Utah’s Sales & Use Tax: Issues and Options · State Sales Tax Revenue Amounts FY 1970-2009 $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992

Utah’s Sales & Use Tax:Issues and Options

Prepared for:Bagels & Briefings February 16, 2010

Presentation Outline

• Background• Sales Tax Revenues• Sales Tax Base• Sales Tax Rates• Current Sales Tax Issues

• Largest state General Fund revenue source & significant revenue source for many local governments

• Ability to purchase / consume is one measure of ability to pay

• Basically every household pays• Regressive (lower income households pay a higher

percentage of income in tax)• Potential to “export” a portion of the tax to visitors• Collected by businesses• Impacts on local zoning decisions• Collected a little bit at a time• Politically popular (least unpopular?)

Why Does the Sales & Use Tax Matter?Features of the Sales & Use Tax (“Sales Tax”)

Sales & Use Tax History

• Sales tax first imposed by state during the Great Depression (1933)

• Use tax imposed soon after (1937)

• First local option sales tax authorized in 1959

• Over time, increasing reliance on sales tax for both state and local governments

Sales Tax Revenues

Sales Tax (state & local,

including earmarks) $2.6 B31%

Property Tax (local) $2.4B 29%

Individual Income Tax

(state)$2.3B28%

Corporate Income Tax (state), $0.25B, 3%

Transportation Taxes (state), $0.34B, 4%

Other State (severance, cigarette, insurance, etc.), $0.30B, 4%

Other Local (Excise), $0.07B, 1%

Utah’s State & Local Tax StructureFY 2009

Source: Utah State Tax Commission

Sales and Use Tax Revenue:State Unrestricted, State Earmarked, and Local

FY 2009

Local$820M31%

State Earmarked

$277M11%

State Unrestricted

$1,547M58%

Total FY 2009 Revenue: $2.64 Billion


Earmarks of State Sales and Use TaxFY 2009

Critical Highway Needs Fund, $61M

Food Pantries, $1MTransportation Investment Fund &

Critical Highway Needs, $5M

Centennial Highway Fund, $6M

Transportation Fund, $26M

Water/DNR$27M

Water Loan Funds, $14M

Endangered Species & Agricultural Devel,

$3M

Other Water, $1M

Water Resources Conservation and Development, $8M

Centennial Highway Fund/Rest. Acct.,

$151M

Total Earmarks: $277 millionSource: Utah State Tax Commission, GOPB

Revenue from Local Sales & Use TaxesFY 2009

Local $425M

Public Transit $221M

County $107M

Resort Community

$12M

Rural Hospital

$8M

Municipal Highway

$12MZAP/RAP

$27M

Other $8M

Total Local: $820 Million Source: Utah State Tax Commission

State unrestricted(General Fund)

$1,547M59%

State earmarked$277M10%

1% local option$425M16%

Other local$28M1%

Local option transportation$233M

9%

ZAP/RAP$27M1% 0.25% county option

$107M4%

Where Do Sales Tax Revenues Go?FY 2009

FY 2009 State & Local Sales & Use Tax Revenue:$2.64 billion Source: Utah State Tax Commission

State & Local Share of Sales Tax1970 to 2009

0%10%20%30%40%50%60%70%80%90%

100%

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

State Local


State Sales Tax Revenue AmountsFY 1970-2009

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Bill

ions

Nominal State Sales Tax Real State Sales Tax


Why Do Tax Revenues Change?

• Economic changes– Employment– Population– Consumption– Investment

• Legislated tax policy changes– Tax base– Tax rate– Tax credits

• Administrative changes– Changes in official interpretation– Changes in practice

Sales TaxYear-over % Change, FY 1983 - 2009

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%19

83

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

Real State Sales Tax RevenueReal Non Farm Wages

$170M Sales Tax Cuts (Food, Rate,

Other)(2007, 2008, 2009)

$35M Rate Reduction

(1998)

Rate Increase from 4.0% to

4.625%(1984)

$30M Rate Reduction & Other

(1995) Rate Increase from 4.6% to 5.1%

(1988)


Sales Tax Base

Basic Tax Formula

(Base x rate) – credits = tax

• Tax BASE – What is being taxed?• Tax RATE – At what level is the tax base

taxed?• Tax CREDITS – Are there additional

offsets to the initial base x rate amount?• Tax LIABILITY / REVENUE – What is the

net amount to be paid / collected?

Key transactions subject to tax include:– Retail sales of tangible personal property

• Reduced rate may apply on sales of food– Sales of certain telecommunication or utility services

(reduced rate may apply)– Certain admissions, such as movie tickets– Certain services, such as a car wash when the

purchaser doesn’t perform the labor, repairs of tangible personal property, or dry cleaning

– Certain hotel or motel charges– Products such as computer software transferred

electronically– “Use tax”

The Utah Sales and Use Tax Base:What Do We Tax?

• Some transactions are not specifically exempt from sales and use taxes but are not part of the tax base, such as professional services or personal care services

• Other transactions are specifically exempt from sales and use taxes– Currently 68 exemptions– Estimated approximate state revenue effect for all

exemptions for fiscal year 2009: $460 Million

The Utah Sales and Use Tax:What Don’t We Tax?

