Kristin Murphy, Deseret News
FILE - Gov. Gary Herbert speaks to members of the media about tax reform and other current affairs at the Capitol in Salt Lake City on Thursday, Feb. 14, 2019.

SALT LAKE CITY — Gov. Gary Herbert told Utahns that the state sales tax rate could drop to just 1.75 percent under what he's calling a tax modernization plan that imposes new taxes on services on top of a tax cut.

But the GOP lawmakers putting the plan into an as-yet unseen bill continued Tuesday to say the governor's goal is not realistic and would require new sales taxes on everything from real estate transactions to health care to gasoline.

In fact, a slide shown to Senate Democrats during an open caucus meeting Tuesday by Sen. Lincoln Fillmore, R-South Jordan, warned, "Overall, to get to 1.75 percent, you must find an additional $100 billion to tax."

Fillmore, who will carry the tax reform bill in the Senate, said he doesn't think it's "realistic to hit that target." Responding to a question about why the governor believes it is, Fillmore said he couldn't "speak to his motivation."

Herbert's deputy chief of staff, Paul Edwards, said the sales tax base will need to be expanded from the current $70 billion to $160 billion, along with a more than $200 million tax cut, to reach the 1.75 percent rate.

"It's very simple math," Edwards said. "This is a huge ask. We know that."

The Republican governor, he said, "put out a very bold, very ambitious, and what we said would be a very difficult standard to match. But it's the one that makes the best sense economically and logically because it provides for the lowest possible rate with the fairest, broadest distribution of the burden."

Herbert announced in his State of the State speech the first week of the session that combining a $225 million cut in the state's 4.7 percent sales tax rate could drop it "to a mere 1.75 percent" while 9 out of 10 Utahns would pay less overall.

House Republicans also questioned Herbert's proposal.

The first week of the session, Rep. Tim Quinn, R-Heber City, told members of the House GOP caucus that 1.75 percent "is not a reality. The math does not add up." Quinn, the sponsor of the tax bill, said then that rate "is not going to happen."

After a closed caucus Tuesday, House Majority Whip Mike Schultz, R-Hooper, said, "Basically, it's impossible to get to that point" because of how much would end up being subject to taxes.

So far there are no alternative tax rates being discussed and few specifics about either what services Republican lawmakers believe should be taxed or what sales tax exemptions should be repealed.

Fillmore told Senate Democrats the sales tax base should be broadened "in all sectors," adding an excise tax — a fixed amount similar to taxes on cigarettes and gasoline — "where practical," such as for medical care.

He also said he's considering calling for the repeal of 16 of the state's 88 sales tax exemptions as part of the bill. The exemptions add up to $119 million, Fillmore said, but are mostly "pretty small potatoes," including some car washes.

Quinn told House Democrats Tuesday that the legislative plan will be "very sensitive to health care, where we think there's an affordability crisis," as well as to the impact of housing costs.

"We haven't left those segments completely out. We wanted to make this as broad as possible," he said. "But we certainly didn't want to make health care less affordable and housing less affordable."

When is comes to housing costs, Quinn said the materials used to build a house account for about 30 percent of the cost and is already being taxed. Reducing the sales tax rate would reduce that by several thousand dollars.

That would allow for taxing more services related to real estate without adding to the overall costs of buying or renting, he said, acknowledging that "housing is not left harmless in this."

Quinn's bill, which could be introduced by the end of the week, comes as lawmakers are getting bad news about the size of the state's surplus as the final revenue estimates of the session are being calculated.

Senate Budget Chairman Jerry Stevenson, R-Layton, said the $1.3 billion in additional revenues that had been anticipated is down by about $300 million, likely due to income taxes being paid later than expected.

The Utah State Tax Commission's monthly revenue summary shows income tax collections dropped 10 percent below projections in December and 7.7 percent in January.

"This isn't a real pretty picture," Stevenson said, noting about $350 million of the extra funds have already been set aside for the new Utah State Prison under construction near the Salt Lake City International Airport.

3 comments on this story

What's still available must cover an increase in public school funding, raises for state employees and any new spending by lawmakers this session from a wish list that already exceeds the $1.3 billion estimate from late last year.

Even if the money ends up being collected, Stevenson said lawmakers have to base the budget passed before the session ends in mid-March on the updated revenue estimates that should be finalized by the end of the week.

He said the new numbers could "let the air out of the balloon" when it comes to a tax cut. "With the revenue numbers being what they are, it certainly could have an effect on what we do."

Contributing: Katie McKellar, Emily Ashcraft