax could be extended to irrigation water, although he said the task force seemed to be “backing away” from a water tax.

And multiple people from education objected to changes that could result in income tax revenue, now earmarked for public and higher education, being spread around the other functions.

“We are in a good spot financially,” said Francis Gibson, R-Mapleton, the co-chairman of the task force representing the House of Representatives. “I don’t want anybody to think we’re trying to raise more money.”

In fact, he said, if sales tax was charged on more items, it might be possible to drop the rate considerably, possibly to a base rate of 2 cents on the dollar.

The problem is that under the current system, different types of tax revenue, especially revenue from income tax, are “siloed;” that is, earmarked for certain types of expenditures. That means they can’t be used for other things.

For instance, by constitutional mandate, income tax revenue, which is growing, can only be spent for public and higher education.

Sales tax, which is declining as a share of total state revenue, goes into the general fund and has to cover a whole spectrum of needs, including Medicaid, public safety, corrections and environmental protection. Yet some sales tax even ends up diverted to education.

“What’s going into the general fund isn’t covering our needs,” Gibson said.

Sen. Lyle Hillyard, R-Logan, the Senate co-chair of the task force, said the Utah Department of Transportation annual budget, which mostly goes for roads, is $1.7 billion. About $500 million of that comes from gasoline tax. Another $500-$600 million comes from the federal government. Most of the rest is pulled out of the shrinking general fund.

One person who spoke at the hearing was Kay McIff, who represented Sanpete County in the Utah House in the late 2000s. He noted that in 2007, just before the recession, the state had a healthy revenue picture and decided to cut the tax on most food items from 4.7 to 1.7 percent.

The tax on non-food items sold in grocery stores remained at 4.7 percent, forcing the stores to set up systems to charge the different tax rates on different items in a single sale.

“I think we ought to consider reversing what we did” in 2007, he said. A sales tax on food is “a reliable source of revenue that is spread across society.”

Jonathan Alvey, whose family owns Alvey Lumber stores in Manti and Monroe, was representative of small business owners who spoke against charge sales tax on services.

He said his stores already collect sales tax on their products. But the stores also provide services, such as building decks for customers. If both goods and services were taxed, the cost of finished construction projects would go up significantly, he said.

Alvey said he supports taxes when they’re fair and the burden is widely shared. But he asked, “Is it really fair for me to get taxed” when the state is trying to bring in big companies such as Amazon with offers that they won’t have to pay taxes?

“I thnk it’s bull****” he said, a comment that drew laughs and some applause.

An attorney from Moroni, who said his practice focuses on helping people who are injured on the job collect worker’s compensation and other benefits, said if attorney services were taxed, the money “would come directly out of the pockets of people who are injured.”

Another attorney said a tax on legal services could interfere with the constitutional right of people charged with crimes to defend themselves.

Scott Mickel, an accountant who is also in the funeral services business, said it was “not efficient or enforceable” to require home-based service businesses to collect sales tax and remit it to the state.

“I think it’s time to amend the constitution” to permit income tax to be used for functions other than education, he said.

The task force is scheduled to hold more town meetings and then draw up proposals for consideration in a special session.