Sales tax used to be the largest source of public revenue in Utah, but in recent years, income and property tax revenues have overtaken sales taxes in importance. This is among the findings in Utah Foundation’s new report, The Everyday Tax: Sales Taxation in Utah.
The report compares Utah’s sales tax to taxes in other states and looks at the factors affecting its growth. It also looks at exemptions and earmarks, as well as options for broadening the sales tax base.
Key findings of the report include:
- During the past 45 years, Utah has seen the nation’s second biggest decline in taxable sales as a proportion of consumer expenditures.
- Beginning in 1975, Utah’s sales tax imposed a larger tax burden than income or property taxes. During the past two decades it has trended downward to impose the smallest burden of the three.
- Utah had essentially the same real per capita sales tax revenue in 1978 as in 2016 – meaning that, as costs climb, the state is losing purchasing power from this revenue source.
- More than 20% of the state’s sales tax revenues are earmarked – meaning the expenditures lack standard annual legislative oversight, and the government’s flexibility to meet changing needs is constrained.
- Among the nine western continental states that collect sales taxes, Utah has the lowest sales tax burden.
- If Utah broadened the sales tax base to include all personal consumption transactions, the state could drop the effective rate to 2.1% (from 6.2% currently) and generate the same amount of revenue.
- Sales taxes on services are supported by economists and policy analysts across the ideological spectrum. However, expanding sales taxes to capture services can face intense pushback from industries to be affected and from citizens who fear the change will result in net tax increases.
“‘Broaden the base and reduce the rate’ is a common mantra in economic and policy circles, but when it comes to the sales tax that’s easier said than done,” said Utah Foundation President Peter Reichard. “Still, the public and policymakers need to take a hard look at exemptions and exclusions to ensure we’re not putting undue upward pressure on sales tax rates.”
The Everyday Tax: Sales Taxation in Utah is the third report in a series looking at Utah’s main sources of tax revenue. This report and the others in the series are available on the Utah Foundation website, www.utahfoundation.org. Principal author Christopher Collard is available for media interviews.
Utah Foundation is a non-partisan public policy research group. Founded in 1945, the Foundation publishes research on a range of topics, including natural resource issues, taxation, public school funding, health care and many others. The mission of Utah Foundation is to promote a thriving economy, a well-prepared workforce and a high quality of life for Utahns by performing thorough, well-supported research that helps policymakers, business and community leaders, and citizens better understand complex issues and providing practical, well-reasoned recommendations for policy change. More information is available at www.utahfoundation.org.