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SALT LAKE CITY — The list of proposed new sales taxes on services is shrinking — again.
Even fewer services would be subject to sales taxes under the latest proposal from the Utah Legislature’s Tax Restructuring and Equalization Task Force that what the co-chairmen of the tax force — House Majority Leader Francis Gibson, R-Mapleton, and Sen. Lyle Hillyard, R-Logan — came up with last month.
When their proposal was drafted into bill form last week, nearly a dozen services were removed from the list, including portrait photography and photofinishing, as well as driving schools, yoga classes, tutoring, golf lessons and other instruction, along with newspaper publishing.
Services still on the list are property maintenance and repair; installations; nonemergency veterinary care; pet boarding; limousine rides; ride-hailing; sightseeing buses; towing; parking lots and garages; streaming media; shipping and handling; storage; and personal services such as body piercing, tanning and dating services.
During the 2019 Legislature, a House bill would have extended sales taxes to just about every service outside of real estate and health care, ranging from lawn mowing to legal advice, along with cutting both the state sales and income tax rates.
That bill met with protests from the business community, however, and Gov. Gary Herbert, who had proposed expanding the sales tax base while reducing the rate in his own budget plan last year, joined legislative leaders in calling for a task force to take up the issue.
The task force, made up largely of lawmakers, started their work by holding a series of town hall meetings on tax reform around the state to hear what Utahns thought should — and shouldn’t — be done to deal with sales tax revenues slowing as consumer spending shifts from goods to services.
Sales taxes on services came up again and again as something no one wanted to see.
“It was loud and clear,” House Majority Whip Mike Schultz, R-Hooper, said. “The public didn’t want that.”
Schultz said the limited list of services selected is an attempt by lawmakers to be more fair in some cases, citing as an example taxi rides that are already taxed while no sales taxes are charged on limousine rentals or ride-hailing services like Uber and Lyft.
Hillyard said another factor is whether the services are “things that were really required” or could be seen as optional purchases for most people. He disagreed with the veterinarians who have told the task force that pets provide crucial emotional support, making their care a necessity.
Not so, Hillyard said, noting he and his wife have “gotten along for 55 years in our married life without a dog.”
Plus, there’s politics. When it came to taxing classes that Utahns take to improve their sports, language or other skills, the answer was “No” to the questions of whether it was worth the political fight for the amount of money that would be collected, or, as Hillyard put it, “Is the juice worth the squeeze?”
All together, the sales taxes on services in the draft bill add up to $75 million. The biggest increase in sales tax collections would come from raising the state sales tax on food from the current 1.75% to the full 4.85% and adding sales tax to the wholesale price of gas, another 12 cents or so a gallon on top of 31 cents a gallon in gas taxes.
The draft bill raises $571 million in sales taxes while cutting the income tax rate and providing new deductions aimed at helping families, as well as the poor and elderly, that add up to $651 million for an overall $80 million tax cut. It also includes a new sales tax exemption for feminine hygiene products and a higher car rental tax.
Some sales tax exemptions adding up to $13 million would be lifted under the bill, including for vending machine sales, tickets to college sporting events, coin-operated laundries and car washes, and college textbooks purchased off campus.
“There’s nothing easy about tax reform,” Jason Perry, director of the University of Utah’s Hinckley Institute of Politics, said, calling adding sales taxes to services “a difficult pitch” to many Utahns, who feared they’d end up with a bigger tax bill despite a tax cut.
Now, Perry said, lawmakers have found other places to help bring the budget into balance, largely by tapping sources that are already familiar to taxpayers — food and gas. But they’ll still have to be explained, particularly the food tax, seen as most impacting those who can least afford it, despite a proposed grocery tax credit.
“It’s something the Legislature is going to have to spend a lot of time messaging to voters,” Perry said. Still, he said, tax increases for food and gas “are going to be easier to sell to voters than an across-the-board increase in the cost of services.”
Hillyard said there’s another piece of the tax reform puzzle that must fall into place to ensure more services don’t end up being taxed — removing the restriction in the Utah Constitution that keeps income tax revenues from being spent on anything other than education.
Arguably the most controversial element of tax reform, the needed constitutional amendment that also has to be approved by voters is not part of the draft bill and is set to be considered separately by the task force, along with a yet-to-surface plan to provide an alternative revenue stream for schools.
The task force has just one more meeting scheduled, on Nov. 21. There has been some talk about waiting to deal with education funding until the 2020 Legislature begins meeting in late January while going ahead with a special session in early December to ensure the income tax cut is in place at the start of the new year.
“I really think a key to this whole thing is what we do with the dedication of the income tax to education,” Hillyard said. “If the people don’t want to repeal that then I think we really face the issue of expanding into services, because we don’t solve the problem.”
Educators have expressed alarm about removing the constitutional earmark, but lawmakers have said they need flexibility to use income taxes for other state needs now paid for out of the state’s general fund that’s largely made up of sales taxes.
Without that, Hillyard said lawmakers will have to look for new sources of sales tax revenue, and that means taxing more services.
“The minute I say it now, they say, ‘Oh, you’re threatening us.’ I’m not. I’m just giving the reality of what we’re going to do. But I don’t think there’s much talk of that until after a vote of the people. So if they say no, they tie our hands in certain ways and I don’t think they’ll like the results.”
Clarification: Portrait photography services and photofinishing laboratories were on a list of services proposed to be subject to sales taxes by the Legislature’s Tax Restructuring and Equalization Task Force in October, and among the services later not included in the first bill draft released in November. The Utah State Tax Commission later clarified that the photography services considered for taxation are already being taxed.