Between the Utah State government’s two major revenue accounts, the state should see a $97 million tax surplus for fiscal year 2018-2019, which ended July 31.
That’s a $140 million surplus in the Education Fund and a $43 million deficit in the General Fund – thus the overall $97 million surplus.
(Click here or on the images to see the snapshot as a downloadable pdf.)
Later this year, it’s expected that the Legislature will meet in a special session to debate and vote on “reforming” the state’s tax system, which could well include placing the sales tax on a number of services which are now not taxed, like Uber rides, haircuts and attorneys’ fees.
While some other state tax would be cut, most likely the income or sales or both, so the tax hikes would be revenue neutral, lawmakers would still have to convince voters that this is a good idea.
And with a $97 million surplus – following a $300 million surplus in the 2019 Legislature – that could be a political heavy lift.
The Legislature’s tax reform task force has finished its public hearings around the state and is ready to start formal deliberations on how the state tax system should be reformed.
Sen. Lyle Hillyard, R-Logan, co-chair of the task force, tells the Deseret News that lawmakers won’t “tax everything,” but likely will look at taxing some services that are taxed in other states.
GOP legislators have already put aside around $90 million to be used as a tax cut, helping to soften the blow of extending the sales tax to now-untaxed services.
So, while you may pay more for your haircut, because it is taxed, you will pay less on other retail purchases – like cars and appliances – because overall other tax rates will be reduced.
Still, Republican Gov. Gary Herbert and GOP legislators may well feel some pushback from voters over “reforming” the tax system, especially in times of revenue surplus for the state.
The July Monthly State Revenue Snapshot, put together by the governor’s budget office and the Legislative Fiscal Analyst, shows various state taxes brought in more than budgeted for over the last 12 months.
Together, the education and general funds were estimated to grow by 5.7 percent. They actually grew by 7.2 percent.
While the general fund’s sales tax is up 3.6 percent, it was expected to increase by 5 percent. Thus the estimated $43 million budget deficit in that fund.
That’s the perfect example of the problem with the state sales tax, GOP leaders say.
Sales tax revenue is growing. It just is not growing as fast as the state’s personal and corporate income tax revenue.
And the old “three-legged-stool” of state government tax funding – income, sales and property – is out of balance.
Critics of tax reform – and there are a number of GOP officeholders who are crying out already – say as long as the state revenue is growing faster than budget demand (and thus surpluses are coming), there should be no overhaul of the tax system, which by design would bring in more tax revenue down the road, if not today.
Critical to the problem is that the Utah Constitution says all income tax revenue must go only to higher and public education – the Education Fund.
Income tax revenue is up by $143 million MORE than budgets call for. But that surplus can’t be spent in the General Fund, which operates all non-education programs, like public safety, the environment, corrections and on and on.
The Education Fund is up 9.1 percent over the last 12 months, bringing in more than the estimated 6 percent, the new report shows.
The political task for Herbert and GOP legislative leaders is to make the case (upon recommendation from the task force) that the state’s taxing system needs to be overhauled, with new taxes coming on all kinds of services, while other tax rates are reduced accordingly.
