SALT LAKE CITY — The latest tax overhaul proposal — subject to deliberations by a special task force of Utah lawmakers that ran well into Monday evening — would reduce state taxes by $160 million, double the amount in the prior version.
State income taxes, all told, would fall by $635.5 million while elimination of certain exemptions, new taxes and tax hikes — notably an increase in the sales tax on food — would generate $475.5 million in new revenue. The controversial proposal to boost taxes on groceries, from 1.75% to the full state sales tax rate, 4.85%, would generate an extra $250 million by itself, according to the latest version of the plan crafted by the Utah Tax Restructuring and Equalization Task Force and released late Friday.
The food tax hike has been a particular focus of ire among advocates for the poor, but proponents have noted parallel changes meant to offset the impact they experience. Those include a new grocery tax credit for low- and middle-income families and a new state earned-income tax credit geared to those living in intergenerational poverty equal to 10% of the federal earned-income tax credit. Critics have noted that filing taxes can be a challenge for lower-income taxpayers, but the plan calls for outreach efforts to spread the word about the credit.
Moreover, the grocery tax credit in the updated plan would have a slightly broader impact than in the prior version from Nov. 22. A family of four with a household income of up to $45,062 would qualify for the full credit, $500, while in the prior version, the maximum income level to qualify for the full credit was $35,535.
The new proposal is at least the fourth version since October and stems from a series of public meetings held around the state over the summer by the Utah legislators on the task force, co-chaired by Utah Sen. Lyle Hillyard, R-Logan, and Rep. Francis Gibson, R-Mapleton. Legislative representatives were hoping the new version would become the framework for a formal proposal. And presuming the task force OK’d the plan at their meeting Tuesday, proponents’ hope, UtahPolicy.com said a special session could be called by as soon as Thursday to consider the plan, ahead of the regular 2020 legislative session, set to start Jan. 27.
The overhaul of the tax system is needed, proponents like Hillyard and Gibson have said, because of the evolving source of tax revenue in the state. Significantly, revenue from sales taxes on goods has dipped as untaxed services account for an increasing share of sales, they argue. Changing the way schools are funded — ending the provision in the Utah Constitution earmarking income tax revenue for education and instead tapping sales tax-backed general fund money — has been another element of the plan.
Here are a few more provisions from the new proposal:
The state income tax rate would go down from 4.95% to 4.66%, collectively saving taxpayers an estimated $344.5 million in 2021.
Numerous sales tax exemptions would be repealed, including those on the electricity used by ski resorts for lifts, on certain vending machine sales of $1 or less and on newspapers and newspaper subscriptions, among other things.
The sales tax exemption on gasoline would be removed and an excise tax would be set on diesel, generating around $170 million in 2021. At the same time, the plan calls for the Utah Department of Transportation to study transportation user-fee options over the medium-term so the exemption on gas taxes could be put back in place.
Permitted use by cars with “clean vehicle” decals of high-occupancy lanes would be repealed in 2025. At the same time, free use of such lanes would require three or more people per vehicle, up from two.
Several new sales taxes would be implemented on services, including pet boarding and grooming, ride-sharing services and dating referral services.