1. Policies and Revenue Trends
Utah’s Major Taxes
Policies and Revenue Trends
Prepared for students of
Brigham Young University
April 2, 2014

2. Overview Overview Income taxes Sales and use taxes Property tax
Utah’s tax burden

3. Why Does Tax Policy Matter?
Sound tax policy is concerned with how taxes:
Are designed and administered
Affect the taxpayer
Affect the economy
Independent of the amount of money taxes raise
Should consider if goal is to cut taxes or increase taxes
Affects every citizen of Utah
Provides revenue for state and local public services

4. Elements of an Optimum Tax System
Reliable
Sufficient
Stable
Certain
Equitable
Vertical Equity
Horizontal Equity
Simple
For taxpayers to pay
For tax collectors to collect
Responsive to interstate and international competition
Economically neutral
Accountable and transparent
Source: “New Realities in State Finance,” National Conference of State Legislatures

5. Overview

6. Utah’s Three Major State and Local Taxes: Income, Property, and Sales & Use Tax Revenues FY 2013
Source: Utah State Tax Commission

7. Utah Tax Base & Effective Tax Rates
Source: Utah State Tax Commission

8. State and Local Sales & Use, Individual Income, and Property Tax Revenues
FY 1970 to FY 2013
Source: Utah State Tax Commission

9. Real Per Capita State and Local Sales & Use, Individual Income, and Property Tax Revenues
FY 1970 to FY 2012
Source: Utah State Tax Commission

10. Income Taxes Individual Income Corporate Franchise and Income

11. Utah’s Single Rate Individual Income Tax
Took effect tax year 2008
5% of state taxable income
Start at federal adjusted gross income (AGI) with certain additions and subtractions
Taxpayer Credit:
Equal to 6% of:
Federal standard deduction or itemized deductions other than state income taxes, and
75% of federal personal exemption
Credit phases out by 1.3 cents for each $1 above
$24,000 married filing jointly
$18,000 head of household
$12,000 single
Phaseout beginning points indexed for inflation
Retirement Credit (taxpayers born before 1953)
$450 for 65 and older
$288 under 65 with certain retirement income
Credit phases out by 2.5 cents for each $1 above
$32,000 married filing jointly and head of household
$25,000 single

12. Adjusted Gross Income Class
Distribution of Returns, AGI, and Utah Tax Tax Year 2012 Full Year Residents
Adjusted Gross Income Class
% of Returns
% of Exemptions
% of
Income (AGI)
Utah Income
Tax
Less than $40K
52.9%
39.1%
13.5%
7.0%
$40-80K
26.2%
31.9%
25.3%
22.6%
$80-125K
12.9%
17.8%
21.2%
23.1%
$ K
6.1%
8.5%
16.6%
19.6%
$250K-$1M
1.6%
2.4%
11.2%
Greater than $1M
0.2%
0.3%
12.3%
14.2%
100%
Source: Utah State Tax Commission

13. Individual Income Taxes by AGI Class Tax Year 2012 Full Year Residents
Source: Utah State Tax Commission

14. Why Does the Individual Income Tax Matter?
Constitutionally earmarked revenue for public education and higher education
Greatest ability to adjust for ability to pay and offset regressivity of other taxes
Most detailed information on taxpayers
Visible
$ withheld from paychecks
Annual tax return
Tax on Income
Individuals
“Pass-through” business entities

15. Corporate Franchise & Income Tax

16. Corporate Franchise & Income Tax Revenues FY 1970 to FY 2013
Source: Utah State Tax Commission

17. Corporate Franchise & Income Tax Revenue by Utah Net Taxable Income, Tax Year 2012
Source: Utah State Tax Commission

18. Corporate Franchise & Income Tax Revenue by % of Business in Utah, Tax Year 2012
Source: Utah State Tax Commission

19. Sales & Use Taxes

20. The Utah Sales and Use Tax Base: What Do We Tax?
Key transactions that are subject to tax include:
Retail sales of tangible personal property
Sales of certain telecommunication services or utility services (reduced rate may apply)
Sales of food (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”

21. The Utah Sales and Use Tax: What Don’t We Tax?
General exemptions
Professional services
Personal care services
Specific exemptions
80 plus exemptions in statute
Estimated state revenue impact $640 Million

22. The Utah Sales and Use Tax Base: What Don’t We Tax?
Specific exemptions and their fiscal impact
Motor, special, and aviation fuels ($277 M)
Manufacturing machinery & equipment ($80 M)
Prescription drugs ($59 M)
State and local government purchases ($41 M)
Tangible personal property primarily used in farmin ($39 M)
Sales of hay ($10 M)
Source: Utah State Tax Commission

23. State and Local Option Sales and Use Tax Rates
Rate on transactions equals sum of:
State tax rate
Local tax rates where transaction occurs
The state tax rate depends on what is being taxed
General state tax rate: 4.70%
Residential fuels tax rate: 2.00%
Food and food ingredients tax rate: 1.75%

24. Local Option Sales and Use Tax Rates
Some may be used for general fund purposes
Some may only be used for purposes specified in statute
Public transit, roads, zoos, parks, etc. (0.10% to 0.30%)
Some are only imposed on certain transactions
Hotel tax on accommodations (up to 4.25%)
Restaurant food (1.00%)

25. Sales & Use Tax Base Gross Taxable Sales as a % of GDP and Personal Income
Source: Utah State Tax Commission & 2009 Economic Report to the Governor
Over the long term, the sales and use tax base is gradually declining relative to the economy as a whole.

