Utahns would see upwards of a 10 percent cut in their state income taxes, along with some other income tax savings, in a comprehensive state tax system overall coming from this summer’s Tax Reform Task Force, UtahPolicy.com has learned.
The task force’s overall recommendation will be made public sometime Friday morning, sources say.
Some of the recommendations will be welcomed — like the personal income tax cut, in the neighborhood of $75 million-to-$80 million overall.
Others more controversial, like asking voters to remove the constitutional earmark that now requires all corporate and personal income taxes go only to K-12 public schools and universities.
Or put the full state sales tax back on to unprepared food.
Here are some of the highlights of the task force recommendations:
— The current 4.95 percent flat-rate income tax would be reduced to 4.49 percent to 4.65 percent, depending on final decisions by legislators.
Along with some other changes to deductions, the average family of four making $60,000 a year could see a $400 state income tax reduction.
Senior citizens Social Security income, up to $60,000, would see a tax credit. This idea has been proposed before but never adopted.
One of the Democrats on the task force, Sen. Karen Mayne, D-West Valley, has been pushing this idea, and GOP sources UtahPolicy.com talked to Thursday night said she should be given credit for getting this recommendation.
— Place all of the state sales tax back on unprepared food bought at grocery stores.
For low-income Utahns, a $100 per person, per family refundable income tax credit would be adopted. For example, a household of 5 would see a $500 credit.
Many low-income folks don’t file income tax returns since they don’t owe anything. But by making this a refundable credit, low-income folks would file returns to get that check in the mail from the state, the thinking goes. And so the additional burden of paying a small sales tax on unprepared food would be addressed, sources said.
As income goes up, the credit would be reduced, and families making $65,000 or more a year wouldn’t get it.
— The current sales tax base would be expanded to some services, but not nearly as broadly as was considered (but rejected) in HB441 of last general session.
The exact service-based operations are not yet decided but could include services now taxed in other states — like Uber rides, travel booking sites like Expedia, and veterinary bills. Attorneys’ fees, doctor fees, and other professional fees, in this plan, would not be taxed, sources said.
But some others would be, like newspaper sales, sports instruction, motor vehicle towing, streaming media, peer to peer ridesharing, parking lots and garages and shipping and handling when part of a taxable sale.
Also taxed would be a variety of special private personal schooling, like yoga classes and public speaking classes.
— Sales tax rates, in general, would not be raised.
— In a separate bill to be introduced in an upcoming special session, the current state constitutional earmark that all income taxes go to higher and public education would be eliminated.
Such a change would have to pass by two-thirds in the House and Senate, and then be approved by a majority vote in the 2020 election.
Sources said several GOP leaders have been reaching out to the UEA — the main teachers union — and the state school board association, among other public education-backers.
It is hoped that these groups won’t actively oppose the amendment, even if they can’t support it. In other words, stay neutral in the 2020 vote.
But various guarantees will be made to public school backers that schools will continue to see the majority of budget increases in years ahead.
Over the last five years, the GOP-controlled Legislature has increased public school budgets by 30 percent, but over the same time frame local school districts, on average, have only increased their spending by 11 percent.
In short, it’s time locally-elected school boards did more to fund their own schools.
— The current alcohol profits that go towards the school lunch program — which is really a school funding issue — would go into the state General Fund, which, as is known, is suffering because the sales tax is not bringing in as much money as the income tax.
— The state gasoline tax will NOT be increased in this plan.
However, the current tax exemption given to distributors of motor fuels, including commercial jet fuel, will be eliminated or reduced.
The exemption removal could bring in $271 million to the state Transportation Fund, which has been subsidized to the tune of $650 million a year in sales tax.
If the distributors pass some or all of that exemption along to gasoline retailers, then, yes, Utahns would pay more at the pump.
But the idea of the exemption has always been that distributors would pass along the exemption savings to consumers. Yet, over time, Utah drivers have seen gasoline prices among the top 10 highest in the nation, so clearly, GOP sources say, the exemption has not been working as planned. So why continue giving it?
— Besides motor fuels, a laundry list of current sales tax exemptions would be removed, like electricity on ski lifts, coin-operated laundries, vending machine food that costs over $1, sales tax not imposed on public transit, tour operators, fine arts schools, language schools, private driver training, installation of tangible personal property (like charging to install an expensive TV/video system), and more and more.
Of course, trade associations for the above will be lobbying lawmakers not to take away such sales tax breaks.
The key, GOP sources said, is to keep tax exemptions that make sense — in other words, to collect the sales tax would cost so much as to make the collection improbable.
The state rental car/truck tax would go from 2.5 percent to 4 percent.
The current plan by GOP legislative leaders is to call a special session before year’s end to pass some or all of the task force’s recommendations.
The constitutional income tax earmarking would come as a separate bill — so some legislators who are in swing districts and could be targeted by a “yes” vote by the teachers’ union in re-election next year could vote “no.”
The task force recommendations are, overall, an aggressive attempt to deal with the structural problem within the current state tax system.
But even if passed, sources said, the solutions deal with problems for seven to ten years.
It may be best to continue the tax task force as a yearly study committee, several sources said.
Especially as electronic cars and trucks take over Utah’s private and commercial operations, there must be some kind of floating user-based tax changes to get adequate monies into the Transportation Fund’s road repair and construction systems.
There’s no doubt the task force’s recommendations are a very big political lift, and it remains to be seen how much can be accomplished over the next two months, or if much, if not all, will be put off until January’s 2020 general session.