 Utah has appointed a ‘task force’ to review the Utah tax system and to make proposals for how to ‘improve’ the system, including by completely rewriting the entire tax system. As all forms of taxation have consequences in our personal lives, in our businesses, and to our liberties, please take a moment to understand why your voice is needed at this critical time, especially since Utah’s preferred new mode of taxation will have serious repercussions across many aspects of the economy and your personal life.
This article explores the issues fairly in depth, and you can read parts or all of it. At the end, there are recommendations for better solutions than taxing services in the State, as well as contact information for those on the task force and the task force meetings schedules as of the date this article was posted. The Concern Utah wants to start imposing a sales tax on services. At first glance, this may seem fairly straightforward or harmless, but in reality, it will have serious repercussions to Utah. For example, it will drive businesses (and jobs) from the State, as almost all other states do not collect sales tax on services as proposed by Utah, it will reduce the amount of income tax coming in (since jobs will be lost and relocated), and it is a disguised tax increase, meaning that on average, people will have to pay more to the State than they did before. Additionally, there are serious and unnecessary incidental costs and compliance burdens that come as a result of the proposed sales tax on services, and there are simply much better ways to achieve the goals of the tax reform. However, if you don’t raise your voice, Utah may just elect to gamble with your future and impose a drastic change to the tax code that will seriously impact the economy, the State, and your livelihood. Here is some background to understand the issues. Utah’s Current Revenue System Income Tax – Utah taxes the income of individuals and corporations. The amounts collected from income tax fund K-12 education and some of higher education. The Utah Constitution requires that all ‘income’ tax be put towards education, so a surplus of income tax funds cannot be constitutionally allocated to other budget items. Sales Tax – Utah imposes sales tax on most goods purchased by an end user. The rates vary depending on the good. Utah also imposes sales tax on other items, such as digital downloads, hotel rooms, ski lift tickets, and dry cleaning services. Sales tax revenue can be allocated to any budget item. Property Tax – Utah allows taxes on real and personal property. Property tax funds many items at the city and county level, but Utah has the power to levy statewide property taxes as well. Property taxes also fund many aspects of K-12 education. Property taxes fund the specific accounts they apply to, but accounts can be created or removed via legislation. Excise Tax – Utah imposes excise taxes on many items. Excise taxes are a fixed amount charged per unit of a good sold. Gasoline taxes are the most common excise tax, but Utah also taxes alcohol, cigarettes, phone plans, etc. at certain set levels. Gas taxes fund the roads. Other Taxes and Fees – Utah collects other taxes as well, such as taxes on the insurance premiums you pay (the insurance company has to remit to Utah a percent of the gross amount you pay), fees on businesses (business license fees, renewal fees, impact fees, etc.), fees on individuals (car registration fees, court filing fees, etc.), and other fees that appear in various places (wastewater fees, oil disposal charges, etc.). These taxes and fees can be used as directed by the legislature or locality imposing the tax or fee. The Alleged ‘Problem’ The economy treated Utah very well for tax year 2018, and Utah took in a billion or so in excess income taxes. Since income taxes can only be used for education, Utah is not constitutionally permitted to spend that surplus elsewhere (though it is working hard to circumvent the Utah Constitution, more on that later). With the good economy, Utah citizens are spending more money on services and other items that are not part of the taxing structure above. Overall, the percent of money spent on goods is declining as a percent of all money spent. When sales taxes were originally imposed back in the 1930’s, over 70% of money spent was on goods. Now, less than 40% of money spent is on goods (however, it is important to note that the total amount of money spent on goods has steadily increased each year, but spending on services has increased even more). Currently, Utah representatives are saying that Utah will be unable to meet all of its revenue needs as sales tax no longer provides enough revenue to cover the budget items outside of education. Due to this, Utah representatives tried hard to push a bill through the legislature quickly that would impose a sales tax on virtually all services in the state. Due to significant citizen opposition, the bill failed, but the legislature appointed the task force to circle back and make a recommendation to the legislature on what new tax structure to put in place. Analyzing Utah’s First Proposed Solution Utah pitched the sales tax on service bill as being good for Utah because it would, they communicated, 1. cut taxes, 2. stabilize the tax system, 3. expand the base, and 4. be more fair and just to all Utah businesses. While each of these claims is problematic for many reasons, a few main points are reviewed below. 