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Review panel suggests tax on services

Plan would include levies on health care and home sales

A haircut. Car insurance. A new house. Cardiac surgery.

The price paid by Utahns for any and all of these would be assessed under a new state sales and use tax now being reviewed by the Utah Tax Review Commission.

The commission, which functions as an advisory board to the Legislature and governor's office, heard findings Thursday of a study conducted by a commission-sanctioned task force that was asked to determine if the current tax system "should be modernized and more closely aligned with the current economy."

The answer, according to the study's findings, was a resounding yes, and the suggested philosophy applies a tax to all "final consumption," which is anything that is purchased or consumed, including services, and removes taxes from all "business inputs," defined roughly as any business expense that would normally qualify for a deduction.

Commission member Mark Buchi, presented the study's results to the board on Thursday and said Utah's current sales and use tax structure is, in most part, a relic from the 1930s that no longer fits Utah's economic structure. Buchi, who was part of the task force that compiled the study, said the team relied heavily on national sales tax experts and noted this citation from a 1988 paper by Perry Quick and Michael McKee — both one-time economic advisers to President Ronald Reagan:

"State legislators should consider the introduction of a broadly based tax on the consumption of services not as a major source of new revenues but rather as a means to reform their entire sales tax structure. There is no reason why such a large and growing sector of the economy should not be taxed."

That growing sector, according to the commission study, should include taxes on sales of new homes, rent payments, insurance payments, health care and other services. The task force proposed two options on how to address an assessment of tax on health care. One would apply the tax to medical care insurance premiums and out of pocket expenses such as deductibles and co-payments. The other would impose the tax at the point of sale, when the health-care service is provided.

Applying all the new taxes could add hundreds of millions to state coffers — even after accounting for the losses from exempting business inputs, which was estimated at over $600 million. Revenue projections compiled by the Office of the Legislative Fiscal Analyst included in the report based on tax figures from the 2007 fiscal year show that the consumption-based taxation would have generated between $500 million and $530 million, depending on which version of health-care taxation was chosen.

Buchi said in his presentation that the task force was not charged with examining a tax change in terms of creating revenue streams but rather to explore alternatives to the current sales and use tax structure that were more pertinent to Utah's current economic system.

There was some disagreement among the 15-member board as to the appropriate next step for the study's findings. Several commissioners were ready to approve the document and send it to the Legislature for its consideration. Others, including former Utah Sen. Dixie Leavitt, had concerns over specifics. Leavitt told the panel he wasn't ready to support a plan that would apply a tax to health care.

"This taxing the sick … is very serious business," Leavitt said. "I wouldn't want my name on it in the form that it is in."

Commission member and Utah Rep. Chris Johnson, D-Salt Lake, said she also felt further work was needed before any recommendation vote could be taken.

"I'm not ready to say yes, this is great, let's put it forward," Johnson said.

Johnson also said she was disappointed with the decision to not vet the study through a public hearing process — an idea broached by Buchi in his presentation that did not get a positive response from commission chairman Keith Prescott, who said arranging for hearings would "not be an easy task."

In the end, the board voted to continue work on the ideas proposed in the study and prepare for a possible recommendation vote at the next scheduled meeting on Sept. 10.