• Some examples of major sales and use tax exemptions include:

Exemption FY 2009 State Impacts

Motor and special fuels $109 MManufacturing machinery & equipment $105 MResale property / component parts $ 55 MPrescription drugs $ 40 MCertain religious / charitable sales & purchases $ 11 MFarm machinery & equipment $ 10 M

The Utah Sales and Use Tax Base:What Don’t We Tax?


Sales Tax BaseGross Taxable Sales as a % of Personal Income

70%

67%

65%

64%

61%

63%

63%

61%

58%

57%

57%

56%

56%

56% 56

%

59% 60

% 61%

59%

58% 58

%

56%

55%

54%

52%

53%

51%

54%

55%

54%

50%

45%

50%

55%

60%

65%

70%

75%

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

• Over the long term, the sales tax base is gradually declining relative to the economy as a whole.

• Why?

Data source: Utah State Tax Commission and 2008 Economic Report to the Governor

The Sales Tax Base:Why is It Declining Over the Long Term?

• Changing purchasing patterns– Movement to more of a service-based economy– Many services excluded from sales tax base

• Cross-border shopping– Internet and catalogue purchases

• Technological change– Digitization of goods (software, books, music)

• Legislated exemptions

Sources: “E-Commerce in the Context of Declining State Sales Tax Bases”Donald Bruce & William Fox. National Tax Journal. Vol. LII No. 4, Part 3.

US Personal Consumption Expenditures

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%19

29

1933

1937

1941

1945

1949

1953

1957

1961

1965

1969

1973

1977

1981

1985

1989

1993

1997

2001

2005

2009

Durable goods Non-durable goods Services

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Source: US Dept of Commerce, Bureau of Economic Analysis

US Personal Consumption Expenditures

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%19

29

1933

193

7

1941

1945

1949

1953

1957

1961

1965

1969

1973

1977

1981

1985

1989

1993

1997

2001

2005

2009

Durable goods Nondurable goods except food Food Medical services Non-medical services

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Data source: US Dept of Commerce, Bureau of Economic Analysis

Sales T

ax Base

Nom

inal Gross T

axable Sales C

hanges

-15%

-10%

-5% 0% 5%

10%

15%

20%1978.41979.41980.41981.41982.41983.41984.41985.41986.41987.41988.41989.41990.41991.41992.41993.41994.41995.41996.41997.41998.41999.42000.42001.42002.42003.42004.42005.42006.42007.42008.4

Source: U

tah State T

ax Com

mission

Inflation-Adjusted Per Capita Gross Taxable Sales

$10,000

$12,000

$14,000

$16,000

$18,000

$20,000

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

Fiscal Year

Rea

l Tax

able

Sal

es p

er C

apita

Real (2008$) Taxable Sales per Capita

$15,720 (30 year average)

Source: Utah State Tax Commission, GOPB

Sales T

ax Base

Recent C

hanges by Sector

-22%-2

4%

-4%

-11%

-5%

-13%-21%

-21%

-2%

4%

-8%-5%

-4%

-13%

-20%

25%

-30%

34%

-2%

-35% -1

8%

40%

-31%

-10%

-18%

-4%

11%

5%

0% 2% 4% 6% 8%

10%

12%Retail - General Merchandise

Retail - Motor Vehicles

Wholesale - Durable Goods

Retail - Food Stores

Retail - Miscellaneous

Retail - Eating & Drinking

Manufacturing

Retail - Building & Garden

Retail - Furniture

Electric & gas

Services - Auto & repair

Services - Business

Communications

Retail - Apparel & Accsy

Services - Hotels & Lodging

Private Motor Vehicle Sales

Wholesale - Non-Durable

Services - Amusement and rec

Construction

Mining

Finance, Insurance, Real Estate

Services - Education

Services - Personal

Services - Health

Transportation

Public administration

Occasional Retail Sales

Agriculture, Forestry, Fishing

Category % of Sales Tax Base

-40%

-30%

-20%

-10%

0% 10%

20%

30%

40%

50%

Year-Over % Change in Taxable Sales

% of T

ota

l Sa

les Ta

x Ba

se (L)

Yea

r-over P

ercen

t Cha

nge (R

)

Source: U

tah State T

ax Com

mission

Retail Trade52%Other

2%

Services11%

Business Purchases

35%

Services14%

Other 3%

Retail Trade56%

Business Purchases

27%

The Changing Utah Sales Tax Base


1984 2008

Sales Tax on FoodFood as a % of Gross Taxable Sales

8.2%

6.6%

8.4%

6.2%

8.8%

6.4%

9.4%

6.1%

9.5%

7.2%

10.2%

6.6%

11.3%

6.6%

9.9%

6.3%

9.5%

7.1%

11.0%

7.2%

10.1%

6.8%

0%

2%

4%

6%

8%

10%

12%

2007Q1 2007Q2 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3

Grocery taxable sales as a % of total taxable sales

Restaurant taxable sales as a % of total taxable sales


Shrinking Base, Increasing Rate

Data source: US Dept of Commerce, Bureau of Economic Analysis, Utah State Tax Commission

