This year’s legislative session in Utah saw discussion of tax reform that local officials said could hurt the tax revenue stream for the City of Moab.
City Manager Joel Linares said that a tax reform that broadens Moab’s tax base as proposed “would cut our revenues,” speaking on behalf of the city, because the city is so reliant on tourism for tax revenue.
Although no tax reform bills were passed before the end of the session, it remains a live issue; legislators have continued discussing the matter during summer sessions. The next meeting of the Revenue and Taxation Interim Committee is scheduled for June 19.
One reason Moab might suffer after a restructuring of sales tax in Utah is that the economy of the Moab Valley has a relative lack of diversity in its commercial activities. Another reason is that the state imposes limits on Utah counties’ and cities’ ability to collect and, in some cases, spend sales tax.
There are, however, a few potential avenues the city can take to address the loss in tax revenue.
What tax reform would mean for consumers
The basic hope of tax reform expressed this session by lawmakers and Gov. Gary Herbert was to keep overall tax revenue roughly the same within the state while broadening the base of goods and services that are taxed in Utah. Rather than primarily taxing goods, for example, the state could collect taxes on the sale of both goods and services.
This change could mean the state would collect less tax revenue from sales of clothes, cars, computers and everything in between. That loss would be made up through the taxation of a wider breadth of services, such as those provided by attorneys, engineers, accountants, consultants and others.
For Utah consumers, this could mean higher tax shown on invoices from the doctor and lawyer, but lower tax rates shown on receipts from supermarkets, grocers and other retail outlets.
State-imposed caps on local sales tax
The state is the middleman for collecting sales tax owed to cities and counties. When a person rents a room or bike in Moab, the tax on that sale goes first to the Utah State Tax Commission. The tax commission collects Moab’s tax revenue then remits it back to the city in the form of an annual check the local governments share.
This is in part a favor to municipalities. Allowing the state to implement and execute the infrastructure for collecting sales tax frees counties, cities and towns to not worry about those bureaucratic cogs.
The other side of the coin is that, by having the state oversee the system of sales and use taxes in Moab, municipalities are limited by how much they can charge for sales tax. Moab and Grand County can only collect as much sales tax as the state allows.
If the state passes tax reform as it is currently proposed, without affording municipalities greater self-determination in setting and levying taxes, Moab could suffer a loss of tax revenue.
Lack of economic diversity in Moab
Moab’s economy and the city’s tax revenue are each based primarily on tourism-related sales; professional services represent a relatively small portion of the sales that take place in Moab. According to the city, up to 79% of its sales-based tax revenue was visitation-related during the 2017-2018 fiscal year.
This lack of economic diversity in Moab means that, were lawmakers to force Utah municipalities to collect lower taxes on the sale of goods and higher taxes on the sale of professional services, the city’s tax revenue would take a considerable hit due to the relative lack of professional services.
“If you live in Moab, you know that, in any profession, you may have one or two choices of people you can work with before you go out of our community to find professional services,” Moab Mayor Niehaus said in a recent interview with The Times-Independent. “The broadening of the tax base in Moab – because we are so tourism-focused, and our business is not economically diversified – we will not feel the positive impact of a broadening of the base.”
State and federal assistance
One means Niehaus identified as a way to diversify the city’s income is through grants, such as from Utah’s Community Impact Fund Board and the federal government’s Community Development Block Grant program.
Community Impact grants, according to Utah’s Department of Workforce Services, provide funds “to counties, cities and towns that are impacted by mineral resource development on federal lands.”
Community Development Block Grants, which are issued through the U.S. Department of Housing and Urban Development, can be used to address various community needs.
“The CDBG program works to ensure decent affordable housing, to provide services to the most vulnerable in our communities, and to create jobs through the expansion and retention of businesses,” reads the HUD website.
The final way identified as a means to diversify the city’s tax revenue was with a property tax. Read more about this in this week’s story about property tax.