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April 2016 Volume 41 Issue 4

THE TAXPAYER A Publication of the Utah Taxpayers Association Victories, Progress Made APRIL 2016 During the 2016 Legislative Session Volume 41

Taxpayers fared very well during the 2016 Legislative Session, considering the major tax increases levied in 2015. Victories, Progress Made During the 2016 Legislative Your Taxpayers Association was successful in ensuring that Session key pieces of legislation passed that promote fiscal Page 1 responsibility and increase transparency. Your Taxpayers My Corner: New Item Pageon 2 Association also prevented the passage of bills that would have Property Tax Notice Does increased the tax burden on Utahns. Not Impose New Taxes These potential tax increases include SB 104, sponsored by Page 2 Sen. Jim Dabakis (D - ) which would have created a progressive structure on the individual income tax. This Legislative Scorecard andPage 4 increase could have cost individuals a total of $178 million in Friend of the Taxpayer 2018. Award Announced Page 4 Additionally, a bill sponsored by Rep. (R - Bountiful), HB 153, would have cost taxpayers another $42 million in fiscal year 2018. This legislation would modify the Tax Day and a Brief Introduction to Income calculation of the certified property tax rate by including an Taxes adjustment for inflation. This increase would directly threaten Page 5 Utah’s Truth-in-Taxation law by causing automatic tax increases without any accountability. Senate Rejects Removing Neither of these bills passed the Legislature, due to the efforts Local Option Sales Tax of your Taxpayers Association and our partners. In fact, they For Salt Lake City never made it out of committee. Page 7 Utah 2.0 Your Association The Association’s major legislative initiative, Utah 2.0, had Accomplishments success beyond what most thought (continued on page 3) in March Page 8 Save the Date for the Taxes Now Conference Association Staff

and “Teed Off On Taxes“ Golf Tournament Howard Stephenson President The Utah Taxes Now Conference is on Monday, May 16, 2016 at the Billy Hesterman Vice President Grand America Hotel, beginning at 8 am. You can keep updated on Spencer Nitz Research Analyst the speakers for this event at www.utahtaxpayers.org. Teresa Urie Executive Assistant

Executive Committee Next, “Teed Off On Taxes” Golf Tournament on Thursday, June 9,

2016 at the Eaglewood Golf Course in North Salt Lake. Mike Edmonds Chairman Sponsorship opportunities are available. Kent Stanger Vice Chair Bobby Rolston Secretary Space is limited at both of these events. Brice Arave Treasurer Keith Pitchford Legislative Chair Contact Teresa Urie at [email protected], H. Val Hafen At Large or by calling (801) 972-8814 for more details.

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My Corner: New Item on Property Tax Notice Does Not Impose New Taxes Taxpayers will see an attending local district schools. This money is additional line item on coming from growth in state income taxes, not from their property tax notices tax rate increase. This is a step in the right direction this year but that does not as it ensures that all Utah students attending a mean there is a new tax public school are receiving adequate funding and being levied. also further ensures that Utah students have a That new item on the choice in where and how they receive their Association President Howard Stephenson property tax notice education. represents the work of While much of this is positive for taxpayers and Utah’s Legislature on Senate Bill 38. The bill brought Utah’s students, there is one caution that comes greater equity in funding for Utah’s students as it with this bill. increased the amount of state money appropriated to As this new line item on the property tax notice is charter schools by $20 million. The bill also added an handled, some local school districts may seek to increased amount of transparency to the property tax increase their own taxes in the future and justify the notice as it will now show how much of a property hike by claiming the districts are losing money to owner’s taxes are going towards their local school the charter district and the share of taxes going to fund students schools. To who live in the district but attend a charter school. prevent this Property tax notice In the past, the notice has not shown taxpayers how from will now show taxes much of their property tax went towards charter immediately schools as the notices usually showed line items for happening the for charter schools their local district and the basic statewide levy. legislature Thanks to Senate Bill 38, a new line item will be included a provision in SB 38 that prevents school introduced to show the portion that the charters will districts from raising taxes this year unless they receive. made their intentions to increase taxes known by How this will occur is that the current line item for March 4. the school district will now subtract the portion of However, that does not mean that in the years to the taxes collected for charters to show how much of come the district schools will not seek to ask the property tax is going to the local district. The next taxpayers for additional money citing the amount line will then show the subtracted amount for given to charters as the reason. That argument charters to show how much of the tax is going to should be dismissed immediately. Taxpayers are charter schools. If a taxpayer adds the two numbers paying to ensure all Utah students have the best together, they will find that the combined tax rate is education possible. If a student chooses to attend the same as it has been prior unless the district is one school over another that should not sound the raising its tax this year. alarm for higher taxes. Instead, that should send a At the risk of over explaining it I’ll try it one more signal to the school losing the student that it is time way. The taxes collected for public education in Utah to improve and find a way to be more attractive to will still occur the same way and at the same that student. amounts. What Senate Bill 38 is changing is an We expect Utah’s students will be the greatest explanation of how much of their tax goes to the benefactors from this legislation as it makes great district school and how much goes towards charter efforts to ensure that every Utah student has an schools. opportunity for a great education in Utah. The Charter schools will still have no taxing authority Taxpayer will also benefit, as they will have the under this bill but will receive additional funding opportunity to better understand how their dollars from the state to go towards closing the gap of are helping Utah students succeed. funding between charter students and students

