Tax reform task force won’t get underway until May according to legislative leaders

Utah Capitol 05

We won’t know until mid-May which 10 state legislators will be on the Tax Reform and Equalization Task Force, House and Senate GOP leaders told on Wednesday.

HB495 sets up the task force, which at first was just going to study expanding the state sales tax base, but later was expanded to include finding other ways to help stabilize the state General Fund, which has not been growing as quickly as the Education Fund.

We all remember the intense battle over HB441 – the Legislature’s 2019 general session bill that would have greatly expanded the sales tax base to include most services that are not now taxed.

Overall, HB441 would have been revenue neutral – for the first year, the state sales tax rate would have dropped from 4.85 percent to around 3 percent.

But down the road, because of the expanded base to include services – like attorney fees, haircuts and plastic surgeries – the sales tax would have brought in more money.

That is needed because the sales-tax-funded General Fund is falling behind, and the income-tax-funded Education Fund is growing more quickly to keep up with demands in public schools and colleges.

The task force, once constituted, will include five senators appointed by President Stuart Adams, R-Layton, and five House members appointed by Speaker Brad Wilson, R-Kaysville.

There will be one Democratic legislator from each body, the rest Republicans.

In addition, the president and speaker individually may appoint two non-voting members who are not lawmakers.

In doing so, both leaders will consult GOP Gov. Gary Herbert to see if he wants a few folks on the task force.

Herbert has taken a bit of a backseat politically on this sensitive issue – broadening the state sales tax to services.

He called for such an expansion in his recommended 2019-2020 budget back in December. Reiterating it in his State of the State address at the start of the general session.

But Herbert didn’t give any specific services to be taxed.

He agreed with HB441 as it was being drafted, kept in the loop, so to speak.

And Herbert agreed when GOP legislative leaders pulled the plug on the bill late in the 45-day session, saying it was too complicated and the public needed more time to react to the idea of including most services in the sales tax base.

This is clearly a hot political potato.

Other Utah governors have tried to expand the sales tax base, all failing.

But things are getting serious.

The next budget will be the last where any sales tax revenue can be put into Utah’s colleges and universities. All their funding will have to come from the state personal and corporate income taxes – with the future reality being that public education, K-12, could see less growth money than otherwise.

So, how does Utah get more sales tax money down the road?

Clearly this is by broadening the base – which needs to be done anyway as the nation’s and Utah’s service sector economies take bigger and bigger pieces of the economic pie.

Herbert and GOP leaders said, at first, there could be a June special session to adopt the new broader sales tax law.

That timeline won’t be met.

Then they said an August special session.

But that likely won’t be met, either.

In fact, some lawmakers are talking about putting off the huge sales tax overhaul issue until the 2020 Legislature, starting next January.

Problem with that is 2020 is a big election year – an open governor’s seat (Herbert is not running again), all 75 House members up and half of the 29-member Senate.

Accordingly, Adams and Wilson may be looking for five members of their bodies for the task force who may not be running for re-election (in the House), or may be in mid-term if in the Senate.

Or, maybe they will appoint members who are in safe Republican districts and so don’t need to worry about a voter backlash.

Who will Herbert want on the task force?

Well, since Lt. Gov. Spencer Cox – who is almost certain to run for governor next year – will be tarred by whatever the Legislature does on sales tax reform, Cox may want to be on the task force as a non-voting member just to keep track of things.

We’ll see next month who will be picked for the rather unfriendly job of deciding which services will get taxed by the state in years ahead.