SALT LAKE CITY — The 2019 Legislature may be over, but lawmakers will continue to work on a tax reform plan that could include taxing services, restoring the full sales tax on food purchases or a statewide property tax hike.
And while there's already $75 million set aside for some type of tax cut in the $19 billion budget finalized before the 45-day session ended Thursday night, Gov. Gary Herbert is pushing for at least twice that much.
In the final hours, the Legislature approved a new task force to find a fix to the slowing growth in state sales tax revenues fast enough to be handled in a special session this summer.
The governor, along with Senate President Stuart Adams, R-Layton, and House Speaker Brad Wilson, R-Kaysville, have all expressed confidence that needed changes are coming to the state's tax system.
"We’re not there yet, but a lot of the work has been done," said the Senate president, who had held out hope tax reform could be saved before the session ended with a Hail Mary pass. "Overtime is the best part of the game."
That's despite the failure of a House-led attempt to broaden a sales tax base that's shrinking as consumer spending shifts from goods to services. HB441 would have taxed services ranging from haircuts to legal advice.
The complicated bill, which imposed fees on health insurance premiums and real estate transactions in lieu of taxing medical care and real estate commissions, also would have reduced both the state sales and income tax rates.
Opposition surfaced from the business community, including lawyers and other professionals concerned the bill would lead to what's known as "pyramiding," imposing taxes on taxes as service providers pass along their costs.
As House and Senate GOP leaders debated over how best to solve that issue, time ran out on making changes to HB441, which had gotten off to a late start in the session because of how long it took to put together.
The sponsor of HB441, Rep. Tim Quinn, R-Heber City, said there needs to be more effort to get buy-in from the public, as he tried to do by attending a meeting last week of a newly formed group opposed to taxing services to answer questions.
Afterward, most of the participants at the Utah Tax Reform Coalition meeting in Sandy told him,"You know, this bill isn't what I thought it was and I’m less opposed to it now," Quinn said.
"I think if we were able just to talk to people and give them a good understanding of what the bill actually said, and what the bill was actually trying to accomplish, we would have broad-based support," he said.
Quinn said he isn't claiming his plan "was the best, but it was the best that we, in weeks and months and months of discussion came up with, so I still think there's viability to it. But is it the best policy? I don't know."
Democrats, too, felt they were left out of the debate.
"We had some real concerns as Dems about the process in trying to deal with tax reform during the session," House Minority Leader Brian King, D-Salt Lake City, said of the supermajority Republicans meeting in closed-caucuses to discuss the issue.
Republicans tried to hammer out a plan in private "they thought was good for their people and good from their perspectives, but there was no input from the Dems, there was no input from the public," King said. "That’s a problem."
The governor, whose proposed budget called for extending sales taxes to services to broaden the state general fund's key revenue base plus a $200 million tax cut, said tax reform is "an emotional and complex issue."
Herbert said it would be wrong for anyone to believe the issue is going away, but acknowledged it will take more time.
"Obviously, we didn’t do enough or we would have had this across the finish line," the governor said, including communicating better with the public. "But frankly, it’s just a hard thing to do."
Even though the latest revenue estimates saw the state's budget surplus drop from $1.3 billion to $1.1 billion, Herbert said he would like to see a $150 million to $200 million tax cut on top of whatever changes are made to the tax system.
The governor said he didn't want to presuppose the outcome of the task force's efforts, but said it will likely recommend broadening the sales tax base and possibly involve property taxes or "all of the above."
Senate Republicans, however, are interested in restoring the full sales tax on food.
After GOP leaders announced HB441 would not go forward, Senate Majority Whip Dan Hemmert, R-Orem, put together an alternative bill that raised the sales tax on food from 1.75 percent to 4.7 percent while providing a grocery income tax credit.
Quinn, who tried unsuccessfully last year to remove all sales tax from food, said he would fight an attempt to raise the food tax. He said increasing food or property taxes is not a long-term solution.
"I think both of those are bad ideas if for no other reason than they’re short term," he said. "They’s Band-Aids. They’re big Band-Aids, but they’re still Band-Aids."
The Senate bill putting the full tax back on food was never introduced. Instead, House and Senate leaders hit an impasse over a House plan to withhold $400 million in spending until tax reform could be completed in a special session.
Under a compromise jokingly called a "stimulus package" by Senate Budget Chairman Jerry Stevenson, R-Layton, Wilson and Adams agreed to provide only temporary funding for $320 million in the budget to put pressure on the process.
Using one-time money to pay for ongoing programs means funding will run out for budget items like substance abuse treatment for the homeless at the end of the next fiscal year on June 30, 2020, unless there's action by lawmakers.17 comments on this story
The turmoil over tax reform has brought a new focus on the looming problem of lawmakers soon not having enough general fund revenues to balance the budget. Income tax collections are growing quickly but have to be used for education.
The House speaker, a self-described "geek" when it comes to the budget, said he's happy to see people paying attention.
"I don’t feel bad at all about what happened. We learned a tremendous amount," Wilson said. "I think we’ve got even more resolve and committment to address the issue and a sense of urgency about it that I think is even more deeply understood."
Contributing: Katie McKellar