Utah tax reform, increased fuel costs nixed

In response to a citizen referendum effort opposing a tax reform deal, Utah state lawmakers have reversed course on the changes.

In December, the Utah Legislature met in special session to approve additional sales tax collection to cover expenses that include transportation work.

Gov. Gary Herbert signed into law a 199-page bill to raise the state’s sales tax on food, gas, and certain other services. The excise tax on diesel also would be increased by about 33%. Additionally, income tax cuts were included in the reform package – SB2001.

In response to the legislative action, a citizen effort was launched to nullify the new law. The changes did not immediately take effect because the Legislature came up short of the two-thirds margin necessary.

Sales tax increase

SB2001 was highlighted by a provision to raise the state’s 31-cent gas tax rate by about 10 cents to 41 cents.

Diesel fuel purchases were not exempt from the effort to boost state tax revenue. Instead of being charged a sales tax on fuel purchases, starting in April commercial drivers were slated to pay an extra 6 cents per gallon in excise tax to 37 cents – up from 31 cents.

In 2022, the diesel rate was set to be raised another 4 cents to 41 cents.

Additionally, the state’s 4.85% sales tax was to be collected on food – up from 1.75%.

The additional tax collected on food, fuel and services was estimated to raise about $475 million.

In an effort to reduce the hit to many Utah residents’ pocketbooks, the state income tax rate was set to be reduced from 4.95% to 4.66%.

Trimming income tax collections was estimated to save residents $635 million.

Citizen referendum effort

Critics of the tax reform law voiced concerns about how the tax changes could affect education and the loss of revenue via the income tax cut. They cited shifting revenue away from income taxes and toward the state’s General Fund.

The deadline to submit signatures for the referendum petition was Jan. 21. Advocates for the referendum effort were able to meet the minimum signature requirement to include a repeal question on the November ballot.

Days later, Gov. Herbert and legislative leaders in his party announced plans to pursue a repeal of SB2001 during the regular session. Less than one week after the referendum signatures were turned in to the state, the Legislature overwhelmingly voted in favor of a repeal.

The action by the Legislature and Gov. Herbert to abandon the tax changes also ends the need for the referendum question on the fall ballot.

The Legislature is not expected to take up the issue for consideration again until 2021.

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