1. Cutting Taxes – Utah continues to insist that the first proposed bill and any new bill “cuts taxes”. This claim exists because Utah plans to cut the income tax rate (to reduce the surplus to education), and plans to lower the sales tax rate as well (since Utah would now be taxing services along with goods). So, while there is certainly a cut to percentages assigned to various tax obligations, the overall tax revenue to Utah (that can be spent by Utah) is supposed to increase. In other words, Utah citizens will be paying more in taxes, even with a lower percent rate, as they would now be paying taxes on so many more transactions related to services. The entire purpose of the tax ‘reform’ is to get money out of the constitutionally protected bucket and into an account that the government can spend as it wishes. 2. Stabilize the Tax System – Utah touted that it needed to stabilize the tax system due to the shrinking percentage of revenue spent on goods. The tax system itself was, and is, stable though, and it continues to bring in more funds each year. What is really happening is that Utah is spending more than it used to be, and has its eyes set on collecting the billion dollar surplus (that should be returned to Utah citizens). Further, the proposed bill would have created many issues (such as throwing cities and counties into default on their bond obligations by reducing the sales tax rate on goods, thus making it impossible for them to pay on their bond obligations), and would have caused businesses and capital to leave the State (thus significantly impacting the income tax base), and, even at the best estimates put forth by Utah, would have a 40% non-compliance rate (meaning 40% of service transactions in Utah would be breaking the new law). In other words, the proposed bill would not have stabilized anything, other than the government’s ability to collect taxes on more transactions than before. An important point to note on the instability that would come from taxing services is that the State has budgeted in a 40% non-compliance rate. This means they expect 40% of businesses and individuals to not comply and not collect taxes. What does that mean for a law-abiding citizen? It means that they lose business to the 40% that do not collect sales tax. The United States Supreme Court recently overturned a previous decision that stopped states from collecting sales tax on goods from retailers who did not have a presence in the particular state. So, for example, Utahns could buy goods on Amazon or eBay for years without paying a sales tax, as those entities, for a time, did not have a physical presence in Utah. When the Supreme Court looked at the unfairness created by giving out-of-state retailers an advantage over in-state retailers, they reversed their decision, and allowed states to require all retailers to collect the sales tax on goods. In other words, the unfairness aspect when one business complies and another doesn’t caused the Supreme Court to overturn its previous decision on the matter. Despite this, Utah is pressing to start taxing services, despite the fact that even Utah admits that 40% of service providers will not comply. This will give that 40% a serious competitive advantage over those who follow the law. One other important fact—Utah just barely passed two bills to start collecting sales tax on goods from out-of-state retailers. Utah will be bringing in a lot of additional income soon, but Utah is trying to pass the tax ‘reform’ prior to knowing how much revenue will come in. There is no reason to reform Utah’s entire taxing structure prior to knowing if there is even a real problem or not, as it is possible that the two new bills to collect sales tax from out-of-state retailers may solve most or all of the alleged problem. 3. Expand the Base – Utah consistently says that it is “wise” public policy to “expand the tax base”. It should always be remembered what is an actual “tax base” though—the tax base is made up of individuals in Utah. Individuals pay taxes. In most situations, if a business is charged a tax, the cost of the good or service increases, and the increased cost is paid by the consumer. Business taxes are handy because they help disguise the true extent to which the government taxes individuals. Rather than looking to expand who pays taxes (that base is almost already as wide as it can get), Utah is proposing to tax more transactions. Transactions are not the “tax base”, people are. By taxing more transactions, important freedoms are lost, compliance burdens increase, and goods become more expensive. One side of an important piece of the “tax base” that would expand under Utah’s proposed bill is the number of tax collectors. Utah currently requires that, in exchange for the right to transfer a good to another for compensation, an individual must act as a government tax collector. That individual can be liable (and go to jail) for someone else’s unpaid tax obligation if the individual does not follow all tax collection and remittance procedures. Under the proposed law, Utah would significantly increase its “base” of conscripted tax collectors, and require all individuals who want to have the right to transact business to first sign up as a government tax collector, and forcibly take funds from those they serve. Serious freedoms and rights are lost if an individual’s only choice is to collect and remit taxes to be spent on activities with which they have a serious moral disagreement in exchange for the right to work. Granted, the government has been conscripting tax collectors now for nearly a hundred years. Time alone does not make the conscription of tax collectors moral or right. However, in taxing services and requiring service providers to be a tax collector, the government has taken a large step into a very personal realm of important individual freedoms. With a sales tax on the transfer of goods, the goods are technically distinguishable from the individual. While requiring a person to collect sales tax in order to have the right to sell a good is an infringement of personal liberty, it is an infringement that is tied more to the goods that exist. In other words, some could argue that the tax is tied more to the goods, or to something separate from the individual, and many justify the sales tax on goods on these grounds. With taxing services, however, the government is directly burdening our right to work and requiring that we, as citizens, collect taxes in exchange for the basic right to work. Many services cannot be separated from the service provider. If an attorney provides legal services to an individual, it is the attorney at work. The attorney puts in the hours, the attorney drafts documents, and the attorney makes arguments in court. Yet, if that attorney also has to collect sales tax in order to expend his energy or move a muscle in court, that attorney now has to be a tax collector to even have the right to do any work. This extends to so many additional areas. A college student will not have the right to mow a lawn, or paint a garage, or tutor another student for some additional funds without becoming a tax collector. There is no reason to violate such personal and important rights. We need to maintain the right for individuals to work without being forced and compelled to enlist as a government tax collector. 4. More Fair and Just – Finally, Utah also argues it is more fair and just to treat all businesses equally and make them all collect sales tax. This argument is an extremely dangerous one, and essentially the underlying principle is “Even if X is bad, we should make everyone do X to be more fair.” There are many, many reasons that one state cannot impose sales taxes on all business transactions. Businesses and money are mobile, they can go to any state. If Utah starts taxing all transaction to be “fair”, businesses will start sending work to states with lower costs. For example, why would a national accounting or legal firm route any work through Utah offices if it incurs a higher cost to the client than routing it through another state? Professional services generate a lot of income tax for Utah, tax that would be lost by seeking “equality” or “fairness” in burdening everyone. Taxes are a burden, and if Utah is seeking equality or fairness in burdening us, the poorest person to the richest would all pay the same amount of taxes, or the same percent of income at least. Society has long rejected the harsh consequences that come from a true “fairness” or “equality” in all taxes though, and has long placed additional burdens on certain groups. Just think of how ‘fair’ it is to tax the poor mother involved in a divorce trying to pay for help to keep rights to see her children, or the individual involved in a car accident that has to pursue payment through the help of others, or the individuals who have to collect taxes and now need to pay a CPA for help to comply with the tax burdens and obligations placed on them! It should be remembered that sales tax will always impact the poor. There are many arguments for and against whether it is better to have a national sales tax, for example, and to do away with an income tax. This article is not meant to evaluate the merits of such positions, but only to raise awareness that Utah has relied very heavily on sales taxes for a long time to fund most things in the State besides education. Currently, Utah wants to increase its reliance on sales tax by imposing it on even more transactions and conscripting even more tax collectors. In other words, its solution is to further burden even the poorest among us, including the woman abused and left with three small children who needs a divorce and counseling services, the man who lost his job but needs his car repaired so that he can find a new job, or the elderly couple with no additional funds that needs their roof repaired. Taxing services has very significant moral consequences, and must be viewed through the lens of all it will impact, rather than through a very limited lens of claiming it is more ‘fair’ to all businesses to simply tax them the same. The Real Problem Spending without accountability. That is the real problem. Utah refuses to address the fact that it has a spending problem, and hides behind claims that “Utah is the most fiscally managed state”, or the “best managed state,” or the like. Even if this is true, Utah is spending far more than it should. Here are just a few real-life examples, that add up to untold millions and millions of dollars each year:
Utah’s representatives get millions upon millions of dollars worth of funding requests each year. Every group wants a piece of the tax pie, every government agency can always use more money. While funding necessary budget items is an important task for Utah’s representatives, is it not just as equally, if not more, important to ensure that your money is being used only for necessary items? It is not a “problem” that the economy does well and income taxes far exceed what is necessary to fund education. It is not a “problem” that we have a decently free and robust economy that can function without the government involved in every aspect of it. It is not a “problem” that individuals do not have to register as a government tax collector in order to work or earn a living. In other words, there are only two real problems that might exist—1. Utah is spending more than it should, or 2. If Utah really needs to spend more than it will get in, then Utah isn’t bringing in enough in taxes (it is possible that the ‘problem’ is a combination of the two as well). It is important to be honest about the actual problem. The fact that society spends less as a percentage on goods (even though the amount spent on goods still increases each year) isn’t a real problem. If we accept the legislature’s claim that tax revenue will be insufficient soon, the real problem is that the legislature needs to raise taxes. Yet, it doesn’t want to say this, and wants to disguise it all as a tax cut even though the purpose is to bring in additional funds for Utah to spend. Why Utah Can Claim it’s a Tax Cut The Federal Government changed a number of items in the Federal tax code that impacted how Federal income taxes were collected. When this happened, a number of intelligent people told the legislature, through the committee that oversees tax bills, that if Utah did not update its tax structure, Utah would collect a large income tax surplus. Despite this, Utah did nothing to update its tax code, and chose to take the large surplus in income tax. After taking the billion or so dollar surplus, the State then suddenly claimed that our tax system was out of balance and that we needed to change things to even out the tax accounts. The State then held the surplus hostage. In normal situations, the State should either allocate the money to education or return it to us. If it is a true surplus, it isn’t the State’s money when it is taken through income tax, and should be returned to us as citizens. Utah is using the surplus though for a number of things to play its cards well with the claims it makes for tax reform—it is using the surplus to give a refund and to claim that it lowered the tax rate. So, for example, Utah needs to decrease the overall income tax rate to account for the impact of the changes the Federal government made. If Utah does not, it will take a surplus every year, meaning it will take our money without cause to use it anywhere. Utah wants to move the billion dollar surplus into the general fund though. To accomplish that, and to claim a tax ‘cut’, Utah is proposing to lower the income tax rate and the sales tax rate. Politicians proudly say they are working to cut taxes on our behalf. However, when Utah adds in the sales tax on service piece, money saved from the income tax rate cut and the sales tax on goods rate cut is then paid back to the State, by Utah citizens, in sales tax on services. In other words, percentages go down, while revenue that can be spent by the State goes up. Overall, Utah gets more money it can spend under the new tax ‘reform’, and Utah’s tax revenues rise. Overall, Utahns pay more in tax money that the government is allowed to spend. So, don’t be fooled by claims of it being a tax cut. The government is switching where the money is paid, returning some of the surplus (that it should not have taken in the first place) to you, and then claiming it cut taxes because you got some money back and some rates were lowered, all while ending up with more money it can spend at its pleasure. Again, if tax revenue is a problem, let’s just be honest about the problem. Let’s stop calling this a tax cut. It isn’t. Utah wants more money, and is gaming the system to get it, from you. Why Your Voice is Needed Our position is that if Utah really needs more of our money, it should follow a few guiding principles before taking it from us. 1. Any additional funds being taken for Utah to spend should be justified by an actual showing of why the money is needed. This means that all current expenditures and recipients of government funds should be audited, including higher education. No institution or group should be above an audit requirement if they ask for or take government funds. 