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2016 Legislative Session Recap

(continued from page 1) was achievable in one year. are educated and prepared for the future. SB While Utah 2.0 was set up and continues to be a 103, sponsored by Sen. Ann Millner (R - Ogden), multi-year approach to continuing Utah’s establishes a process for investing strategically economic viability and competitiveness, taxpayers in workforce development through the use of should be pleased with what has been stackable credentials. accomplished. Remote Sales HB 61, sponsored by Rep. (R - One of the most hotly contested issues during Herriman), expands the NAICS codes that are the Session was taxation of remote sales, which allowable for electable single sales factor. If you’ll are sales made at a non-traditional store, located recall from our March newsletter, single sales outside of the state. These can include purchases factor is a calculation for the corporate franchise made online, by mail-order, or by telephone, tax, which allows businesses to exclusively be among others. taxed on their sales made within the state. As a quick reminder, in order to be taxed by a This option is available to some industries, but governmental entity, a company must have not others. Your Taxpayers Association, through some form of presence within that entity, in our Utah 2.0, is committed to ending this inequity and case, the state of Utah. Out-of-state, or remote, will fight for this over the coming years. sellers cannot be taxed under law. The second component of Utah 2.0 is similar to Currently, any taxpayer that makes a remote the inequity that exists in the corporate franchise purchase is required to remit the amount of tax. Currently there is a sales tax penalty for some sales taxes to the Tax Commission when filing inputs used for manufacturing. If a piece of their taxes each year. That amount is calculated equipment lasts longer than three years, it is and then distributed accordingly between exempt from sales tax. If its useful life is shorter different governmental entities, as it would be if than three years, the purchaser is required to pay that person were to make a purchase at a local sales tax, creating a double taxation for some brick-and-mortar store. businesses. However, few taxpayers are aware or remit Your Taxpayers Association stands behind the and inform these remote purchases to the Tax principle that only outputs should be taxed, which Commission. In fact, state fiscal analysts is where HB 180, sponsored by Rep. estimate that the amount that should be (R- Kaysville), comes in. This bill would have collected from remote sales ranged between removed the sales tax penalty on inputs creating a $150 - 200 million annually. In 2014, only more equal playing field. $200,000 was collected. While this bill did not make it through the full There’s the history. What did the Legislature Legislature due to questions about short-term try to do about it? Members of both bodies funding, taxpayers should be encouraged by the sponsored different pieces of legislation that progress it made. would had varying degrees of affecting how this In 2015 a similar bill, sponsored by Sen. Stuart sales tax on remote purchases could be Adams (R - Layton), passed through the Senate, collected. but did not make it through the House. This year, One of these bills, HB 235, sponsored by Rep. the opposite occurred. As the Association met with Mike McKell (R - Spanish Fork), would have legislators in both bodies, a majority are supportive created a nexus for some remote sellers in the of the policy. We expect to see this again next year state, as well as adjusted the sales tax rate to with a plan to handle the fiscal note. prevent an extraordinary amount of revenue Utah 2.0 is not simply about creating better tax received by the government (broaden the base, equity for taxpayers, but a higher view of how to lower the rate). HB 235 would also have given stimulate economic growth and keep our small businesses, and even individual sellers competitive edge. This includes how our children and buyers, exemptions due to the possibility of

