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SALT LAKE CITY, — After months of study and debate, the Utah Legislature is about to vote on a sweeping tax reform proposal that will impact every person in our state.
The Tax Restructuring and Equalization Task Force was created by the Utah Legislature earlier this year to research and recommend tax changes. The resulting proposal, SB2001, is at the center of Thursday’s Special Session of the Utah Legislature. The bill will be debated and possibly receive a vote.
The task force was created to address declining tax revenue.
According to an October 2019 report from Utah Foundation, Utahns’ sales tax burden decreased 27% from 2007 to 2016.
“That’s not necessarily because our taxes are lower, but because Utahns overall are earning more income,” said Christopher Collard, research analyst with the Utah Foundation. “So a smaller share of their total income is going towards paying taxes.”
Lower sales tax revenues mean less money for the state to pay for things that come out of the General Fund.
The proposal is 199 pages long, and unless you’re an accountant, making sense of the changes can be hard to digest. Bottom line: the recommendations would cut overall income tax, not only for families, but also for corporations. But other taxes, including sales tax, would go up.
Proponents of the reform tout the tax benefits for Utah families. The Office of the Legislative Fiscal Analyst shows the biggest breaks will benefit middle class families with five or more children.
Income tax changes
Income tax changes account for the largest tax reductions for Utahns.
The bill would slash the income tax rate for individuals and corporations from 4.95% to 4.66%.
Those with children would see an increase in the Utah Dependent Exemption, changing the credit from $565 per dependent to $2,500 per dependent.
“What that means is larger families will see a little bit of a higher decrease overall,” said Collard.
The proposal also creates an income tax credit for certain Social Security retirement income, and creates a state earned income tax credit. Those who received a federal earned income tax credit on their prior year taxes would be eligible for this credit.
Sales taxes will increase, including on food
Sales taxes are set to increase under this proposal, the biggest change being to food tax. Currently, Utahns pay 1.75% tax on groceries. That number would jump to 4.85%.
Certain current tax exemptions would also disappear, meaning Utahns would now have to pay tax on things like:
- Vending machine snacks*
- Dry cleaning, laundry services, and laundromats*
- Car washes and car detailing*
- Newspapers and newspaper subscriptions
- Ski lift electrical bills
- College sports event tickets
- Train engine fuel
- Textbook sales
- Digital streaming services
*These items will remain tax-exempt so long as they are sold through a cash only machine with no other way to pay for the service, such as coin-operated laundry facilities.
New services will now be included in sales taxation, including:
- Installation charges on tangible personal property or a product transferred electronically
- Rideshare services like Lyft & Uber, shuttles, sightseeing tours, and taxis
- Pet boarding and grooming
- Alarm system monitoring
- Seller-hosted pre-written software
Breaking down the savings for families
To help get a practical look at what the tax reform would look like for Utah families, the KSL Investigators asked Collard to crunch the numbers for families in low, middle, and high-income levels.
His parameters included the proposed income tax rate reduction, the Utah Dependent Exemption, and increases in food tax for a family of four (two adults, two children) based on USDA estimates for monthly food bills in each income range.
Low income family: $25,750 gross annual income
A family of four earning at the poverty line who spends $342 per month on food, would not pay any income tax according to Collard’s calculations, but ultimately pay $199.04 per year in food tax.
Because they would qualify for the suggested $125 annual food tax credit, the impact of the change of sales tax on food would be $2.22 annually.
Overall, their total annual savings comes to $31.13.
Median income family: $65,325 gross annual income
A family of four earning the median income according to 2016 U.S. Census data would spend approximately $727 per month on food and pay $423.11 annually with the higher grocery tax. Their income does not make them eligible for the $125 annual food tax credit.
Collard calculated an income tax burden of $2,082.13, which means a savings of $424.66 from the current rate.
The total annual savings for this family comes to $154.22.
High income family: $168,000 gross annual income
We chose this salary as it is within the highest income group listed on the Tax Change by Family Size and Income Group chart.
This family would spend $1,112 per month on food, meaning they would pay $647.18 every year in sales tax on that food.
Their income taxes drop $722.42, meaning their total tax burden lowers by $308.75, the most savings of the different income groups.
“High income earners, they contribute a lot. So it makes sense when you lower the rate, they’re the ones who see the biggest savings,” said Collard. “These changes largely benefit those with larger incomes and those with larger families.”
Those who benefit the least: smaller families and individuals with lower incomes.
According to the Task Force summary, single people earning $60,000 per year would not see any change at all, for better or worse.
Fuel taxes also rise
“Motor fuel is going to be taxed. That’s going to impact how much you pay at the pump,” said Collard. “They’re planning on raising $117 million out of the higher taxes on motor fuel.”
Currently, motor fuel and special fuel are tax-exempt. Under the proposed tax changes, they would now be taxed.
Diesel fuel remains tax-exempt, but lawmakers would allow an excise tax on diesel fuel. This translates to $0.06 per gallon until December 31, 2021. Starting January 1, 2022, that excise tax would rise to $0.10 per gallon.
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