As the debate over sales tax reform and where tax cuts will come this year blossoms on Capitol Hill, Senate President Stuart Adams – who will have a big say in the whole matter – tells UtahPolicy.com that the key issue is policy, not numbers.
In short, Adams, R-Layton, says that Utah must get the broad sales tax policy right – and for him that means not taxing “inputs” to businesses.
It’s taken business advocates – especially Utah’s manufacturing segment – years to finally get the state and local sales taxes OFF of “inputs” – materials used in producing a final product.
It was a battle that former Sen. Howard Stephenson, head of the Utah Taxpayers Association, a business-friendly group, worked on for decades.
For example, if a Utah manufacturer makes exercise equipment, and he has to pay sales tax (let’s say 6 percent) on the steel he uses in his product, then he is 6 percent behind a competitor who makes his product in Oregon, which doesn’t tax steel inputs; doesn’t have a sales tax at all.
Adams says while everyone (including the media) is focusing on how big the tax cut will be, and whether it will be all sales tax cut, or all income tax cut, or a mix, the real issue is how the sales tax reform works – the policy.
“And No. 1 issue for me (in the policy) is not taxing business inputs,” said Adams. That is not a sexy issue, maybe not one easy for TV news to report on, but it is where Utah must land.
GOP Gov. Gary Herbert shocked some Republican legislators when in his State of the State he said if the sales tax is broadly expanded to services, the state rate of 4.85 percent could be cut to 1.75 percent.
As UtahPolicy.com reported, several GOP legislative leaders asked Herbert not to use that number – 1.75 percent. Because it is unrealistic, they believe. But Herbert did anyway, and since that time his office has explained that while aggressive, that 1.75 percent can be reached.
But not if the GOP-controlled Legislature wants to put at least some of the $225 million tax cut into state personal/business income taxes.
Adams said if he was king, he would put all of the $225 million tax cut into income tax reduction. But he’s really not focusing on that now.
The huge issue is sales tax reform – the policy — with how the tax cut comes maybe 10 percent or less of his interests, said Adams.
“I almost laugh” when reporters ask him about how the tax cut will come because it really is not that important to him now – with just three weeks left in the 2019 session and sales tax reform still the heavy lift to come, no bill even introduced yet.
Compounding the tax policy/tax cut mix issues is the latest Tax Commission report that shows state income tax collections down – as was anticipated.
“It’s a real dip,” said Sen. Jerry Stevenson, R-Layton. “If these were the numbers we had to work off of to set the budget, everyone would be in a panic right now.”
Stevenson said the drop in income tax revenue in January, an estimated $300 million dollars, will put a real damper on what gets funded the rest of the session.
“There’s a good portion of budget requests that will never see the light of day now,” he said.
Herbert and leaders entered the 2019 session with an estimated $1.3 billion in one time and ongoing tax surpluses.
Now that ongoing number will likely drop when the new 2019-2020 revenue estimates are released in a few days – and those numbers used to balance the spending plan to be adopted for the next fiscal year before lawmakers adjourn March 14 at midnight.
It is likely the drop will come in state income tax collections, since there’s evidence that some really rich Utahns overpaid their quarterly income tax payments following the 2017 federal tax reform.
Income tax collections were down last month -7.7 percent from the year before, although for other months income tax collections have been up by tens of millions of dollars.
And that, in turn, could affect the mix of the upcoming tax cuts – sales or income.
Perhaps even the amount of the now-scheduled $225 million cut, which would be the largest in state history.