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higher compliance costs based on a revenue looked to eliminate a 0.5% local option sales tax threshold. for Salt Lake City as part of the package for being The main goal for most of these remote sales chosen to host the new state prison. SB 180 passed related bills would be to create a physical presence the Senate Revenue and Taxation Committee for sellers outside the state. This physical presence is unanimously just the week before the full vote on otherwise known as nexus. HB 235 would have the Senate floor, but was defeated by a narrow created a link between remote sellers and the state by vote of 13-15. taxing what is known as an “affiliate nexus”. Your Taxpayers Association is working with HB 235 did pass through the House Revenue and Sen. Hillyard and other interests to bring the bill Taxation Committee, but did not receive a vote on back in the 2017 Legislative Session to ensure this the House floor. Expect a lot more about this issue in possible tax increase is defeated. the coming months. Improving Truth in Taxation Funding Infrastructure But it wasn’t all bad news. Taxpayers got In other hotly debated issues, the debate for water another victory in the passage of SB 120 on the and transportation infrastructure raged on during final night of the 2016 Session. This bill makes a the 2016 Session. minor change that will have a major impact on SB 80, sponsored by Sen. Stuart Adams (R - Layton) taxpayers all across the state in the future. originally moved three sales tax earmarks that Simply, this bill removes the debt service, or funded transportation projects into a fund that bonds, from total collected tax revenue in a year would begin collecting money for water for a governmental entity. What does this mean? infrastructure projects. It strengthens Utah’s Truth in Taxation laws, as The bill was later amended to remove two well as transparency for future tax increases. earmarks altogether, moving the revenue into the Here’s an example in practice. Before SB 120, if a General Fund, but still moved one earmark to the bond for a new public building is set to expire at water infrastructure fund. It also adds a provision the end of a year and the elected officials decide that before the money is spent, data must be to raise taxes by the exact amount the annual collected on infrastructure projects and a timeline bond payment, they could escape accountability from the State Water Development Commission. by not calling it a tax increase, since the amount of Your Taxpayers Association is deeply concerned revenue never changed. Therefore, the entity over this legislation, as just one year ago, would not be subject to the exact same measures transportation advocates claimed that without an and requirements of Truth in Taxation. increase in revenue, many road infrastructure and Because of SB 120, that bond payment is not maintenance projects would go unfunded, leading to considered part of the revenue. If this same increased traffic and difficulty moving around the circumstance were to happen this year, the entity state. With money being driven away from and its officials would have to acknowledge the transportation which claimed to have been in such tax increase and be applied the same Truth in dire straits a year ago, SB 80 takes a step in creating Taxation laws as any other time they wished to the contingency for another tax hike for raise revenue. transportation funding. Your Taxpayers Association continues to work Prison Sales Tax Option with the bills that didn’t make it all the way, so SB 180, sponsored by Sen. Lyle Hillyard (R - we can lead the charge for taxpayers throughout Logan), one of the chief architects of Utah’s budget, the 2017 Session. Legislative Scorecard Released and “Friend of the Taxpayer” Recipients Named

The Utah Taxpayers Association released its funding sources for state projects. annual 2016 Legislative Scorecard recently. The Reps. , Dan McCay, , Association’s Scorecard rated Utah’s 104 legislators Sophia Dicaro, , and Kraig Powell all on 17 taxpayer related bills, including major received 100% by voting in line with Association

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positions on key bills. 2016 Friends of the Taxpayer In the Senate, only two senators scored as House of Representatives: high. Sens. Lincoln Fillmore and Howard Fred Cox – 100% Sophia Dicaro – 100% Stephenson received a perfect score from the Steve Eliason – 100% Justin Fawson – 100% Association. Dan McCay – 100% Kraig Powell – 100% Legislators scoring 90% or higher receive the – 94.1% – 94.1% “Friend of the Taxpayer” distinction. In the Tim Hawkes – 94.1% John Knotwell – 94.1% Senate, 14 members received that honor, Brad Last – 94.1% David Lifferth – 94.1% including 3 Democrats. In the House, 28 Jeremy Peterson – 94.1% Val Peterson – 94.1% Marc Roberts – 94.1% Mike Schultz – 94.1% members received the award, none of which – 94.1 % – 94.1% included Democrats. – 94.1% Ray Ward – 94.1% “Following the major tax increases levied in – 93.7% Brian Greene – 93.7% 2015, we are pleased to see a year in which so – 93.7% – 93.7% many legislators stood up for the taxpayer,” Jon Stanard – 93.7% Rebecca Edwards – 93.3% said Billy Hesterman, vice president of the Utah Dean Sanpei – 93.3% Brad Wilson – 92.3% Taxpayers Association. “We hope the public Senate: takes note of the legislators that held true to Lincoln Fillmore – 100% