Utah Capitol 19

A new state Tax Commission report indicates that Utah is, once again, running a tax surplus this year, likely over 100 million dollars.

And while the surplus for fiscal 2020, which ends June 30, may not be as large as in recent years -- perhaps $130 million to $150 million instead of $250 million or $300 million -- its very existence could be a headache to GOP legislators and Republican Gov. Gary Herbert.

That’s because Republican state leaders are working to pass an extensive tax reform/restructuring plan that will include some tax increases and other tax cuts. (Overall, the latest plan calls for an $80 million income tax cut.)

And opponents -- including some GOP officeholders -- are against the tax overhaul, saying with the state running large tax surpluses year after year, such changes are not needed.

It’s a weird political situation.

Usually, the governing Republicans love tax surpluses, as it allows them to cut taxes or put money aside for a rainy day while fully-funding student growth in public education -- always a hot spot in the state budget.

But politically speaking, revenue surpluses particularly this year may be embarrassing, if not a handicap to getting some reluctant GOP lawmakers to make the changes leaders and Herbert want.

The monthly State Revenue Snapshot put together by the Legislature’s nonpartisan budget office, based on Tax Commission figures, is full of warnings -- don’t take these numbers too seriously, things could certainly change, and so on.

Early next month, Herbert will release his recommended 2020-2021 fiscal year budget. And at the same time, new official revenue estimates for this fiscal year will be made.

We’ll get a better idea then precisely how large the tax surplus this year may be.

But there are indications found buried in the new TC23 snapshot:

-- In the first four months of this fiscal year, lawmakers budgeted sales tax revenue growth at 6.2 percent.

But it only came in at 4.2 percent.

That shortfall shows once again what the whole Tax Reform Task Force’s work is all about: dwindling sales tax growth when compared to individual and corporate income tax growth.

The state’s tax structure is out of whack.

The sales tax base must be broadened; the best way by extending the sales tax to services not now taxed.

-- Meanwhile, the new report shows individual income tax over the last four months has gone up 11.3 percent, while it was estimated to increase by only 2.1 percent.

Now, remember, these numbers are only for the first four months -- and the income tax flows into state coffers in unequal spirts and starts. Not until after income tax filings are due April 15 do state economists have a real good idea of the overall tax take in a year.

-- The corporate income tax is down 28 percent -- the only tax source that has a red type warning “below target range.”

However, overall, between the General Fund (sales tax) and Education Fund (income taxes), the tax take is up 5.5 percent, while the budget calls for just a 3.5 percent increase in tax collections.

That 2-percentage-point difference is around $50 million more for the first four months than anticipated in tax revenue -- or $150 million over 12 months.

And this comes on top of an $85.5 million tax surplus for fiscal 2019, which ended June 30 of this year.

If it turns out that lawmakers have $210 million or $240 million in surplus come the January general session, that will be a bit less than in recent years.

But it further shows that the fiscally conservative Legislature and Herbert are doing an excellent job of running state government when it comes to spending -- in the black and not in the red.

How ironic that tax surplus may actually harm the Republicans’ efforts to reform the state tax system -- with opponents armed with real cash in buckets while arguing the state tax structure is just fine as it is.