In a special legislative session on tax reform, lawmakers in Utah have approved an expansion of the state's sales tax to a handful of previously exempt services. But even more notably, the bill pays for tax cuts by taxing the sale of groceries and gasoline at the full sales tax rate.
The new tax receipts will be used to reduce Utah's flat personal and corporate income taxes and to create income tax credits offsetting the cost of the grocery sales tax for lower-income taxpayers.
Though sales taxes on groceries and gas are often very unpopular with voters (most states don't currently levy taxes on these items), overall, the vast majority of Utah tax filers will see a tax cut from the bill.
Since so much noise has been made about opposition to ending sales tax exemptions in Nebraska, you might be wondering what made this type of tax trade politically possible in a deep red state like Utah.
It relates back to Utah's constitution, which earmarks all income tax receipts for education. As the state's economy has shifted toward consumers purchasing more exempt services, and sales taxes on groceries were reduced from the full rate in 2007, the state was left with less reliable revenue for transportation, social services, and other programs.
For example, Utah voters recently approved Medicaid expansion, but state income tax dollars cannot be used to fund that program.
The bill also focused on income taxes, in part, because Utah is already on the lower side when it comes to property taxes.
Utah's tax reform comes after a year of discussion over how to modify the state's sales tax base.
It's arguable that while Utah carried out policy changes that are harder to accomplish in the public eye, they also left many questionable sales tax exemptions favored by industry lobbyists intact.
If more sales tax exemptions had been eliminated, the state could have made further reductions to the income or sales tax, or offset the cost of the expected income tax cut.
Still, the regular Utah legislative session is only five weeks away, and it is possible additional sales tax reforms will be considered in the Beehive State in the years ahead.
While it does not appear that the Nebraska Legislature will tackle sales tax as part of property tax reform in the 2020 legislative session, the Unicameral will now have another state to study that has at least started down the path of sales tax reform.
Many people will not like the policy choices made by the Utah State Legislature at first glance, but legislators made a significant decision about how they want to structure their tax code, all while avoiding an increase in the overall tax rate.
Though Utah is a state that will continue to levy property, income, and sales tax, the state's leaders want to rely more on taxing what Utahns consume and less on their earnings and property.