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Tax reform task force not going to 'tax everything,' but still looking at sales taxes on some services

FILE - This March 8, 2018, file photo, shows the exterior of the Utah State Capitol in Salt Lake City. Lawmakers passed 574 bills this year, setting a record, and most of those new laws will go into effect on Tuesday, May 14, 2019, 60 days after the end o
FILE - This March 8, 2018, file photo, shows the exterior of the Utah State Capitol in Salt Lake City. Lawmakers passed 574 bills this year, setting a record, and most of those new laws will go into effect on Tuesday, May 14, 2019, 60 days after the end of the short legislative session. (AP Photo/Rick Bowmer, File)
AP

SALT LAKE CITY — Now that members of the Utah Legislature's tax reform task force have finished a series of public meetings around the state, they're ready to start talking specifics.

For Sen. Lyle Hillyard, co-chairman of the Tax Restructuring and Equalization Task Force, that means considering recommending adding sales taxes to some services already taxed in other states, such as Uber and other ride-sharing services.

Other subjects of a yet-to-be-scheduled series of meetings, the Logan Republican said, likely will include restoring the full state sales tax on food purchases and reconsidering the constitutional earmarking of income taxes for education.

If the task force can come up with proposals supported by a majority of lawmakers, their recommendations could go to a special session of the Utah Legislature later this year, he said.

Hillyard said he was surprised at what he heard during the eight town hall meetings held around the state over the summer, starting in Brigham City on June 25 and ending in Orem on July 30.

"I had some misgivings," the longtime state lawmaker said. "I thought people would say, 'Cut taxes. … This is all a bunch of nonsense.' But we've had good crowds and good discussions."

House Majority Leader Francis Gibson, R-Mapleton, the other co-chairman of the task force, said in a statement that tax reform "is an incredibly complex topic and one of the most challenging issues the state has undertaken."

Gibson said, however, "time and time again, Utahns have shown a willingness to face weighty issues head on. This is no exception. Together, we'll create the best policy."

Lawmakers are looking for ways to fix a structural imbalance in the state budget created because sales tax revenues aren't keeping pace with income tax collections as consumer spending shifts from goods to services.

During the 2019 Legislature, lawmakers tried and failed to pass a bill that would have extended sales taxes on a wide range of services, from lawn care to legal advice, while reducing the sales and income tax rates.

Amid protests from the business community, legislative leaders ended up scrapping HB441, sponsored by Rep. Tim Quinn, R-Heber City, and establishing the task force in the hopes of coming up with a more politically palatable plan.

Some 1,500 people ended up attending the task force town halls, filling out 150 comment cards. Two hundred attendees offered public comments at the meetings and nearly as many have submitted their views online, at StrongerFutures.utah.gov.

Hillyard said he anticipates the future task force meetings will all be held at the state Capitol and focus on one topic at a time "with a couple of weeks between each hearing so our staff doesn't get killed. These are some pretty heavy issues."

Especially when it comes to imposing sales taxes on services. One of the biggest concerns lawmakers had about last session's legislation was what's called tax pyramiding, adding taxes to a client bill that already includes taxed services.

"I think we heard loud and clear not to tax medical services, travel services, legal services," Hillyard said, as well as other professional services such as accounting because of pyramiding.

Travel agents had told the task force they would face a competitive disadvantage because Utahns would be able to book cruises and other trips online with out-of-state agencies to avoid paying the tax.

Hillyard said he believes the task force will focus on services already widely taxed elsewhere at least for now, even though that means work would continue in the future to consider expanding the sales tax base.

"One of the things we have to be careful about," Hillyard said, is avoiding making sweeping changes all at once, like HB441 would have done. "They taxed everything. They threw everything against the wall."

The senator said the task force approach is not going to be to tax everything, but instead "pick those that are low-hanging fruit … (and) not to appear to be trying to tax everybody and create chaos."

He said he also wants to make sure that for every new tax dollar that comes in there will be a corresponding cut in either the sales or income tax rate so that the changes will be revenue neutral.

"I'm personally inclined to cut income" tax rates, he said, because a chunk of sales taxes are actually paid by visitors from out of state while only Utahns remit taxes on their earnings to the state.

Allowing income taxes to be spent on more than public and higher education as now required by the Utah Constitution, seen by some as a solution to the imbalance, requires a constitutional amendment that would have to be approved by voters.

Senate President Stuart Adams, R-Layton, said spending can also be shifted within the budget.

"There's a lot of options with that structural issue," Adams said, possibly paying for the school lunch program with income tax revenues instead of state liquor store revenues.

"That doesn't require a constitutional amendment. I think either in a small way or a big way, I think we'll fix the structural problem. I don't see that as insurmountable," the Senate leader said.

Extra money from expanding the sales tax base could be used to give new tax breaks to businesses, Adams said, to help the state stay competitive, while restoring the full sales tax on food could be offset with assistance for low-income Utahns.

Another possibility, he said, is taking away the state's income tax on Social Security benefits.

The task force's work to put together a new tax reform plan comes as a new poll for the Salt Lake Chamber shows 49 percent of Utahns generally support broadening the sales tax base by taxing some service transactions.

The poll found 40 percent of likely voters polled opposed while 11 percent said they didn't know. The poll, conducted by Dan Jones & Associates of 801 Utahns between June 11 and July 1, has a margin of error of plus or minus 3.4 percentage points.

Both Hillyard and Adams said the numbers reflect the work of the task force.

"It is wow. I'm actually encouraged by the response," Adams said. "I think most people understand our economy's changing. … I think the fairest policy is to try to spread it as broadly as possible."