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SALT LAKE CITY — A tax reform bill backed by Gov. Gary Herbert and GOP legislative leaders is headed to the House floor following its first hearing Friday, which lasted more than two hours.
The 12-2 vote by members of the House Revenue and Taxation Committee to advance HB441 came despite testimony from a number of business representatives concerned about the impact of the services they sell being subject to sales taxes.
"This is scaring the daylights out of me," said Jim Ferrin, an investment adviser who used to serve in the Legislature. Ferrin said he would end up having to pay the taxes himself because of the existing contracts with his 300 clients.
He called what would be a 3.1 percent state sales tax on his services "an enormous tax on my net revenues" and told the committee, "You wondered who are the losers? That’s me."
Rep. Tim Quinn, R-Heber City, said the bill that broadens the shrinking sales tax base while lowering the current 4.7 percent state sales tax rate and cutting income taxes would actually reduce the tax burden for a typical Utah family by $664.
"To me, that's important and that's significant," he said, given the magnitude of the changes in the bill that only became public late Wednesday night after months of work by a group that included senators and the governor's budget officials.
Kristin Cox, executive director of the Governor's Office of Management and Budget, said she didn't see any obvious winners or losers in the bill. She said taxing services was "very difficult, but it is absolutely necessary and the right thing for this state."
The bill extends sales taxes to all services not specifically exempted, including most health care, tuition, child care and housing costs. It does impose a 1 percent tax on health insurance premiums and a transaction tax on real estate purchases.
Quinn expressed frustration after hearing multiple people suggest the bill was being rushed through the legislative session that ends March 14, and should instead be considered over the interim before the 2020 Legislature.
"Let me translate that for you. Kill it, that's what that means. It doesn't mean to study this further. It means we want to stop the bill," he said, adding that the same people rarely want to wait when they're requesting appropriations.
"I've been getting the crap kicked out of me for the last six months on this bill, so I'm tired of hearing about the fact that we haven't given this careful consideration. We have," Quinn said.
He said many of those who testified represented "incredibly profitable businesses."
During the public testimony, Brian Hollien, president of Morris Murdock Travel, described the bill as having a "draconian" effect on his business, which operates on a slim profit margin.
Hollien said he's already competing with tens of thousands of travel companies worldwide selling the same cruises and other vacation options. He said adding sales taxes to his prices would send Utah customers to out-of-state operators.
Quinn, however, made a point of telling the committee that the tax still would have to be paid on purchases made by Utahns whether it is a Utah company selling a service or one in another state.
Hollien said later that's "just naive, because these companies are not going to tack on the Utah sales tax."
Other groups testifying included attorneys and broadcasters, who face a sales tax on advertising production.
Attorney Mario Arras said he already has to turn away some clients unable to afford legal representation, a situation that will become worse if sales taxes are added to the cost.
Either public defenders would need to be available to more people at a greater cost to taxpayers, Arras said, or those with limited means "will be forced to defend themselves against the awesome, life-wrecking power of the state."
Steve Evans, a Vernal radio-station owner and a former chamber of commerce president, labeled the bill "a job killer" and said it would hurt the oil and gas drilling industry as well as broadcasters.
One of the two votes against sending the bill out of committee, Rep. Ken Ivory, R-West Jordan, questioned the effect it would have on music teachers, plumbers and other service providers who work in multiple taxing jurisdictions.
Ivory, an attorney, said the bill creates "a tax on a tax on a tax," citing his own profession as an example. He said if he hires a paralegal, he pays sales taxes on a bill that includes sales taxes already paid by the paralegal for services.
Rep. Stephanie Pitcher, D-Salt Lake City, also voted against advancing HB441.
There was more limited discussion on the impact cutting the state income tax rate from 4.95 percent to 4.75 percent would have on public education. Income tax revenues can only be used to pay for education.
Quinn said the cut is necessary to ensure the bill is revenue neutral, meaning additional funds from taxing services will be offset by the tax rate reductions as well as other income tax changes to benefit families, the poor and the elderly.
He said $350 million in additional sales tax revenues will be used to "kick-start" a shift from using income taxes to pay for higher education as well as public schools, actually making more money available for K-12.
But Jay Blain, policy and research director for the Utah Education Association, cautioned against an income tax cut. Blain said there's been "great progress" in education funding in recent years.
"We don’t want to stop that progress," he said. "We feel the political calculation in cutting the income tax rate to have a revenue neutral bill is not the right calculation to make at this time."
UEA, along with the Utah PTA, Utah School Boards Association, the Utah School Superintendents Association and Our Schools Now, a group that backed a tax increase for schools, issued a joint statement against reducing income taxes.
Rep. Norm Thurston, R-Provo, made the motion to favorably recommend the bill, acknowledging that "it is not ready in its final form but it is darn close. … We can get this done if we work together."
While the House committee was hearing the bill, Senate Republicans were briefed by House Speaker Brad Wilson, R-Kaysville. House and Senate leaders are still deciding how much more of a tax cut to give Utahns.
Senate Majority Leader Evan Vickers, R-Cedar City, said the caucus is waiting to see what changes might be made in the bill by the House. Vickers said he'd like to see the Jan. 1, 2020, start date for the tax changes delayed.
"I have my own thoughts on making sure that we have adequate input from the public and making sure we work through the process to implement the policy," he said. "I guess we'll see what we get."
