Utah’s Sales & Use Tax: Issues and...
Transcript of Utah’s Sales & Use Tax: Issues and...
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
Source: Utah State Tax Commission
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
Source: Utah State Tax Commission
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
Source: Utah State Tax Commission
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)
Source: Utah State Tax Commission
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?
Source: Utah State Tax Commission
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
Source: Utah State Tax Commission
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
Source: Utah State Tax Commission
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
Source: Utah State Tax Commission
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
Source: Utah State Tax Commission
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
Source: Utah State Tax Commission
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