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SALT LAKE CITY — With just a week left before the legislative session ends, Gov. Gary Herbert and Republican legislative leaders suddenly scrapped — at least for now — a tax reform plan extending sales taxes to services.
HB441, which had just undergone a new revision, "will not be moving forward," House Speaker Brad Wilson, R-Kaysville, said during a hastily called news conference to announce the decision.
Work will, however, continue on the plan outlined in the governor's budget to broaden the sales tax base by adding taxes to a wide range of services while lowering the rate.
The governor said he'd liked to see a new plan dealt with in a special session this summer and that it should include a yet-to-be determined tax cut for Utahns. His proposed budget called for a $200 million cut in the state sales tax rate.
Pressure on lawmakers to vote against the bill, sponsored by Rep. Tim Quinn, R-Heber City, had been increasing in recent days, much of it coming from business owners and professionals who would have to charge sales taxes on their services.
But Herbert bristled when asked if GOP leaders caved on the issue as a result.
"I don't think we caved to anything. I think we responded to what the public understands and wants to do," he said, adding the bill incorporated "many of the things the public asked us to do and to consider. Caving is such a pejorative word."
The governor also dismissed concerns that it will be more difficult to accomplish tax reform the longer it takes because 2020 is an election year for all House members and half of the senators.
"If we do it right," he said, "the public is going to like it whether it's an election year or not."
Senate President Stuart Adams, R-Layton, told reporters after the news conference that the decision to drop the legislation this session was made earlier Thursday, the same day the bill was expected to be up for a House vote.
"There's just not time. It's really unfair to say if we had the votes or not. If we had the policy right, I'm confident we would have had the votes. But we couldn't get the policy crafted," Adams said.
Wilson said in an interview there were 48 votes for the bill in the House as of a count Wednesday, enough to pass it but not the two-thirds majority needed to make it veto-proof and prevent a citizens' referendum to repeal it.
"I actually think it all would have worked fine," the speaker said.
But he said given the complexity of the legislation, "the last thing we want to do is move a little too quickly and have something that actually accomplishes the opposite of our intention and I'm like, 'Hey, let's just tap the brakes on this.'"
Quinn had a simpler explanation.
"At the end of the day, I wasn't surprised," he said. "That's politics. That was politics."
While waiting to enter the ornate Gold Room from the governor's office, Quinn said most of the participants in the news conference were so quiet that he joked, "I feel like I'm in a funeral home waiting to view the dead bodies."
Salt Lake Chamber Vice President Abby Osborne said the statewide organization was pleased the governor and lawmakers "are heeding our calls and allowing additional time for the business community to understand HB441."
Osborne said the chamber has been "hearing from a number of businesses," and that there wasn't enough time left in the 45-day legislative session for the "robust public process" needed for a tax overhaul of this magnitude.
During the news conference, House Democrats were in a caucus meeting, reading the news on Twitter. House Minority Leader Brian King announced the delay to his colleagues, which was met with pleasant surprise.
“This is very good news from our perspective so concerns about process can be addressed,” King, D-Salt Lake City, said.
Now there will be more time to create a better policy, King said, giving Democrats hope they'll be included “at the table.”
Senate Democrats also expressed support for waiting. Both House and Senate Democrats had taken issue with reducing the funds earmarked for education by including an income tax cut in the bill.
Groups ranging from the left-leaning Alliance for a Better Utah to the conservative Utah Eagle Forum have spoken out against the bill, particularly how quickly it was moving through the Legislature.
The latest version of the bill that surfaced an hour before the news conference would have eliminated local sales taxes on services and kept those rates intact so municipalities wouldn't see a change in revenue.
The massive tax reform bill was intended to shore up the state's shrinking sales tax base by broadening what is subject to the state's current 4.7 percent rate to include most services, ranging from haircuts to hiring a lawyer.
At the same time, the bill would have decreased the state sales tax rate to 3 percent over three years, starting Jan. 1, 2020, and lowered the state income tax rate from 4.95 percent to 4.75 percent.
The decision to step back from tax reform came the same day as updated revenue estimates. Earlier in the session, which ends next Thursday, lawmakers learned what was a $1.3 billion budget surplus would fall about $200 million short.
Senate Budget Chairman Jerry Stevenson, R-Layton, had said there was a question about whether the decline in collections was due to Utahns paying their income taxes later than anticipated.
But he said after reviewing the update, the estimates will stay the same.
"We are going to use the revenue numbers we have," Stevenson said, adding there is "no indication of a difference of any significance."
Contributing: Katie McKellar
