On December 12, Utah lawmakers met in a special session to address SB-2001, a sweeping tax reform bill that decreases state income tax while increasing the tax on food, fuel, and services.
Officials state that tax reform is needed at the state level to re-balance the education, general, and transportation funds.
The tax reform bill was packaged with a number of tax cuts and credits in part of an effort to secure votes. The final bill appears to disproportionately affect residents in rural areas and with lower incomes.
The bill impacts San Juan County residents in a number of ways. Fuel taxes will be raised six to ten cents per gallon. Taxes on groceries will increase from 1.75 percent to 4.85 percent.
New taxes will be implemented on certain services such as streaming, ride sharing, car rentals, dog grooming and boarding, dating referral services, towing, and other service industries that may not have a lobbyist protesting these new taxes at the state capitol this year.
There’s a lot of good in the bill as well. The income tax rate shrinks from 4.96 to 4.66 percent. The Utah Dependent Exemption expands from $565 to $2,500. An income tax credit is created for social security income. Menstrual products will no longer be taxed, and a grocery tax credit is created for low and middle income residents.
House District 73 Representative Phil Lyman shared several insights into how the tax reform would affect families in San Juan County.
Lyman, a Certified Public Accountant (CPA), ran independent financial analyses before deciding to vote against the bill. He said the proposed tax reform created winners and losers, particularly in San Juan County where distances are great.
He said, “The recent tax bill passed in special session last week provides a net $160 million tax cut for Utah, which is a great thing.
“The problem is that with a reduction in the income tax rate, it favors those with the highest income; and with an increase in grocery tax and gas tax, it hurts those for whom distance is a challenge.”
Utah has roughly one million households, so the $160 million tax cut averages out to about $160 per family. But it won’t distribute evenly.
Lyman said that urban families will reap the rewards of a decrease in income tax and be able to mitigate tax increases in fuel and groceries.
Remote, rural families will pay more in taxes under the new system. With lower than average household incomes and higher than average travel distances, Lyman’s analysis reveals typical rural households will end up paying more than $100 more per year.
Those with incomes under $22,000 in rural areas with the greatest distances to travel will end up paying $350 more in taxes per year.
Lyman says, “Counties where income is low and where distance is a challenge will be hurt by this bill. Living in the county with the lowest household income and where people drive the longest distance just to buy groceries that have been shipped the longest distance, there are few residents of San Juan County that will not be hurt financially from this bill.”
“The other kick to the gut is that all of this was done to get more money for transportation infrastructure on the Wasatch Front, and to fund Higher Education on the Wasatch Front, and to incentivize more government growth... on the Wasatch Front,” Lyman adds.
“I don’t fault any of the legislators who voted for the bill. It is a bona fide tax cut, and it was hard to vote against taken on its one-dimensional presentation.”
“Most representatives evaluate bills for how they impact their constituents, which is what they were elected to do.
“Since Wasatch Front counties have 68 of the 75 representatives in the house – and since self interest usually trumps benevolence (see Adam Smith) – it will come as no surprise to people in the far reaches of the state that we participate fully in paying for amenities and infrastructure for which we receive no direct benefit.”
Seven of the 29 lawmakers in the Senate and 26 of the 75 lawmakers in the House, including Lyman, voted against the bill.
While the bill still passed, it failed to achieve a two-thirds majority vote, which means a citizens referendum can force it to a vote next November instead of becoming law.
A number of citizens referendums have already been filed, with the largest of those gaining thousands of members every day on a Facebook group called Utah 2019 Tax Referendum.
The group has 40 days from the end of the legislative session in which the law was passed to collect 115,869 signatures of registered voters in the State of Utah in at least 15 counties.
For San Juan County, the threshold to meet is 583 signatures. The signatures must be collected in person.
The deadline for the signatures is January 21. County clerks must certify signatures and return them to Lieutenant Governor Cox.
If the referendum succeeds, lawmakers must find another solution to the imbalance of funds in the state. The state constitution requires income tax to be used solely for education, so while the state has collected more income tax than ever before, the hundreds of millions of surplus dollars must stay in the education fund.
Meanwhile, Lyman said the general and transportation funds have seen a net decrease, and the excess funds generated from income tax cannot be used to balance the budget.
This is the structural problem state lawmakers refer to when discussing tax reform.