1. THERE SHOULD BE NO TAXATION WITHOUT ACCOUNTABILITY 2. Taxes should always seek to burden society the least in the way they are collected. If a tax increase is necessary, the increase should be accomplished in a way that does not unnecessarily drive up costs in other areas. a. For example, if Utah starts taxing services, there will be an enormous compliance cost and burden imposed on thousands and thousands of businesses. The cost of services will have to increase to absorb the compliance burden. Taxing services is an extremely costly route to choose to collect additional tax revenue. b. There are many other routes that won’t increase compliance burdens or costs. For example, if Utah is going to take more money and is simply looking at how to do it, increasing the cost of yearly car registrations would have zero incidental costs or compliance burden outside of the tax itself since the system already exists to collect the funds, and the only difference is the amount of tax itself. 2. A TAX SYSTEM SHOULD ALWAYS PROMOTE EFFICIENCY AND NOT BURDEN INDIVIDUAL LIBERTIES 3. Tax solutions should not be avoided due to powerful lobbyists or money, and the real and actual problem should always be addressed. a. Currently, Utah feels it is a political nightmare to address the Utah Constitution that allocates all income tax to education. However, Utah politicians need to be willing to address these issues. If the problem for funding is really that the Utah Constitution has a provision that creates serious issues for running the State (a provision not found in any other state’s constitution), then the real problem should be addressed. 3. TAX SOLUTIONS ALWAYS NEED TO ADDRESS THE ACTUAL ISSUE Rather than follow these principles, Utah, currently, is gambling on a high stakes rewrite of the Utah tax structure, with the goal of increasing revenue to the state (even if Utah claims it “cuts taxes”). States have previously tried what Utah wanted to do, with very little success. Taxes affect Utah’s economy and your individual lives. Taxes shape how we interact, how business is conducted, and where the money in an economy flows. Utah is not the only state in the country, and business can and will leave the state. If Utah adopts bad policies, there can be substantial impacts to your livelihood, to your job, and to your personal freedoms. Imagine having to register as a government tax collector in order to have the right to cut hair, mow a lawn, or share valuable advice with another. Here are some common sense solutions that all Utah citizens should demand are implemented before Utah gambles on your future:
Possible Solutions If Utah truly has a need to raise taxes, here are some ways to do it that will not create large compliance burdens, incentivize breaking the law, or cause businesses to leave the state:
-Car registration fees. Utah has air quality issues. Charging more to register a vehicle each year can help solve two issues, and promote the use of public transportation. -Sales Tax on Goods. Utah can simply increase the existing sales tax, rather than take more in sales tax by burdening businesses and individuals through the imposition of a sales tax on service. If the money we spend in taxes is going up anyways, just increase the rate and be honest about it, without increasing the cost of purchasing services in the State. -Property Taxes. Property taxes currently fund a significant amount of education, with richer areas getting more from that source of funding. Yet, the State sits on a significant surplus in education funds. The State can eliminate or reduce property taxes that go to education, replace those funds with the surplus amount, and use the property taxes to fund other State needs. This has the benefit of equalizing education spending, and allows more resources to be allocated to higher need areas to help target education to groups that need more resources. -Income Taxes. Either amend the Constitution, or shift non-constitutional funds (such as property taxes) away from the education surplus. Increasing income taxes (or allowing access to the surplus) can address many issues.
-Asset Protection Trust Taxes. Utah recently enacted a way for individuals to evade creditors, and enables people (often the rich are the ones who benefit the most) to place their assets out of the reach of legitimate creditors. This is a legal benefit conferred that does not have to be conferred, and it is not illogical to impose a tax on the use of such benefits. If Utah wants to grant benefits that help some and hurt others, it may be proper for those using the benefit to pay some for the benefit. Imposing a tax on assets transferred into an asset protection trust could solve some funding issues. -Real Estate Transfer Taxes. Many states tax real estate transactions, and the County Recorder already collects filing fees. Increasing those fees, or charging a document filing fee or tax could also increase funds. If home ownership is truly a concern, first homes could be exempted, or the fee only imposed on second homes or commercial properties.