0%

10%

20%

30%

40%

50%

60%

70%

1933

1938

1943

1948

1953

1958

1963

1968

1973

1978

1983

1988

1993

1998

2003

2008

0%

1%

2%

3%

4%

5%

6%

7%

Goods as % of Personal Consumption (US)State & Local Sales Tax Rate (UT)

Sales Tax Rates

State & Local Sales Tax Rates


0%

1%

2%

3%

4%

5%

6%

7%19

33

1937

1941

1945

1949

1953

1957

1961

1965

1969

1973

1977

1981

1985

1989

1993

1997

2001

2005

2009

Local Effective RateState General RateState Food Rate

State tax rate +Sum of local tax rates where transaction occursTax rate imposed on a transaction

• The state tax rate depends on what is being taxed

For example:General state tax rate 4.70% (4.65% until 1/1/09)Residential fuels tax rate 2.00%Prepared food tax rate 4.70% (4.65% until 1/1/09)Food and food ingredients tax rate 1.75%

State & Local Option Sales and Use Tax Rates

• Counties, cities, and towns are allowed to impose a variety of local sales and use taxes

• Most local option sales and use taxes tax the same transactions taxed at the state level

• Some local option sales and use taxes may be used for general fund purposes

For example:

Local sales and use tax 1.00%County option sales and use tax 0.25%

State & Local OptionSales and Use Tax Rates

Local Option Sales and Use Tax Rates

1Up to 0.20City or Town Option

15Up to 1.10Resort Community – Basic

5Up to 0.50Resort Community - Additional

1Up to 1.00Town Option

170.10Municipal Recreation, Arts, and Parks

240.30Municipal Highway

40.10County Zoo, Arts, and Parks

1Up to 1.00Rural Municipal Hospital

4Up to 1.00Rural County Hospital

10.10 or 0.25County Airport, Highway, and Public Transit

3Up to 0.25County Option Transportation

27Up to 0.30Mass Transit/Fixed Guideway

520.25Mass Transit - Additional

90Up to 0.25 or Up to 0.30

Mass Transit – Basic

290.25County Option

2831.00Local Option

# JurisdictionsRate (%)Name


Combined State & Local Sales Tax RatesSelected Locations, 2010Q1

5.95%

6.25% 6.25%

6.60%

6.75%6.85% 6.85%

7.45%

7.85%

8.35%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

Fillmore Richfield St.George

Logan Provo Salt LakeCity

Ogden Park City Moab Alta


No general sales tax (4)6.00% to 6.99% (17)

Less than 5.00% (2)

9.00% or greater (2)

8.00% to 8.99% (6)

7.00% to 7.99% (14)

5.00% to 5.99% (5)

6.61%7.24%

6.40%7.92%

7.59%

6.00%5.38%

8.78%

9.06%

US State & Local Sales Tax Rates Statewide Average Rates, September 2009

Source: Tax Foundation

0% 1% 2% 3% 4% 5% 6%

HawaiiWashington

LouisianaArkansas

New MexicoArizona

TennesseeWyoming

MississippiSouth Dakota

UtahUnited States

ConnecticutVermontVirginia

MarylandMassachusetts

AlaskaDelawareMontana

New HampshireOregon

State and Local General Sales Taxesas % of Personal Income

Ten Highest and Ten Lowest States, Utah, and the United States: FY 2006 - 2007

Utah ranks 13th highest

2.53%3.14%

Source: US Census Bureau

Perceived vs. Actual Tax Burden:Selected Utah Taxes

3.73 3.70 3.60

3.08

2.8%

0.5%

3.6%

3.5%

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

Property Motor Fuel Income Sales

Per

ceiv

ed B

urde

n (1

=V

er L

ight

, 5=

Ver

y H

eave

y)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Per

cent

of T

otal

Per

sona

l Inc

ome

Perceived Burden Tax Revenue as a Pct. Of Total Personal Income

Source for perceived tax burden: Utah Foundation, “The 2008 Priorities Survey”

• “We believe good sales tax policy consists of taxing final consumption uniformly, while excluding business inputs”

• TRC recommendations for in-depth study of whether the state’s sales and use tax system should be modernized to more closely align with the current economy– Tax Final Consumption– Don’t Tax Business Inputs– Don’t Tax Investment and Savings– Consider Taxpayer and Administrative Simplicity– Recognize Evolving Interstate, International, and Electronic

Commerce

Tax Review Commission

Current Sales Tax Issues

• Sales taxes on food• Local option sales and use taxes• Creation of new exemptions• State sales and use tax earmarking• Compliance with Streamlined Sales & Use Tax Agreement• Transportation funding• Changes in levels and type of consumption

Major Sales and Use Tax Issues

Documents

Utah’s Sales & Use Tax: Issues and Options · State Sales Tax Revenue Amounts FY 1970-2009 $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992