Utah sales, income taxes grow, but lawmakers say tax reform still needed

Utah sales, income taxes grow, but lawmakers say tax reform still needed

(Silas Walker, KSL, File)

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SALT LAKE CITY — Ahead of revenue projections anticipated for later this week, the Utah State Tax Commission released actual 2020 revenue collection figures Tuesday.

And while both sales tax and income tax saw healthy bumps in growth, lawmakers say the numbers still show why tax reform is needed.

In the first seven months of the 2020 fiscal year, which began mid-2019, the state’s general fund and education fund revenue collections totaled $4.3 billion — representing a year-over-year growth rate of 7.6%, above a consensus revenue target set in November at 4.3%, according to a monthly state revenue snapshot report released Tuesday by the Governor’s Office of Management and Budget and the Legislative Fiscal Analyst Office.

Both general fund revenue, which is made up of sales tax, and education revenue, which is made up of income tax, surpassed their set targets, meaning the state is still enjoying a booming economy, lawmakers say.

However, legislators still say Utah will likely have a tough budget year this year, even with all that growth, because of a continuing “structural imbalance” between available general fund sales tax revenue and income tax tied up in the education fund. Utah’s Constitution requires income tax to only be used for education.

“If you really look at that those numbers, it actually substantiates what we’ve been saying,” Rep. Brad Last, R-Hurricane, the House chairman of the Budget Committee, told KSL on Tuesday, referring to lawmakers’ past case for tax reform.

That tax reform package collapsed last month amid public backlash.

“We have a lot of income tax and very little sales tax,” Last said, “and while there’s been growth in the sales tax, probably from internet sales, we still have $40 million basically in the general fund of new money, which when you consider the amount of requests we have for appropriations, that’s not very much money.”

Last estimates the Utah Legislature is facing roughly $500 million in requests this year, compared to the estimated $40 million that will be available to spend in the general fund.

Still, Last said the revenue growth shows Utah’s economy continues to boom.

“We just have incredible economic growth. We have almost no unemployment, and a lot of exciting things are happening in Utah,” he said. “The future’s bright.”


According to revenue reports, Utah’s general fund reached $1.7 billion in the first seven months of the 2020 fiscal year. The reports say general fund revenue is growing 7%, up from last month’s 6.7% and above a November target set at 5.1%. If held over the remainder of the fiscal year, the higher sales tax growth rate represents a $40 million increase to the general fund, with fiscal analysts attributing that growth to increased sales tax on online sales and partly to a “hot economy.”

Meanwhile, the state’s education fund reached $2.6 billion in the same time period, representing a year-over-year increase of 8.1%, likely resulting from individual income tax growth of 10.5%, but offset by “weak, but on-target, corporate tax payments,” according to the report.

Even though Utah State Tax Commission figures show sales tax slightly outpacing income tax growth, reporting sales and use tax up by 11% compared to 10.5% for income tax, not all of that sales tax revenue goes to the state’s general fund. After factoring sales tax earmarks that don’t go into the general fund, sales tax is only up 7%, according to the State Tax Commission. Much of those new earmarks are reserved for Medicaid expansion.

Bottom line, Last said the Utah Legislature is again facing another year with little wiggle room for new requests out of the general fund — even though the revenue growth could help a little. Still, Last said legislators only have the estimated $40 million out of the general fund to work with.

“Unless we do accounting gymnastics,” Last added, referring to the strategy of freeing up some money by funding higher education with either education or general fund sales tax money.

“But we’re getting to a point where almost all of higher education is now funded with income tax dollars, so we don’t have any more flexibility to move money back and forth there,” Last said.

So as lawmakers have been saying “all along,” it’s likely going to be a tough budget year, and again shows why the Utah Legislature must pass a tax reform package, he said.

Sen. Jerry Stevenson, R-Layton, who sits alongside Last as the Senate budget chairman, agrees.

“It tells us exactly what we’ve been preaching for about a year and a half,” Stevenson said. We’re going to be very lightly funded again in the general fund.”

After consensus projections are released later this week, which lawmakers plan to discuss in their caucus meetings Thursday, Stevenson predicted there may be even more money from new growth — but he expects it to go to the education fund, pointing to Utah’s record-low unemployment rate and increasing wages. He said the general fund may see a bigger increase, but he doesn’t predict it to be much more than the $40 million projected.

I’ve never said we have a money problem. We have a distribution problem. That’s consistent; I’ve always said that.

–House Majority Leader Francis Gibson, R-Mapleton

“Now I may be standing here with crow feathers sticking out of the side of my mouth on Friday, but I think we’re probably on track to see some increases,” Stevenson said. “But I don’t think they’re going to be exorbitant.”

House Majority Leader Francis Gibson, R-Mapleton, said Tuesday he hadn’t had a chance to look over the reports, but he “fully anticipated” seeing jumps in tax revenue from growth.

“I’ve never said we have a money problem. We have a distribution problem. That’s consistent; I’ve always said that,” Gibson said, adding that the aim of tax reform is to fix that structural imbalance “while times are good.”

Leaders of the Republican-controlled Legislature have made it clear they want to wait until the 2021 Legislature to tackle tax reform again. But that hasn’t stopped some lawmakers from trying to push for specific tax cuts this session, even though legislative leaders are leery about moving forward with any tax cuts this year.

Last and Stevenson both said discussions later this week could help determine what to do with those bills. But they also said giving those tax cuts before tackling the entirety of tax reform could be problematic.

“The challenge is, I think, if we give tax cuts then it makes it difficult for us to do some of the harder things later on, you know like add fuel tax or whatever else,” Last said. “If you can balance the good and the bad, you can make that happen, but if you’re giving away all of the good stuff and not doing any of the bad stuff ... then later on we have zero flexibility.”

Stevenson echoes those concerns, saying if lawmakers start “pecking away, we won’t have a tax reform package to put together.”

Last said lawmakers would be “wise” to be “very careful about taking on bits and pieces” of tax reform.

“I think we might want to just step back, let things settle for a while, get a new governor in place, come up with a strategy, and try and implement a strategy with a governor who can help us sell it, inform the public about what’s going on,” Last said.

House Speaker Brad Wilson, R-Kaysville, though he has been noncommittal on whether any tax cuts will happen this year, has been less adamant about waiting. He has told reporters lawmakers will “start the process” of deciding if there will be any tax cuts depending on revenue estimates expected later this week.

Last said legislative leaders will make those decisions, but also noted they can’t necessarily stop lawmakers from bringing forward bills.

“If they have bills that they want to pass, we can’t necessarily say, ‘No you can’t run that,’” Last said. “We can talk to them and try to reason with them about why that might not be a good idea, but in the end people that are in this body have the right to run the legislation they want to, and we need to be respectful of that.”

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