ST. GEORGE — The highly anticipated behemoth of a tax reform bill that sets out to lower some taxes while also extending new taxes to previously untaxed services passed out of a House committee Friday afternoon.
House Bill 441 is a 260-page tax overhaul bill that would drop the state’s current sales tax from 4.7 percent to 3.10 and the current income tax from 4.95 percent to 4.75. Along the way, previously untaxed services in the state – such as haircuts, lawn care, attorney fees and online streaming services – would have a tax added to them in order to broaden Utah’s sales tax base.
The bill’s sponsor, Rep. Tim Quinn, R-Heber City, said the tax overhaul is needed to help keep Utah’s general fund stable in the face of shrinking sales tax revenue.
After a hearing in the House Revenue and Taxation Committee that ran over 2 hours, the first substitute of the bill passed out of committee by a vote of 12-2, including a favorable vote by Southern Utah Rep. Rex Shipp.
From goods to services
A little over 20 years ago, Utah received 41 percent of its tax revenue from income tax and 41 percent from sales tax, Quinn said in Friday’s hearing, adding that today, income tax accounts for 51 percent of the tax revenue while sales tax covers 31 percent.
The reason for this is because of changes in how Utahns spend their money.
Quinn compared the change to how people purchase music. When he was younger, he said he would buy a record or 8-track tape and then a compact disc. Today his children pay for music on digital streaming services as opposed to a physical product like a CD or vinyl record.
“Much of what you and I buy now is a service, not a good,” Quinn said.
By lowering income and sales tax while “broadening the tax base” to include services, Quinn said the bill is designed to be “revenue neutral.” So even if you pay more for services than you used to, paying less in other taxes should cancel out any major financial impacts, Quinn and other bill supporters said.
A typical Utah family — one that makes around $65,000 a year — should see a tax savings of $634 if the bill passes, Quinn added.
Highlights of what the bill would and wouldn’t do
Some tax exemptions the state currently has will be repealed while others will stay intact, Quinn said.
The bill would provide tax cuts for Social Security at $45,000 for those in their retirement years and earned income tax credits to help fight intergenerational poverty, as well as a child exemption component.
The bill will also add a 1 percent tax on health insurance premiums and a tax on the transfer of real estate.
In regards to the insurance, Kelly Atkinson of the Utah Health Insurance Association said the tax would add up to $65 for individual insurance premiums. The association stands opposed to this aspect of HB 441.
In the realm of education, the bill would not tax school tuition but would go after a broader category covering private lessons.
“In that education category is private golf lessons; we tax them,” Quinn said. “In that category is private flight lessons; we tax them.”
The overall amount of services that can be taxed is broad and not yet completely specified.
In addition to stabilizing a shrinking part of state tax revenue, the bill would also help shore up the state’s education funding, which Quinn said stands to lose millions of dollars if changes aren’t made to the tax system.
Currently the state siphons about 28 percent of the funds meant for public education to other areas, such as higher education, thanks to previous legislation that “drilled a hole” into public education’s bucket, Quinn said, adding that passing HB 441 will plug that hole and stabilize the general and public education funds.
In support of the bill
Groups that spoke in favor of HB 441 include the Salt Lake Chamber of Commerce and Utah Governor’s Office of Management and Budget.
“HB 441 is an important step in the process of updating our tax system to reflect our modern economy,” Salt Lake Chamber representative Abby Osborne told the House committee. “We are supportive of this monumental effort because it not only broadens the base, but it significantly lowers rates.”
Osborne added that it is the chamber’s job to represent the general business community and not individual industries. However, she said the chamber acknowledged that certain industries feel uniquely impacted by the bill.
“We have strongly encouraged every business to read this bill and bring specific issues to bear,” Osborne said. “The sponsor, members of (legislative) leadership have opened their doors to make sure that they are listening to the unintended consequences, and we commend them for that.”
Kirsten Cox, the executive director of the Governor’s Office of Management and Budget, told the committee the bill had the support of Gov. Gary Herbert.
“This is a job killer”
Support for HB 411 was not shared by people representing various industries that felt threatened by the bill. Those opposed to HB 441 said it could potentially ruin jobs and impact different industries.
“This is scaring the daylights out of me because it’s all built on the premise I’m going to collect sales tax on my investment management fees that I charge my clients,” Jim Ferrin of Ferrin Capital Advisors said.
Steve Evans, who runs a radio station in northeast Utah, warned that HB 441 would negatively impact the oil, gas and mining industry that resides in that part of the state. They operate on thin margins, and an additional tax burden could harm the small market economies of rural Utah that depend on them.
“This is a job killer,” Evans said.
Rikki Hrenko-Browning, president of the Utah Petroleum Association, gave more context to Evans’ worries by adding that taxes on services provided by third parties and subcontractors hired by drilling companies would be an undue burden.
Several subcontractors can be on site when a new well is being drilled, Hrenko-Browning said, and hundreds more are on hand for a drilling site’s maintenance needs. Third parties that help the oil and gas industry stay in compliance with federal regulations would also be subject to the proposed tax, she said.
Both radio and television broadcasters also spoke against the bill.
Greg Hansen, who operates four radio stations in southwest Utah, said he felt the bill was being rushed through the Legislature and needed to be digested more. He also warned the tax on services would caused small businesses to flee Utah.
“The tax base will go down, not up,” Hanson said.
Tim Ermish, general manager of Fox 13, and Richard Jones, general manager of ABC 4, said taxes imposed on advertising could cause losses in the seven-figure range and destroy the local broadcasting industry.
Ermish said advertisers could go out of state to have their commercials made and also put their ads on online platforms like YouTube and Facebook rather than local television stations.
Jones said it could be “the absolute end of local broadcasting,” adding he wasn’t just being hyperbolic, as the taxes will cost broadcasters millions in new expenses.
“I’ve listed eight cascading effects that brought the tax up eight different times that we’re paying tax on tax on tax,” Jones said.
Several of those opposed to HB 411 asked that it be sent to an interim committee for further review.
“We have given this consideration”
Quinn shot back at the bill’s detractors and said his bill did not pick winners and losers as some had implied. He also said that when people asked for the bill to go to an interim committee, that was a tactic that translated to “kill it.”
The bill also isn’t being rushed, he said.
“I’ve been getting the crap kicked out of me for the last six months on this bill,” Quinn said. “So I’m tired of hearing that we haven’t given this consideration. We have given this consideration!”
Quinn also remarked how the people opposed to HB 441 were all business leaders from “incredibly profitable businesses.”
“How much profit do the oil companies make that spoke against this bill? How much profit do the advertisers make? How much profit do the TV and media outlets make?” Quinn said, adding he didn’t hear anyone complaining about how much money a family could save in state taxes.
“That’s what I care about,” Quinn said.
HB 441 now goes to the House floor for consideration. The legislative session ends March 14.
- Read full text of bill: 2019 House Bill 441 Tax Equalization and Reduction Act
- Bill sponsor: Rep. Tim Quinn
- Contact legislators
Email: [email protected]
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