Taxpayer group claims Utah restaurant tax unconstitutional

Watchdog organization says 1% tax defies Utah, U.S. constitutions

Published: Monday, Nov. 8 2010 10:47 p.m. MST

People eat in the dining room at Hires Big H restaurant in Salt Lake City.

Keith Johnson, Deseret News

Enlarge photo»

SALT LAKE CITY — When it comes to taxes on food, not all are created equal, according to a lawsuit filed by a state watchdog group.

Last month, the Utah Taxpayers Association — along with the Utah Restaurant Association — sued Utah County alleging that a 1 percent sales tax on food sold by restaurants unfairly discriminates against restaurants, and is therefore unconstitutional.

"Our real goal is to get to a constitutional and equitable tax," said Royce Van Tassell, vice president of the Utah Taxpayers Association. "It's clear to us that the restaurant tax unconstitutionally discriminates between different kinds of food providers."

In a newsletter released last week, the Taxpayers Association used the example of a customer purchasing a breakfast burrito and juice at a fast-food establishment and being charged 1 percent more than if that same purchase was made at a convenience store.

The suit alleges that under the Equal Protection clauses of both the Utah and U.S. constitutions, taxing entities must tax similar items the same way — a situation that "clearly is not happening with the implementation of the restaurant tax."

The suit stated that there is no legally meaningful distinction between prepared food sold by a restaurant and prepared food sold by a convenience store.

Van Tassell said that from a tax perspective, the items were the same.

"Under the tax, we discriminate … and that's unfortunate," he told the Deseret News. "We want to rectify that."

He explained that if the court rules that the existing restaurant tax violates the U.S. and Utah constitutions, his organization would partner with the Legislature and the counties to craft a fair and equitable tax to replace the lost revenue.

Currently, 28 Utah counties assess the restaurant tax. But the suit was only filed against Utah County.

The executive director of the Utah Association of Counties said the tax has been a significant source of revenue since its inception in 1991 and losing it would be a major blow to many Utahns.

"The restaurant tax has been a valuable source of providing tourism funding that has benefited the state greatly since it was adopted by the Legislature," Brent Gardner told the Deseret News. "Forty percent of that tax is paid by out-of-state residents."

He takes issue with the lawsuit, saying the Taxpayers Association should have filed their complaint against the state, not an individual county. He also noted that the counties are only following the statute as directed by the Legislature.

Ideally, the Taxpayers Association would like to eliminate the restaurant tax and replace it with the lowest possible tax rate across the broadest possible base, Van Tassell said. The counties could make up the lost revenue with property taxes or through a minimal increase in sales tax, he said.

By broadening the base and lowering the rate, Utah could generate the same income for the bondholders that the current restaurant tax does, he said.

Van Tassell said he hopes the Utah Legislature decides to amend the tax statute and eliminate the unconstitutional elements of the law.

"We do not want to waste association dollars on an unnecessary lawsuit," he said. "The constitutional concerns really need to be addressed and hopefully fixed before the court ever renders a decision."

e-mail: jlee@desnews.com

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