Raising Your Voice Over the next several weeks there will be 8 public forums across the state to get public feedback. It is long past time for us to hold our public representatives accountable for the decisions they are making and our funds they are spending. We should expect to the state to “live” within its means, just as we are expected to in our personal lives. Please help make the public aware of our civic duty to keep government in check. Our freedoms and our liberties are for us to maintain. We each work hard for every dollar and we are provided the right of accountability and voice on how these funds should be used and administered. IT IS TIME TO TAKE A STAND. You can no longer stand complacently by and watch as Utah gambles with your future, especially if there is no real need to do so. Please contact your representatives. You can find their info by visiting the following site: https://votesearch.utah.gov/voter-search/search/search-by-address/candidates-and-issues Type in your address there, and then click ‘Submit’. Since it is not an election year, the results will likely say that “There is no current election information to display.” On the right (or below the result), however, there is a link that says “Contact my elected officials”. Click on that link and it will provide you with access to all elected officials, at the Federal, State, County, and School Board level. You want to contact your State Senate and State House representatives as they are the ones voting on Utah’s tax reform. Additionally, please also contact the voting members of Utah’s Tax Restructuring and Equalization Task Force. The list of the members and their contact information follows below (the info provided is what they publicly provided online): Sen. Lyle W. Hillyard (R), Chair - lhillyard@le.utah.gov, Work: 435-752-2610, Home: 435-753-0043, Fax: 435-753-8895; Rep. Francis D. Gibson (R), Chair - fgibson@le.utah.gov, 801-491-3763; Sen. Curtis S. Bramble (R) - curt@cbramble.com, Mobile: 801-361-5802, Home: 801-226-3663; Sen. Kirk A. Cullimore (R) - kcullimore@le.utah.gov, Mobile: 385-867-9474, Work: 801-571-6611; Sen. Lincoln Fillmore (R) - lfillmore@le.utah.gov, Mobile: 385-831-8902; Sen. Karen Mayne (D) - kmayne@le.utah.gov, Home: 801-232-6648; Rep. Joel K. Briscoe (D) - jbriscoe@le.utah.gov, 801-946-9791; Rep. Tim Quinn (R) - tquinn@le.utah.gov, 435-412-2170; Rep. Mike Schultz (R) - mikeschultz@le.utah.gov, 801-859-7713; Rep. Robert M. Spendlove (R) - rspendlove@le.utah.gov, 801-560-5394. PLEASE ALSO ATTEND A TASK FORCE PUBLIC HEARING! A list of the meetings and locations are as follows: 1. Tuesday, June 25 - Brigham City, Utah State University Brigham Campus, Multi-purpose room, 989 S Main St. Brigham City, UT 84302 Open house - 6:00 p.m. Town hall meeting - 7:00 p.m. 2. Thursday, June 27 - Salt Lake County, Chamber West, Element Event Center, 5658 S. Cougar Lane (4800 W.), Kearns, UT Open house - 6:00 p.m. Town hall meeting - 7:00 p.m. 3. Friday, June 28 - Richfield, Sevier County Fairgrounds, Exhibit Hall, 410 E. 200 S., Richfield, UT Open house - 5:00 p.m. Town hall meeting - 6:00 p.m. 4. Saturday, June 29 - St. George, Dixie Tech, Auditorium & Lobby, 610 S. Tech Ridge Dr., St. George, UT Open house - 1:00 p.m. Town hall meeting - 2:00 p.m. 5. Monday, July 8 - Davis County, Davis Tech, Business Resource Center, Main Conference Room, 450 S. Simmons Way, Kaysville, UT Open house - 6:00 p.m. Town hall meeting - 7:00 p.m. 6. Tuesday, July 9 - Roosevelt, Crossroads Senior Center, 50 E. 200 S., Roosevelt, UT Open house - 6:00 p.m. Town hall meeting - 7:00 p.m. 7. Saturday, July 20 - Moab, Grand Center, 182 N. 500 W., Moab, UT Open house - 1:00 p.m. Town hall meeting - 2:00 p.m. 8. Tuesday, July 30 - Utah County, Silicon Slopes/UTC, 2600 Executive Parkway, Suite 140, Lehi, UT Open house - 6:00 p.m. Town hall meeting - 7:00 p.m.
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