SALT LAKE CITY — Utahns will pay less in income tax but more in sales tax on food, gas and some services under a massive tax reform bill passed by lawmakers in a special legislative session Thursday night following last-minute changes that include sending out checks to low- and moderate-income residents.
Some Republican lawmakers joined Democrats in the House and Senate in voting against SB2001, but the bill passed the Senate 20-7 and then the House, 43-27 after the version advanced Monday at the final meeting of the Legislature’s Tax Restructuring and Equalization Task Force was substituted on the Senate floor — twice.
Because the bill was amended in the House to make a technical clarification, it had to go back to the Senate for a final vote, where it passed again, 19-7. Because the bill didn’t reach a two-thirds majority in either the House or Senate, it won’t take effect for 60 days and is also vulnerable to a citizen’s referendum.
Utahns with dependents will see a one-time check for as much as $200 early next year — and many will also receive a grocery tax credit in mid-2020, after the full sales tax is restored on food sales April 1.
The bill’s sponsor, Sen. Lyle Hillyard, R-Logan, had to keep talking about the legislation for about 45 minutes while the fourth substitute was readied for introduction. In the end, lawmakers approved what is expected to add up to a $249 million tax cut, including $88 million in one-time breaks.
“We’re trying to respond quicker. Because in reality, we want to make sure as we do the tax cut, people get the effects of the tax cut sooner rather than later,” Senate President Stuart Adams, R-Layton, told KSL earlier Thursday.
Gov. Gary Herbert praised passage of the bill in a statement following the close of the special session.
“I commend the Legislature for their courage and forward thinking in working to address the difficult issue of tax reform,” he said. “The bill they passed this evening takes measurable steps toward improving the stability and equity of our tax system. We have meaningful work yet remaining. However, these steps will improve the future of our state and its people. I look forward to signing it.”
Both House and Senate Republicans met behind closed doors before the session to hear the newest additions to the plan. Some GOP lawmakers, including Sen. Jake Anderegg of Lehi, said they were against the bill until what’s being called a “pre-bate” was added to help offset the increase in the state sales tax on food from 1.75% to 4.85%.
“I was a pretty hard no,” Anderegg said. “I just want to put it on the record, that’s a major component to this so that people cannot say that we are trying to balance our budget on the backs of the most vulnerable. That was a deal breaker for me.”
Even supporters of the bill said they still had concerns. Hillyard said he was disappointed the list of new services being taxed wasn’t longer. It had been trimmed repeatedly and now includes Uber rides, streaming media, dating referrals, pet boarding, towing, newspaper subscriptions, and a few other services.
Adams told the Senate the task force would not be repealed and would look at further changes.
Democrats in the House and Senate tried and failed to get a variety of amendments to the bill through, including raising the corporate income tax rate above 6%. The bill lowers both the individual and corporate income tax rate from 4.95% to 4.66%.
Their biggest concern was the impact of the tax changes on the poor. Senate Minority Whip Luz Escamilla, D-Salt Lake City, said that while paying a few more dollars on a grocery bill might not mean much to some people, for others, it’s having to choose between “a gallon of milk or diapers.”
Rep. Jen Dailey-Provost, D-Salt Lake City, tried to repeal the sales tax hike on food, arguing it adds taxes “on the backs” of Utah’s most vulnerable.
”There are arguments for a food tax, but I understand we have the capacity and the creativity to do this in a much better way,” she said.
House Majority Leader Francis Gibson, R-Mapleton, refused her substitute, taking issue with her claim that it unfairly impacts Utah’s most needy. He pointed to the “pre-bate” and food tax credits as “strictly aimed” at that population to offset the impact.
Rep. Jeff Stenquist, R-Draper, strongly supported the bill, calling it perhaps “the largest tax cut in the history of the state of Utah.”
”I don’t think I can go back to my constituents and look them in the eye and say, ‘I voted no on the largest tax cut the state has ever seen,” Stenquist said.
Stenquist said the bill didn’t go as far to “provide the tax restructuring that we hoped it would, but it does take us a good step in the right direction.”
Though it may be an “unpopular” bill now, Stenquist said once “people start seeing more money in their paychecks next year and they start seeing larger tax refunds ... then it will become a very popular thing.”
About $12 million will go to Utahns earning below the federal poverty level as an early, one-time payment next July. The amount will be a quarter of the grocery tax credit of up to $125 per person for the first four members of a family and $50 for the rest. Other Utahns will see the credit when they file their 2020 taxes in 2021.
Another $500,000 is set aside for an outreach effort to help ensure lower income residents who didn’t file taxes last year still get the credit.
There’s also another payment for even more Utahns, those who qualify for the increased dependent exemption in the bill. Adams said checks likely totaling between $25 and $200 would be mailed to them in February or March. The bill raises the exemption from $565 to $2,500 for low- and moderate-income families.
The exemption increase is intended to make up for the effects of federal tax changes made two years ago.
About $60 million will go out to taxpayers, Adams said, a little more than half of the $115 million already set aside in the bill for a full year of the increased exemption. The amount of each check would be calculated based on previous tax filings.
Adams said even though the amount of money being withheld from paychecks for state income taxes could be altered next year, Utah families wouldn’t really see the impact of a higher dependent exemption until they pay taxes on next year’s earnings in April 2021.
“We were concerned that was too long,” the Senate leader said. Because it was too late to change the tax forms and tables for this year’s earnings, due in April 2020, he said the Utah State Tax Commission suggested sending checks instead.
A $6 million earned income credit for Utahns participating in a state program aimed at curbing intergenerational poverty was initially eliminated from the bill, but then was added back in the final substitute.
The changes came amid concerns being raised about dealing with the bill in a special session rather than waiting until the 2020 Legislature begins meeting in late January. Adams and House Speaker Brad Wilson, R-Kaysville, have said they want tax cuts in place by Jan. 1, an election year for all of the House and half of the Senate.
The Alliance for a Better Utah responded strongly to the additions to the bill.
”When the checks and other shiny trinkets meant to distract are taken away, voters overwhelmingly oppose this tax reform proposal. Instead of scrambling to secure their reelections next year, lawmakers should realize they shouldn’t be pushing this through tonight while still making changes only hours before. This is horrible policymaking and lawmakers should be absolutely ashamed they’re trying to pull off this sham,” said the alliance’s executive director, Chase Thomas.
Tax reform is seen as necessary because sales tax revenues continue to lag behind income tax collections, as consumer spending shifts from goods to services. Under the Utah Constitution, income taxes can only be used for education while sales taxes pay for much of the rest of state government.
The tax reform effort started with a bill introduced in the 2019 Legislature that would have imposed new sales taxes on a wide range of services. That bill failed as businesses and others protested the new taxes, and a tax reform task force was created to come up with an alternative.
Other tax reform issues, including beginning the process to amend the state constitution to remove the earmark on income taxes for education and making it easier for local school districts to raise property taxes, are not on the special session agenda.
The only other bill lawmakers considered in the special session was a $3.9 million one-time appropriation for behavioral health services. The bill, SB2002, moved $3.9 million from unused appropriations for Medicaid Expansion, due to lower than expected Medicaid enrollment, to provide funding for behavioral health treatment at the request of county health departments. The bill passed with no opposition.