Panel advises taxing services

Utah businesses should get a $200 million tax cut, while consumers should pay $150 million more in new sales taxes extended to a number of non-medical services, a subcommittee of the state's Tax Reform Task Force recommended Wednesday.

Full consideration of a controversial flat tax proposal and whether to remove tax exemptions for charitable contributions and mortgage interest payments was postponed until the task force's next meeting.

The business tax cut and sales tax recommendations approved Wednesday by the subcommittee are not binding but make clearer the direction of the state's massive tax reform effort, which will likely culminate in in several new tax bills before the 2006 Legislature, now four months away.

"This is a good middle ground," extending the current sales taxes to various services, said Rep. Roz McGee, D-Salt Lake. Imposing the state's portion of the sales tax — 4.75 percent — on non-health-care services would bring an extra $150 million to state coffers.

Under the proposal, doctor and hospital bills and prescription drugs would remain tax free, but attorney and accounting bills, airfares, newspaper sales, public investigator bills, lawn care and pest control, hair cuts, car towing, diet services, Internet service bills and elective surgeries such as face lifts — would all be subject to state and local sales taxes, the subcommittee decided.

Extending the sales tax base to catch more consumer purchases, the state's sales tax rate could be lowered to 4.38 percent from 4.75 percent, said Pam Hendrickson, chairwoman of the Utah Tax Commission and a task force member.

But because an overall goal of task force members is to keep the system revenue-neutral — neither reduce nor increase tax revenues — the sales tax rate might not be reduced to allow for cuts in other taxes.

"Taking action (to impose the) sales tax on services is central" to tax reform, said McGee. "For it allows (for new revenues) and some of the other changes to work."

Some task force members want to restructure the income tax and/or give a food tax break to help lower-income Utahns.

In voting to adopt a $200 million tax cut for "inputs" on businesses purchases, said Sen. Howard Stephenson, R-Draper, the state gets its most "bang for the buck" for economic development through the move.