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Special session on tax reform ‘imminent’

Changes still in the works even as legislative leaders plan to meet with governor

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House Speaker Brad Wilson, R-Kaysville addresses the House of Representatives during the start of the 2019 Legislature at the State Capitol in Salt Lake City on Monday, Jan. 28, 2019.

Steve Griffin, Deseret News

SALT LAKE CITY — GOP legislative leaders are set to sit down with Gov. Gary Herbert Thursday to start wrapping up the details of a special session on tax reform that’s expected to be called for Dec. 12, even though some substantial changes to the latest plan are still in the works.

“I think you can say it’s imminent there will be a special session,” Senate President Stuart Adams, R-Layton, told the Deseret News Wednesday. Adams said he and House Speaker Brad Wilson, R-Kaysville, plan to tell the governor there’s enough support in both the House and Senate to warrant him calling a special session.

“We’re close. We’re close to getting a sizable tax cut to Utahns in place before the end of the year,” Wilson told KSL Newsradio’s “Dave and Dujanovic” earlier in the day about the meeting with the governor. He and Adams both pitched the need to move quickly on tax reform on the show.

Herbert has not commented on the work of the Legislature’s Tax Restructuring and Equalization Task Force that is scheduled to meet 5 p.m. Monday. The group is considering ways to ensure more Utahns see an overall tax cut under a plan that would raise sales taxes on food, gas and some services, while lowering income tax rates and adding new breaks.

“The governor is engaging in ongoing conversations with legislative leadership and appreciates their hard work on this topic,” Herbert spokeswoman Anna Lehnardt said. “We look forward to receiving the recommendations of the task force.”

Those recommendations will now include allowing joint income tax filers with no dependents to claim an exemption, Adams said, to boost the number of Utahns who would see a tax cut under the plan. That means the size of the overall tax cut is also going up, from around $80 million to what he said would be $100 million.

Lawmakers had set aside $75 million last session for a tax cut, but Adams said there should be enough money to cover the difference without making cuts in the budget because “our economy’s grown enough to absorb that $25 million.”

Just how much revenues are growing will be announced soon by the governor, who is in the midst of readying his own proposal for the budget year that begins July 1, 2020. The updated revenue estimates are anticipated to emphasize the issue behind tax reform, lagging sales tax receipts as spending shifts from goods to services.

Income and sales taxes, the two biggest sources of revenue for the state, are now “growing at wildly different rates,” Wilson said, warning that the new revenue numbers will show that income tax collections are “growing at 10 times the rate of sales tax.”

That’s an issue because under the Utah Constitution, income taxes can only be spent on education, leaving every other state need to be paid for largely by sales taxes. Even transportation is only partially funded by the gas tax, although the tax reform plan will bring in new money for roads.

The additional road funds likely will come from lifting the exemption on charging sales tax on wholesale gas purchases, but that could end up being what Adams labeled a separate “annually calculated sales tax” or simply an increase in the existing gas tax now at about 31 cents a gallon.

The Senate president said the already shrunken list of services that would be subject to sales taxes is also being scrutinized.

The most recent public tax reform proposal called for sales taxes to be added to pet boarding, Uber and other ride-hailing services, sightseeing buses, towing, parking lots, garages, dating referrals, streaming media, shipping and handling, installations, storage, identity theft protection and electronic security monitoring.

Still part of the plan headed to a special session is restoring the full state 4.85% sales tax on food, now just 1.75%, while giving low- and moderate-income Utahns up to a $125 grocery tax credit, along with a new earned income credit and an increase in dependent exemptions from $565 to $2,500, and a tax break on Social Security benefits.

“We give it all back,” Adams said of the approximately $250 million in revenue that would come from the additional sales tax on food, which is opposed by low-income advocates and others. “That’s what I don’t think people are understanding. We give it all back, plus.”

Utah’s income tax rate, now at 4.95%, would drop under the plan to around 4.66%.

What’s not going to be part of a special session is the education piece of tax reform. A plan is in the works to help recoup the loss in income tax collections for schools by making it easier for local districts to raise property taxes while also establishing some state funding guarantees.

The most controversial element of tax reform, amending the Utah Constitution to remove the earmark on income taxes for education, will also wait until the 2020 Legislature that begins meeting in late January. Any constitutional change must also be approved by voters.

Adams and Wilson both said what’s critical for lawmakers is to get the income tax changes in place before the start of the new year, giving Utahns more money in their paychecks because the amount withheld for taxes will decrease.

“We think state government needs less money and we’d like to give some of that money back to Utah families,” Wilson said, promising “almost every Utahn” will end up paying less overall in taxes. He said Utahns should feel the effect of tax reform in 2020 — an election year all of the House and half of the Senate — rather than wait until 2021.

House Democrats are planning on releasing their own tax reform proposal Thursday, House Minority Leader Brian King, D-Salt Lake City, said, declining to discuss details in advance. Republicans hold supermajorities in both the House and Senate.

“Obviously, if they’re talking about calling a special session they feel confident they have at least 38 votes in the House and 15 votes in the Senate, and maybe more,” King said of the GOP leadership, citing the number of votes needed to pass legislation. “We’re under no illusions here.”

The task force agreed to include exempting feminine hygiene products from sales taxes in the tax reform plan as a concession to Democrats, along with the earned income credit for low-income residents and a tax credit based on earnings for Social Security recipients.

But King said there’s more that needs to be done before Democrats can back the plan.

“I think they’re moving in the wrong direction. ... Cutting funds for education is a bad idea. Increasing the sales on food is a bad idea,” he said, adding so is the way services have been selected to be taxed that appears to target “whoever does not have the capacity to get organized and hire lobbyists.”