SALT LAKE CITY — Even though Monday marks the start of the 2019 Legislature, it could still be weeks before Republican lawmakers are ready to roll out details of a sweeping plan to extend sales taxes to services that's been in the works for months.
If that sounds familiar, it's because a similar plan to broaden the sales tax base while reducing the state sales tax rate was a key piece of Gov. Gary Herbert's proposed budget released in December.
"We agree on the problem and we agree on part of the solution, that we need to expand the base," said Rep. Tim Quinn, R-Heber City, vice chairman of the House Revenue and Taxation Committee.
But Quinn, who started putting together legislation to deal with the issue last spring, said there are some differences between what he and Sen. Lincoln Fillmore, R-South Jordan, want to do and the governor's plan.
Quinn is expected to sponsor what may be one of the most impactful bills of the 45-day session with Fillmore, chairman of the Senate Revenue and Taxation Committee, serving as the Senate sponsor.
Nobody is ready to talk specifics, but Herbert called for enough money to come from imposing sales tax on enough services to lower the state's current 4.7 percent sales tax rate to below 3.9 percent when combined with a $200 million tax cut.
Just how much in new sales tax collections his plan would require has been estimated at between $600 million and $800 million, although those figures do not take into account the $200 million his budget sets aside for a sales tax rate cut.
That's coming from the state's $1.3 billion budget surplus largely from unexpected growth in income tax revenues. Some of that money has already been put in so-called "rainy day" accounts as a hedge against a possible economic downturn.
Leaders of the Legislature's Republican supermajority have already said their preference for any tax cut would be in the state's income tax rate, reduced last year from 5 percent to 4.95 percent.
And they may not be sold on as big a reduction in the sales tax rate, either.
"Maybe we do lower it a little bit," Quinn said, but he stressed there should be more sales tax revenue collected after what's being called tax modernization, not the same amount as the governor's plan would provide.
"If we start letting numbers direct policy, that's a bad idea. We're not setting a target on that," the lawmaker said of how much additional sales tax revenue should be raised. "We're starting with where we want to get to from a policy standpoint."
Incoming House Speaker Brad Wilson, R-Kaysville, said it's a complex issue.
"I do agree with the governor that if we're going to do this, a logical place to start is to look at the things we used to receive tax revenue from that were products that have shifted into services," Wilson said.
Herbert and his staff have frequently brought up the example of a homeowner who used to buy a lawnmower that was subject to sales taxes but now hires a lawn care service that is not taxed.
Wilson said there's another way to look at broadening the tax base.
"That is, we just tax every service. Everything. And lower the rate overall. So we are looking at every option between that and just bringing in a few services," he said. "We've got some really smart people working on it."
Incoming Senate President Stuart Adams, R-Layton, said it's a tough task that may take some time.
"If we don't go to work on it, we'll never get it done. I think it will get done. It's a matter of how long it will take," Adams said. "It's a heavy lift. I wouldn't promise anyone it will happen this session."
The reason lawmakers and the governor are looking at starting to tax services is because of such changes in consumer spending, reducing the base from covering about 70 percent of the Utah economy in the 1980s to just over 40 percent now.
It's a phenomenon that was recognized by then-Gov. Olene Walker some 15 years ago, but one that's been politically difficult for lawmakers to tackle. What's changing is that growth in sales tax revenues is lagging behind increased income tax receipts.
Because the Utah Constitution requires that income taxes go only toward education, the imbalance puts pressure on the state's general fund that's made up mostly of sales tax revenues and pays for other government services.
"The state government is overly reliant on the most volatile revenue stream, income tax," Fillmore said. "We're incentivizing rapid government growth in boom economic years and tax increases in bust years."
Fillmore said he wasn't ready to talk about what services he'd like to see taxed, and the governor has already brought up what may be seen as luxury purchases such as limousine rides.
But Quinn said there are more mainstream types of services likely to be taxed. He said those include Uber and other ride-sharing services, and Netflix and other streaming services purchased individually.
"We're trying not to have sacred cows, trying not to say, 'This industry can't be touched.' At the same time, we know there are some industries that are essential," Quinn said, including health care and housing transactions.
"We are being very careful. We know. We understand. We're cognizant that health care and housing are unaffordable," he said. But with a $200 million income tax cut, Quinn said, the "vast, vast majority" will pay less overall in taxes.
"At the end of the day, this will be a tax cut. This will be a significant tax cut to the state of Utah," he said, promising the bill that ultimately emerges "will be as fair as possible."
So far, only Republicans have been working on the bill. Fillmore said that will change with the start of the legislative session, when Democrats as well as various stakeholders will be brought into the drafting process.
That process won't become public until the bill is finished in the coming weeks.
"It's not like this is being done in secret. We're meeting to hash out some principles," Fillmore said on trading what he called taxes on productivity, income taxes, for taxes on consumption, sales taxes. "Ideally, we'll get broad consensus."
The governor's deputy chief of staff, Paul Edwards, said the process is not unusual.
"Taxation is complex and technical. As is typical, our administration is providing information and technical assistance to legislators who are likely to sponsor tax modernization legislation as they ask for it," Edwards said.
Edwards pointed out that "before any piece of legislation becomes law, it will go through the full public process of hearing and debate in both chambers of our Legislature."19 comments on this story
House Minority Leader Brian King, D-Salt Lake City, said he was irked but not surprised that Republican lawmakers so far have been working on the bill with the governor's office but not Democrats.
"I do think from a good public policy perspective you do need to do something," King said, calling for lawmakers to consider carefully the impact of imposing taxes on services on lower-income Utahns.
"We ought to be very careful about what services we choose. I don't think we ought to be taxing haircuts. We ought to be taxing plastic surgery," he said. "You don't want the broadening of sales taxes to hurt working people."
Contributing: Katie McKellar