26. US Personal Consumption Expenditures 1929-2012
Source: US Dept of Commerce, Bureau of Economic Analysis

27. Sales and Use Tax Revenue - Where Does the Money Go? FY 2013
Source: Utah State Tax Commission

28. Real Per-Capita Sales and Use Tax Revenues Over Time
Source: Utah State Tax Commission

29. Year-Over Percent Change in Utah’s Sales & Use Tax Base
FY 1978Q4 to FY 2013Q3
Source: Utah State Tax Commission

30. Why Does the Sales and Use Tax Matter?
Most significant source of revenue to state government and state higher education system
Significant source of revenue to local governments, Utah Transit Authority, and other public transit districts
Taxes consumption
Politically popular
May be “exported”
Impacts zoning decisions

31. Major Sales and Use Tax Issues
Creation of new exemptions
Taxes on food
Local option sales and use taxes
Compliance with Streamlined Sales and Use Tax Agreement
Internet sales
Transportation funding
Taxation of services
State sales and use tax earmarking

32. Property Tax

33. The Property Tax: Embedded in the Utah Constitution
Constitution places limits the Legislature’s authority relative to the property tax
General Rule (Utah Constitution, Article XIII, Section 2)
All tangible property shall be:
Assessed at a uniform and equal rate in proportion to its fair market value; and
Taxed at a uniform and equal rate
Exceptions to General Rule
Property Tax Exemptions

34. Exceptions to the General “Uniform and Equal” Requirement that the
Legislature May Provide For
The Legislature may by statute:
Provide for agricultural land to be assessed based on its value for agricultural purposes
Determine the manner and extent of taxing livestock
Determine the manner and extent of taxing or exempting intangible property
Exempt tangible personal property required to be registered for use on a public highway, waterway, or land or in the air
Provide for the remission or abatement of the taxes of the poor

35. Constitutionally-Mandated Exemptions
Government owned property
Nonprofit entity-owned property used for religious, charitable, or educational purposes
Burial places
Farm equipment and machinery
Water rights and facilities used to irrigate land owned by the owner of the water rights and facilities
Nonprofit entity-owned water rights and facilities used to irrigate land, provide domestic water, or provide water to a public water supplier

36. Selected Discretionary Exemptions
Inventory
Up to 45% of residential property value
Household furnishings, furniture, and equipment
Tangible personal property that generates an inconsequential amount of revenue
Property owned by a disabled veteran or unmarried surviving spouse or orphan

37. The Utah Constitution provides that if intangible property is taxed, that there be a rate limit and the state cannot tax the income from that property. Intangible property not generally taxed.

38. Property Taxes Where Does the Money Come From? 2012 Tax Year
Utah State Tax Commission

39. Property Taxes Where Does the Money Go? 2012 Tax Year
Utah State Tax Commission

40. Why Does the Property Tax Matter?
Tax on wealth and capital
Source of revenue for schools and other local government entities
Oldest state and local tax
Stable
Transparent
Unpopular tax
Promotes political accountability
Because of its transparency, the property tax lends itself to promoting political accountability on those who vote to impose property taxes. Property tax is an important source of revenue for local governments and schools.

41. What has the Legislature done to keep property taxes as low as possible?
45% residential exemption
Reductions in minimum basic school property tax levy
Never imposed a levy higher than the certified revenue levy
Truth in Taxation
Expanding options for local sales and use taxes
Providing property tax relief to targeted groups

42. Effective Property Tax Rates
Primary Residential Property and All Property
1995 – 2012 Tax Years
Source: Utah State Tax Commission

43. School Basic Levy History 1980-2013
Source: Utah State Office of Education

44. Major Property Tax Issues
Property value assessment practices of county assessors
Improving taxpayer predictability
Fair market valuation of property for purposes of taxation
Acquisition cost as value of property for purposes of taxation
Property tax relief
Equalization of public school funding from property tax revenue

45. Utah’s State and Local Tax Burden: How Does It Compare?

46. State and Local Taxes as a Percent of Personal Income
FY 2011
Utah ranks 17th lowest
Source: U.S. Department of Commerce, U.S. Census Bureau

47. State and Local Total Own Source Revenue as a Percent of Personal Income
FY 2011
Utah ranks 15th highest
Source: U.S. Department of Commerce, U.S. Census Bureau

48. State and Local Taxes as a Percent of Personal Income
Utah: FY 1994 to FY 2011
Source: U.S. Department of Commerce, U.S. Census Bureau
Taxes as a percent
Of Personal Income
Utah’s rank among the 50 states
and the District of Columbia

49. State and Local Total Own Source Revenue as a Percent of Personal Income
Utah: FY 1993 to FY 2011
Taxes as a percent
of personal income
Utah’s rank among the 50 states
and the District of Columbia
Source: U.S. Department of Commerce, U.S. Census Bureau

50. State and Local Property Taxes as a Percent of Personal Income
FY 2011
Utah ranks 16th lowest
Source: U.S. Department of Commerce, U.S. Census Bureau

51. State and Local General Sales Taxes as a Percent of Personal Income
FY 2011
Utah ranks 19th highest
Source: U.S. Department of Commerce, U.S. Census Bureau

52. State and Local Income Taxes as a Percent of Personal Income
FY 2011
Utah ranks 19th highest
Source: U.S. Department of Commerce, U.S. Census Bureau

53. State and Local Fuel Taxes as a Percent of Personal Income
FY 2011
Utah ranks 16th highest
Source: U.S. Department of Commerce, U.S. Census Bureau

54. How Utah Compares
Utah Taxes and Own Source Revenue as a Percent of Personal Income: FY 2011
Source: U.S. Department of Commerce, U.S. Census Bureau