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Will Utah sales tax rate drop to 3 percent? Lawmakers waiting for latest revenue estimates

By Lisa Riley Roche, KSL | Updated - Feb 21st, 2019 @ 6:00pm | Posted - Feb 21st, 2019 @ 4:40pm

SALT LAKE CITY — The much-anticipated tax reform plan that calls for adding sales taxes to services while lowering the state rate could be hit hard by a downward revision in anticipated state revenues.

But even as legislative leaders wait for the latest calculations due Friday on how far a predicted $1.3 billion budget surplus has fallen, there's optimism a tax reform plan can pass before the 45-day session ends in mid-March.

They say there's still time to give the consideration needed to a bill expected to extend sales taxes to everything from Uber rides to at least some costs related to housing and health care to stabilize the shrinking share of the tax base.

"It's something that no matter when you do it, it is not going to be an easy lift. It’s going to be hard. I think it's still something that can get done," House Majority Whip Mike Schultz, R-Hooper, said.

Schultz said reports that income tax collections fell 10 percent in December and another 7.7 percent in January are complicating the tax reform effort. That data is being used to revise previous revenue estimates for the coming budget year.

With Senate Budget Chairman Jerry Stevenson, R-Layton, already warning that could reduce the additional money available this session by some $300 million, Schultz said there will be an impact on the planned tax cut in the bill.

Little about the plan being put together behind the scenes has been made public, although GOP lawmakers have said Gov. Gary Herbert's proposal to reduce the state's current 4.7 percent sales tax rate to 1.75 percent is not realistic.

Schultz told KSL that number is more likely to be around 3 percent.

"We would like to get somewhere around 3 percent. I think that’s a lofty goal. But again I think a lot of it depends on where our revenue estimates end up being on Friday," he said.

Even though that's not as low as the governor wants to go, Schultz said he believes most Utahns will be on board "if we can can get to a place where ultimately, it is a true tax cut and people are sending less of their money to the state."

The governor followed the lead of House Speaker Brad Wilson, R-Kaysville, in backing a $225 million tax cut, up from what he proposed in his budget released in December.

That's the number that will likely fluctuate with the decline in revenue growth.

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Herbert called for the cut to be in sales taxes, to ensure the rate is as low as possible to lessen the impact of taxing services, but his fellow Republican legislative leaders have said they'd rather reduce the 4.95 percent state income tax rate.

Now, though, Schultz said at least some of the tax cut in the bill will come from slicing the sales tax rate.

Just what the impact of the new revenue estimates will be on a "combination of an income and sales tax reduction" remains to be seen, the House leader said.

"To be able to predict whether or not it's off the table, I think, is hard. I'd say it's not off the table," Schultz said. "But it certainly does make things more difficult to get to a landing spot. But not impossible."

Senate President Stuart Adams, R-Layton, said he's "more concerned about the policy. If it is a broad enough base, and we do a good enough job, I think we can afford a tax cut" even with the revenue revisions.

As for whether the sales tax rate will be in the 3 percent range, Senate Majority Whip Dan Hemmert, R-Orem, said reaching a certain number has never been the intent of tax reform.

"The goal hasn’t been so much the rate. The goal has been how far you can go expanding the base. The rate has been a mathematical outcome," Hemmert said. "I don't disagree with what Schultz is saying."

The Senate majority whip said tax reform remains "full steam ahead" regardless of what the revenue estimates turn out to be.

But Hemmert said it will factor into what happens with a tax cut on top of the proportional decrease from broadening the sales tax base. He said a decision on cutting the sales tax rate further has not been finalized.

You "do not want to kill yourself to lower" the sales tax rate by a small amount, he said. "It depends on how far you can go on the broadening aspect. That’s going to be an integral part of the decision of whether you can look at a tax reduction."

The drop in estimated revenues is concerning enough to lawmakers that there's now the possibility the numbers could be updated a second time before the session ends.

"The question is, is this a trend," Stephenson said, or the result of the federal tax changes causing many Utahns to pay their income taxes later than anticipated. "If it’s a trend, we’ve got a real problem."

The Senate budget chairman said a second update could help answer that question.

The sponsor of the tax reform plan, Rep. Tim Quinn, R-Heber City, said he expects the bill to be ready by the first of next week.

Senate Minority Leader Karen Mayne, D-West Valley City, said it may take until the final hours of the session to finalize a tax reform plan, but she believes something will pass this session.

"I think we may find out the last day what that product is," Mayne said. "We can do anything that we choose to do. I've seen bills move in hours. There will be a product and as soon as there is some type of agreement, it will move."

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