An $80 million tax cut was put on the table Wednesday by a leader of the Legislature's Tax Reform Task Force as a way to advance a single sales-tax rate for the state.
The cut would be offset by the recent increase in state tax revenues and so no existing programs would be harmed, according to Rep. Wayne Harper, R-West Jordan, the co-chairman of the task force and the legislator behind the push for a uniform state sales tax.
"It's reining in state spending and growth," Harper said of the proposal, describing it as intended "to soften the impact to taxing entities" of switching some sales taxes to property taxes.
All of this is part of Harper's plan to set a 6.25 percent sales tax rate statewide.
There are now 96 different tax rates across the state. The system is confusing to businesses and consumers alike and actually harms economic development, single rate advocates say.
Some of the local option sales taxes "boutique" taxes levied for services such as zoos, arts and parks (the ZAP tax), transit districts or rural hospitals would be added onto property tax bills, Harper explains. And property tax rates would be adjusted in an attempt to offset that shift, he adds.
The proposal is far-reaching and complicated. Some areas will see a slight property tax reduction and a sales tax cut. Others will see a mix one tax up, the other down. If a sales tax actually went up, Harper's plan would attempt to offset that with property tax cuts.
But because the growing income tax will be used to offset drops in the sales and property tax and all of the state income tax is dedicated to public schools some lawmakers are complaining Harper's laudable goal has the potential of harming school funding.
Reducing the school district portion of property taxes by $80 million statewide would cut property taxes by $61 on a house valued at $181,000. But, in some areas with boutique taxes the property tax rate would increase under the proposal.
For example, in Salt Lake County, property taxes on a $181,000 house would go up a total of $32 because of the ZAP tax and the amount collected for mass transit. Hardest hit would be outlying areas of the state where a rural hospital tax is added to the sales tax rate.
The biggest increase in property taxes under the proposal, $109, would be in Henrieville. Like other communities in Garfield County, the tiny town levies a rural hospital tax to pay for the area's municipal medical facility.
Other areas of the state would see a drop in property tax rates, such as Utah County. There, residents of Vineyard would see a drop of $106 on their property taxes while in Provo, the bill would decrease $76 on a $181,000 house.
The task force's subcommittee on sales taxes, where the proposal was introduced, took no action. However, Minority Caucus Manager Roz McGee, D-Salt Lake, questioned whether school funding should be involved at all.
McGee said the "overriding intent" of any tax reform should be to improve education. McGee said in an interview after the meeting that under the proposal, "we might get some equity in sales tax but we might then get some inequity in what counties do in education."
Just how successful the proposal will be remains to be seen. Gov. Jon Huntsman Jr. has already opposed any tax cuts associated with the tax reform process even though the state has collected hundreds of millions of dollars in unanticipated revenue recently.
"It is just another proposal at this point," the governor's spokeswoman, Tammy Kikuchi, said of Harper's plan. "It needs to be considered in the full context of the tax reform effort. The committee is not really viewing this as a tax cut but more of a shift."
Senate President John Valentine, R-Orem, said as the "boutique" sales taxes are shifted around, income taxes will be used to make schools whole. "There will be no loss" to the schools, Valentine said.
Harper's proposal "takes the state in the right direction," said Valentine. One of the goals of the task force is to simplify state taxes. Having a single sales tax rate across the state is a big step toward that goal, Valentine said.
However, the proposal may have troubles on many fronts, including the fact that small sales and property tax cuts may not be recognized by citizens, limiting the political mileage legislators might get out of it.
All 75 House members and half the Senate are up for re-election next year. Legislators say it would be nice if an $80 million tax cut were remembered, but Valentine acknowledges that reducing the sales tax in, say, Alta Town, from the current 8.1 percent to 6.25 percent may not be noticed, and so not appreciated in the November 2006 elections.In other action by task force members:
The committee voted to draft a 4 percent flat-rate income tax bill that has no deductions for charitable giving, mortgage interest or any other current tax breaks. A number of the committee members said, however, they would not ultimately support a 4 percent flat-rate tax. Kikuchi said the flat-rate vote is "a great starting point. It's gratifying to see the discussion moving forward and we'll wait to see how it is discussed in the Legislature." The governor, she said, supports "a flatter, simpler tax that does not negatively impact those on the lower end of the income scale."
Tax increase notices published in newspapers will be streamlined in an effort to make them less confusing. Members of the property tax working group asked that all interested parties, including local governments and school districts, submit revisions that would help taxpayers better understand how they will be impacted, whom to contact, and when to speak publicly above the proposed increase without being weighed down by the excessive legal or financial jargon present in many notices."I see these notices every day in the newspaper, and I think they're generally confusing to the public," Rep. Gordon Snow, R-Roosevelt, said. "I think we need to find a way to make them simple."
Contributing: Josh Loftin