I say “might” because successfully changing tax law won’t be easy.
Ten state lawmakers, including two Democrats, plus four nonvoting tax experts who supposedly will guide the discussions with a dry-eyed sense of reality, will try to craft a better tax structure within the bounds of what is politically possible.
But will they be up to the challenge of answering this essential question: Why is reform necessary in the first place?
Some business owners and others are challenging the very notion that the state has a sales tax “problem.” I’ve met with several of these people — mostly professionals who say if they need to begin collecting sales taxes for their services, it might drive them out of state.
They point to figures available from the State Tax Commission, showing how sales tax revenues are up over the past several years.
In fiscal year 2017-18, the state collected $220.2 million more than the previous year, for a total of about $2.7 billion. During the first nine months of the current fiscal year, collections were up by another $104 million.
And, as they point out, the state has yet to see what the impact will be from a recent Supreme Court decision allowing states to begin taxing online sales. This surely will bring in more money that has been lost through shifting consumer spending patterns.
And that’s not to mention the current $1.1 billion state surplus lawmakers faced during their last session.
So, with money like this rolling in, where is the crisis?
The answer seems to be that, while sales tax revenues are growing, income tax revenues bring in more — nearly $4 billion last year, which represented an increase of $389.5 million.
In Utah, all income taxes must go toward education. Sales taxes pay for most of everything else.
The problem, then, may be an allocation, not a collection, imbalance. But when the conversation turns in that direction, things get politically difficult in a hurry.
Would any lawmaker, let alone a majority of them, have the guts to propose changing the state constitution so that income taxes could be used for something other than education? Even if they promise to continue giving schools what they need, such a thing might look like a step back from that commitment.
But if they won’t do that, would they have the guts to tackle the many sales tax exemptions they have granted businesses through the years?
The State Tax Commission last year said 69 of these add up to $650 million per year, or about one-fifth of potential sales tax collections. These have been granted to businesses such as Delta Airlines, major employers who have been given breaks because of their importance to the local economy.
As a Utah Foundation report said last year, these exemptions come with good arguments, but “exemptions can create economic distortions and unfairly benefit specific industries over others.”
Would they undo the many earmarks, such as for roads and transportation, that eat away at the state’s general fund?
That Utah Foundation report laid out the argument for why Utah may have a sales tax problem. Over the past 45 years, it said, only one other state has seen sales tax collections decline more in relation to how much people are buying. The state collects about as much per capita in sales taxes today as it did in 1978, meaning, “as costs climb, the state is losing purchasing power…”
The report argues people are spending more on services, especially medical services, than in the past.
To which some say, so what? Who says sales tax collections have to equal income tax collections? Why not impose a statewide residential property tax, or a gross receipts tax or perhaps tack a filing fee on income tax returns?
And while we’re at it, the state constitution says not only income taxes, but all taxes on intangible property must be used for education. Some say a tax on services might be interpreted as a tax on intangible property.
All of this can get complicated mighty fast, which means plain-speaking communication and public involvement will be essential — as well as listening to those who might be affected.
Those things were sorely missing from attempts to do this during the last legislative session. That must not be the case going forward.