The much-anticipated tax overhaul package will likely be made public after the new consensus revenue projections are given to lawmakers on Friday. Even then, it may take some time to work out the kinks in the plan.
Republican and Democratic lawmakers were briefed on the broad outlines of the plan Tuesday. Republicans were given a more in-depth outline while Democrats were told much less information according to legislators. According to several lawmakers who asked their names be withheld the plan is still to impose sales taxes on a variety of services to broaden the base while cutting both income and sales taxes.
“A lot of sacred cows are going to be gored,” said one GOP lawmaker who was present for the closed caucus presentation.
That means legislators could have a real fight on their hand as businesses in Utah that previously were exempt from sales taxes will now start collecting that revenue for the state.
Sen. Lincoln Filmore, R-Sandy, who is heading up the sales tax overhaul for the upper body, said the problem is an urgent one. If lawmakers can’t come to an agreement on how to put sales taxes on services, the state’s economy will likely suffer.
“Our General Fund revenues are shrinking. We will not be able to maintain our investments in infrastructure and public safety without this tax overhaul,” he said.
Filmore previously said, in an ideal world, the state would impose sales taxes on all services except for a few carve-outs for housing costs, tuition for education and some medical expenses. The means a lot of previously untaxed sectors of the state’s economy, in theory, will start producing tax revenue. But, the legislature is wading into uncharted territory, and there’s a lot of negotiating before and after the eventual bill is unveiled. That means consumers will start to pay sales taxes on things like Uber rides, streaming video services and haircuts. In conjunction with those new sales taxes, lawmakers are attempting to lower the overall rate to compensate – meaning the plan would be revenue neutral this year, but make Utah’s tax collections more stable over time.
The question is what ultimately gets taxed and what is exempted. That’s the field where the sales tax battle will ultimately be fought.
“I’m worried that we’re going to get bogged down in minutia,” said Filmore. “This is going to affect every part of our economy, so we have to take time so we can get it right.”
But, time is not a luxury lawmakers have. Filmore says the tax reform bill won’t begin to take final shape until after the new consensus revenue numbers are made public later this week, most likely on Friday. That means legislators will have to set their final budget, including the tax cut and shift in sales taxes, with less than three weeks to go until they are constitutionally required to finish their work on March 14.
“We won’t see a bill until the new revenue figures are available…and digested,” said Filmore, implying that it will take a few days to see how those numbers affect the drop in the sales tax rate and an accompanying income tax cut, which are both key parts of the package.
Adding to anxiety on the Hill are indications those revenue projections will be down, which means lawmakers will have less money to spend on their hoped-for tax cut. Wheels within wheels within wheels. The latest trend showed income tax collections had dropped approximately $300 million in January, mostly because Utahns had pre-paid income taxes in an attempt to circumvent a larger tax bill from federal tax reform.