Utah to Repeal Controversial Law That Raised Taxes on Food, Gas, and Services

Facing a successful voter referendum drive to undo a tax reform package passed last December, Utah lawmakers last week announced that they will repeal the unpopular attempt to rebalance state revenues by reducing income taxes and raising sales taxes on food, gasoline, and certain services.

The legislation would have effectively shifted roughly half a billion dollars of state revenue away from income taxes — which are earmarked for education — and toward the unrestricted General Fund.

According to a report from Utah’s Tax Restructuring and Equalization Task Force:

Due to Utah’s rapidly growing population and shifting demographics, there are increasing demands on the General Fund and other programs funded by sales tax.

Because of shifts in the economy, growth in sales tax revenue is not keeping up with the needs of our growing state.

Much of the public outcry stems from the proposal to restore the full sales tax levy (4.85%) on groceries — which are currently subject to a reduced rate of 1.75%. To offset the additional tax, the legislation includes a refundable grocery tax credit of $125 per household member. A family of four earning less than $35,535 annually would be eligible for a $500 credit.

According to Route Fifty:

Fred Cox, a former state representative in Utah, was among those who spearheaded the referendum effort in opposition to the new tax law. He told The Salt Lake Tribune last month that the tax on food sales was a main reason he was opposed to it.

“Individuals who are not doing really well—but are making it without any government help—are basically getting thrown off the bus,” Cox said. “And that whole attitude bugs me.”

The legislation also broadens the sales tax to include gasoline and previously untaxed services such as digital streaming media (digital audio-visual works, digital audio works, digital books, or gaming services), dating referral services, identity theft protection, pet boarding/daycare services, security system monitoring of real property, parking lots, and towing.

While repealing the legislation will allow lawmakers to prepare the annual budget without the uncertainty of a possible referendum on the state’s existing tax code, Utah’s Governor and Presiding Officers remain committed to meaningful tax reform.

According to a joint statement from Utah Governor Gary R. Herbert, Senate President Stuart Adams, and House Speaker Brad Wilson:

“In recent weeks, it has become clear that many people have strong concerns regarding legislation passed in December to restructure and revise our tax code. They expressed their concerns by signing a petition to include the referendum on the ballot later this year. We applaud those who have engaged in the civic process and made their voices heard. We are not foes on a political battlefield, we are all Utahns committed to getting our tax policy right. That work is just beginning.”

Maryland lawmakers will consider a number of tax reform proposals to fund the recommendations of the [Kirwan] Commission on Innovation and Excellence in Education.

The Maryland Center on Economic Policy is calling on state lawmakers to adjust the state’s income tax, corporate tax, and sales tax systems (which includes a tax on most services) in order to generate $1.9 billion annually by 2030, while minimizing the effects on low and middle-income Marylanders.

Stay tuned to Conduit Street for more information.

Useful Links

Route Fifty: State Lawmakers Backtrack on a Tax Code Revamp

Previous Conduit Street Coverage: Think Tank Proposes Sweeping Tax Overhaul to Fund Kirwan Recommendations

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