Sales tax was once the largest source of public revenue in Utah, but in recent years, income and property tax revenues have overtaken sales taxes in importance. This is among the findings in Utah Foundation’s new report, “The Everyday Tax: Sales Taxation in Utah,” published last week.
The report compares Utah’s sales tax to taxes in other states and looks at the factors affecting its growth. It also looks at exemptions and earmarks, as well as options for broadening the sales tax base.
The report found that during the past 45 years, Utah has seen the nation’s second- biggest decline in taxable sales as a proportion of consumer expenditures. Beginning in 1975, Utah’s sales tax imposed a larger tax burden than income or property taxes, the report found. During the past two decades it has trended downward to impose the smallest burden of the three.
Other report findings include:
• Utah had essentially the same real per capita sales tax revenue in 1978 as in 2016 — meaning that, as costs climb, the state is losing purchasing power from this revenue source.
• More than 20 percent of the state’s sales tax revenues are earmarked, which means the expenditures lack standard annual legislative oversight and the government’s flexibility to meet changing needs is constrained.
• Among the nine western continental states that collect sales taxes, Utah has the lowest sales tax burden.
• If Utah broadened the sales tax base to include all personal consumption transactions, the state could drop the effective rate to 2.1 percent (from 6.2 percent currently) and generate the same amount of revenue.
• Sales taxes on services are supported by economists and policy analysts across the ideological spectrum. However, expanding sales taxes to capture services can face intense pushback from industries to be affected and from citizens who fear the change will result in net tax increases.
“‘Broaden the base and reduce the rate’ is a common mantra in economic and policy circles, but when it comes to the sales tax that’s easier said than done,” said Utah Foundation President Peter Reichard. “Still, the public and policymakers need to take a hard look at exemptions and exclusions to ensure we’re not putting undue upward pressure on sales tax rates.”
“The Everyday Tax: Sales Taxation in Utah” is the third report in a series looking at Utah’s main sources of tax revenue. This report and the others in the series are available at the Utah Foundation website, www.utahfoundation.org.