Cuts may affect more than groceries

Grocery store shoppers are not the only taxpayers who are looking at potentially large tax breaks in coming years if the Legislature follows through with proposed massive tax cuts.

Although the proposal in HB109 to remove the sales tax from food has received the most attention during the first two weeks of the legislative session, it is just one of several tax cuts wending their way through the 2006 Legislature. In fact, bills that would have a combined $21 million impact on the state's general fund have passed the Senate, while SB33, a business tax break that carries a $42 million price tag for the state, is awaiting a final vote in the Senate.

Along with the $63 million hit on state revenues, those bills also carry a significant effect on local government budgets. Together, they would hit local governments for $18 million, according to legislative fiscal notes posted on the half-dozen bills.

By contrast, removing the sales tax off food would cost cities $12 million, although HB109 also provides a higher local option sales tax to offset the loss.

House leaders, who are pushing for removing the sales tax on food, point out that the other sales tax exemptions do not have a method to help local governments. In fact, if local sales tax revenue bonds are threatened by the removal of the food tax — as the state's bond counsel cautioned Jan. 19 — then the loss of revenue from other tax streams could be a bigger problem.

"The question becomes whether they (local governments) can absorb those losses," House Speaker Greg Curtis, R-Sandy, said. "None of the other business input taxes have a way to hold them harmless."

For the most part, the bills give direct exemptions to "business inputs," which include things like machinery, supplies or equipment. Ideally, they are things that a Utah-based business needs to operate or expand operations.

By exempting inputs, the theory goes, the businesses can provide jobs for Utahns, sell products that bring in sales tax revenue, and export goods that bring money into the state. Or, to use a phrase employed by legislators supporting the cuts, they build wealth.

Neither the House nor Senate caucus has taken a firm stand on which taxes they support. But the fact that the business input taxes are coming from the Senate and the removal of the sales tax on food from the House does provide a hint at their loyalties.