SALT LAKE CITY— Gov. Gary Herbert no longer sees the additional online sales tax collections expected as a result of a recent U.S. Supreme Court decision as a potential replacement for a proposed 10-cents-a-gallon gas tax to help fund schools.
"Now that we have the full analysis, it's clearer than ever before that we would be best served by supporting a modest increase in the gas tax," Paul Edwards, the governor's deputy chief of staff, said Tuesday.
Not only would anticipated online sales tax revenues fall short of the estimated $180 million the gas tax increase would bring in, laws are already in place to use that revenue for a tax break for manufacturers and an overall sales tax rate reduction.
So the governor "is going to put all his effort" behind the November ballot question that will ask voters to support raising the gas tax from the current 29.4 cents a gallon "as the best way to better fund Utah classrooms," Edwards said.
Last week, Herbert said during his monthly news conference on KUED Ch. 7 that "if we have another revenue source now that's coming in, that could be a discussion and a trade-off" with the gas tax increase.
That increase, which still would have to be approved by the 2019 Legislature, was a key piece of the compromise lawmakers reached earlier this year to end the Our Schools Now initiative that would have raised both sales and income tax rates.
Edwards said the Governor's Office of Management and Budget believes the potential additional revenue from online sales taxes that Utah can expect will be between $50 million and $75 million.
The Supreme Court ruled last month that internet retailers can be required to collect sales taxes in states where they have no physical presence but Utah already had voluntary compliance agreements with major online retailers including Amazon.
In contrast, boosting the gas tax by 10 cents a gallon is expected to raise a total of $180 million in the first full budget year that begins July 1, 2019, according to the Legislative Fiscal Analyst's Office.
That would mean between $120 million to $125 million for schools, with the rest going to local road needs under the terms of the agreement between lawmakers and Our Schools Now backers.
That agreement also calls for a nonbinding question to go on the November ballot asking voters whether the gas tax should be raised to provide more money for schools and roads.
That's not likely to be an easy sell to voters, especially since gas prices have climbed since the legislative session ended in March and are now an average of more that $3.16 a gallon in Utah, about 30 cents above the national average.
The campaign to convince voters to agree their taxes should go up isn't expected to start until September or October, said Nolan Karras, a member of the Our Schools Now executive committee.
That's because voters don't pay much attention to politics during the summer, Karras, a former Utah House speaker, said. "Who knows what the mood will be at election time — or where gas prices will be."
Complicating the campaign is that the gas tax money wouldn't go directly to schools. Instead, it would be used to offset some of the $600 million in general fund revenues that are mostly sales taxes now going to supplement gas taxes.
"Nobody likes to be for a tax increase and nobody wants to raise taxes and make everybody angry and upset," Karras said, noting he worries about the impact of the governor's comments and gas prices on the November election.
"But when you get right down to it, we say, ‘Well, look, we've got a big problem with our educational system and getting the kind of results that we need,’" he said, adding there's a strong case to be made for spending more on schools.
The Our Schools Now initiative, whose prominent backers also include Utah Jazz owner Gail Miller, would have raised both sales and income tax rates by .45 percent to add some $700 million for schools.
Last session, lawmakers put a record $500 million in new money into schools while dropping state income tax rates slightly and giving businesses a $27 million tax break with the switch to a single sale factor formula.
They also put in place a five-year freeze in the only property tax levy set by the state, allowing for as much as $125 million a year by 2020 in additional revenue to be captured as property values rise.
Senate Majority Whip Stuart Adams, R-Layton, said any suggestion there's money from online sales taxes that could be used for schools "probably does make it harder" to pass the gas tax increase.
He said before 1998, all of the money spent on maintaining and building roads came from the gas tax. That year, lawmakers decided to shift $90 million in sales taxes to pay for rebuilding I-15 in time for the 2002 Winter Games in Salt Lake City.
Gas taxes stayed at 24.5 cents a gallon for nearly 20 years, until lawmakers adopted a complicated formula that added nearly 5 cents in 2016. So as transportation spending increased, so did the amount of sales taxes being spent on roads.43 comments on this story
"The gas tax is a hated tax. We all know that," Adams said. He said Utahns will have to decide not only whether schools need more money, but whether roads should be more self-sustaining. "I think it may be a hard sell."
Edwards agreed the connection between the gas tax and school funding isn't easy to explain.
"It's a little complex as a policy initiative," he said. "But the bottom line is that as we reconfigure our tax policy so that it catches up with inflationary costs associated with transportation, there will be more funding for education."