Utah State History

Looking back at the interesting history of Utah’s sales tax

By Carter Williams, KSL.com | Posted - Feb 8th, 2019 @ 5:19pm



Editor's note: This article is a part of a series reviewing Utah history for KSL.com's Historic section.

SALT LAKE CITY — During his State of the State address last week, Gov. Gary Herbert called for reforming Utah’s sales tax system by cutting the percentage of sales taxes and broadening the base of taxed goods.

The exact proposal in Herbert’s speech was a cut from 4.85 percent sales tax across the state to 1.75 percent, and the state would collect taxes on services like Lyft and Uber, or other services.

Not long after, those in the Utah Legislature shot it down and the likelihood of that reform happening as planned in 2019 looks bleak at best.

"There could be a significant cut. It just won't be 1.75 (percent)," Rep. Tim Quinn, the vice chairman of the House Revenue and Taxation Committee, said last week. “You would almost have to tax every economic activity in the state" to bring in enough money to drop the rate that far. "Let's manage expectations."

Herbert’s camp has an interesting argument. They say sales tax has rapidly changed since it was first implemented in Utah during the 1930s. So how exactly has Utah’s sales tax changed over the course of the past 86 years?

Utah legislation first imposed a 0.75 percent sales tax in 1933 and was originally supposed to last just two years. Lawmakers also did it for a rather interesting reason.

As you may recall from history class, this was in the middle of the Great Depression. Utah’s unemployment reached 35.8 percent in 1933 — fourth-highest in the nation — as the entire country’s economy collapsed at record levels, according to Utah History Encyclopedia.

As the depression hit Utah, property tax revenue, which had accounted for 90 percent of the state’s entire revenue at this time, began to dip due to Great Depression-related delinquencies, the Office of Legislative Research and General Counsel wrote in a 2011 report.

A panoramic view of Salt Lake City on Oct. 10, 1933. Utah first imposed a sales tax in the state in 1933, which was during the Great Depression. Unemployment across the state reached 35.8 percent that year. (Photo: Utah State History)

It's worth noting the state was much smaller then, too. According to the U.S. Census Bureau, roughly 520,000 people lived in Utah at the time. To compare, the Kem C. Gardner Policy Institute at the University of Utah estimates the entire Utah County population was approximately 633,000 in 2018 and more than 3.1 million now live across the state.

As a result of this revenue dip, the state started an income tax in 1931 and a sales tax in 1933 to diversify its revenue situation, the 2011 report pointed out.

The sales tax itself included “tangible personal property, utility services, restaurant and other public food sales, ad admissions” and all revenue from the tax went toward an emergency relief fund related to the Great Depression, the report stated.

The original bill also slated for the tax to end in 1935; however, a special session bill passed later in 1933 removed the tax sunset date and increased the tax rate to 2 percent.

Four years later, the Legislature added a companion tax on items purchased out of state but were used, stored or consumed in Utah, otherwise known as a “use tax,” the Research and General Counsel noted.

It wouldn’t be adjusted again until 1955 when money from sales tax was rerouted to the state’s general fund instead of its emergency relief fund. All sales tax goes to the state’s General Fund to this day, which helps fund areas in Utah’s budget like education, transportation, public safety and life services, according to the Governor’s Office of Management and Budget. Some funds also get earmarked for specific reasons, such as state projects.

A local option rate of 0.5 percent was tacked in 1959, which allowed cities or counties to add sales tax for the first time. The state rate increased to 2.50 percent in 1961 — its first jump since 1937. It rose again twice in the 1960s, ending the decade at 4 percent statewide. Those rate increases came as the demand for public services grew, the council wrote in its report.

By the 1970s, sales tax overtook property tax as the state’s largest revenue resource and remained the top until the mid-2000s. The rate continued to rise from the '70s and eventually topped out at 5.09 percent. It’s fluctuated slightly since and is now 4.85 percent.

However, as the governor’s office points out, sales tax revenue has fallen during that time. A report by the Utah Foundation in 2018 also noted this. Using Bureau of Economic Analysis data, the foundation showed the sales tax burden significantly dropped in recent years to be lower than income or property tax.

Herbert’s office, the 2011 legislative report and the Utah Foundation all point to a change in what Utahns buy for that reason.


Our economy has changed so much that what used to exist 20 years ago doesn’t exist today, and there’s stuff that exists today that didn't exist 20 years ago.

–Kristen Cox, executive director of the Office of Budget and Management


The state sales tax includes retail sales of goods, some telecommunication services, fuel, food, repair/cleaning/renovation of personal property, laundry and other things. It doesn’t include health care services, professional services (like legal and accounting services), salon or landscaping services. It also doesn’t include many phone apps or streaming services.

“Our economy has changed so much that what used to exist 20 years ago doesn’t exist today, and there’s stuff that exists today that didn't exist 20 years ago,” Kristen Cox, executive director of the Office of Budget and Management, told KSL.com. “Since we didn’t know it existed, it wasn’t a part of the taxing structure.

“Our economy has just fundamentally shifted from a goods-based economy to a service-based economy,” she added. “This equitable sales tax where everybody pays a little bit because they’re consuming has shifted, so that’s a real structural problem.”

While Herbert's proposal is up in the air, it's worth knowing how sales tax came to be and how it has changed over time as context for the debate of what to do with it next.

Carter Williams

KSL Weather Forecast