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UTAH LEGISLATURE CHANGES TAX STRUCTURE BY WAY OF A SPECIAL SESSION
December 18, 2019
Parsons Behle & Latimer Legal Briefings


Income tax collections have grown robustly in Utah. On the other hand, as the Utah economy shifts from a goods-based economy to a service-based economy, sales tax collections have grown much more slowly. This is a problem for the Utah Legislature because the Utah Constitution earmarks all personal and corporate income tax monies solely for education funding while the rest of state government functions must be funded largely through sales tax.  Though education needs are great in Utah, so are the needs of other government programs.  Responding to this crisis, the Utah Legislature met in special session on Dec. 12, to revamp the tax system structure. The Legislature raised some taxes substantially while cutting others considerably. Overall, legislative leaders said the package is a $255MM tax cut, though businesses will spend an additional net of $30.5M, due to an increase in taxes on motor and diesel fuels. Here is a breakdown of what the Utah Legislature passed on Dec.12:

Tax increases

  • Sales tax will now be imposed on gasoline at the wholesale level – a tax increase of around 10 cents per gallon initially, with further increases if prices rise.
  • The diesel fuel tax will be increased by six cents per gallon, with a further increase to 10 cents total in 2022.
  • Food will no longer be taxed at a lower rate than other items but will be taxed at the full state sales tax rate of 4.85 percent, plus local taxes.
  • The car rental tax rate was increased from 2.5 percent to 4 percent.
  • Certain current tax exemptions would also disappear, meaning Utahns would now have to pay sales tax on items like: 
    • Newspapers and newspaper subscriptions
    • Ski lift electrical bills
    • College sports event tickets
    • Train engine fuel
    • Textbook sales
    • Digital streaming services
    • Vending machine snacks, unless the machine is cash-only
    • Dry cleaning, laundry services and laundromats, unless the machine is cash-only
    • Car washes and car detailing, unless the machine is cash-only 
  • Sales tax will now be paid on certain services, including:
    • Pet boarding and pet daycare services
    • Personal transportation services, except for ambulance services and transportation that is part of a funeral service
    • Personal transportation services, including Uber and Lyft, and scenic tours
    • Motor vehicle towing
    • Parking lots and garages
    • Dating referral services
    • Identity theft protection
    • Streaming media like Netflix or Hulu
    • Shipping and handling, when part of a taxable sale
    • Alarm system monitoring
    • Seller-hosted pre-written software

 The list of tax cuts is shorter but is more significant in terms of dollar impact. 

Tax cuts

  • The individual and corporate income tax rate is decreased from 4.95% to 4.66%
  • The Utah dependent exemption is increased in a couple of ways:
    • The dollar amount is increased from $565 to $2500
    • Joint tax filers with no dependents can claim one dependent exemption
    • There is a one-time “prebate” payment of up to $200 for 2019 filers, equal to approximately half of the per dependent credit, to be paid in early 2020
  • A tax credit is given for Social Security income, phased out above a certain threshold
  • Menstrual products are exempted from sales tax
  • Consumables used in the repair, cleaning and maintenance of tangible personal property are exempted from sales tax
  • The Legislature also took a couple of steps to assist low-income individuals specifically:
    • A $125 per-year refundable grocery tax credit was created for families of four people, phased out past 175 percent of the federal poverty limit, with $50 for each additional family member
      • In the first year, a one-time “prebate” payment worth 25 percent of the credit amount will be sent to certain filers after July 1, 2020.
    • An earned income tax credit for individuals experiencing intergenerational poverty was created.

The Earmark

The Utah Legislature is negotiating with the education community to attempt to make the education community comfortable about the safety of education funding while agreeing to remove the education earmark on income taxes. For this change to occur, it would have to be passed by the Legislature, and then approved by the voters. These talks have been ongoing for months, and many hope there will be some resolution in time for action during the upcoming regular Legislative Session. 

To discuss this or other government relations issues, contact Shelly Cordon Teuscher or J. Michael Bailey at (801) 532-1234 or send an email to mbailey@parsonsbehle.com or steuscher@parsonbehle.com.