Just as Utah lawmakers prepare to discuss “tax modernization,” the Tax Foundation, a Washington, D.C.-based think tank, issued a report urging Utah to “blaze a trail” for other states by imposing sales tax on services. Curiously, the report parrots the same misleading talking points employed by Utah lawmakers to justify what would amount to the largest expansion of tax policy in Utah’s history.
The Tax Foundation report concludes that imposing sales tax on services is needed to “modernize” Utah’s tax system. However, the report fails to consider the most fundamental tax policy questions.
Question 1: “Is there a need?” The Tax Foundation, and Utah lawmakers, declares that Utah sales tax collections are not keeping pace with the state’s needs. Not so. Sales tax collections in Utah have been steadily rising, with current collections at all-time highs. In 2018, sales tax collections per household were up by a whopping 68% as compared to 2010. Data also shows that sales of taxable goods are not declining but, rather, are at an all-time high. Yes, modern technology has produced new services, but it has also produced a myriad of new goods. Just because something new exists does not mean it should be taxed.
Question 2: “Are we spending money wisely?” Although our lawmakers avoid this question like the plague, it is a principle as old as tax policy itself. In 1933, the year sales tax was first instituted in Utah, wise pundits commented that it is “not so much that any particular tax should be tinkered with as it is that every possibility of reducing the tax burden should be thoroughly explored. Elimination of unessential operations of the state government is the first step in this direction. It should be obvious that only in this way can there be downward tax revision.” Salt Lake Telegram, Tax Tinkering, Jan. 18, 1933, p. 4. Over the past 20 years Utah governmental spending has risen three times faster than Utah’s population. Our lawmakers clearly have a spending problem. The task force should include runaway spending in its analysis of Utah tax policy. Unfortunately, the group has already publicly stated that it will not do so.
Question 3: “Can we efficiently manage the new tax?” It has long been understood that sales tax is one of the most expensive taxes to collect and administer. “Before you decide that a state sales tax would be a good thing, think how many politicians would be put to work to collect it. The state would be lucky if it got a dime for itself.” Salt Lake Telegram, Aug. 10, 1932, p. 4. A sales tax on services would add thousands, if not tens of thousands, of people to the sales tax rolls. This would obviously require the state to hire hundreds of new employees and invest millions into new offices and equipment to administer the tax. Not to mention the heavy regulatory costs it would impose on the service providers who would be converted into tax collectors for the state, including your grandmother who teaches piano lessons.
Utah has no need to impose sales tax on services. We must insist that our lawmakers do the truly hard work of cutting spending and resisting the urge to tax everything. A sales tax on services is unneeded, inefficient, and a bad idea for Utah. If the Tax Foundation disagrees, I suggest they advocate sales tax on all services in Washington, D.C., before suggesting that Utah “blaze the trail.”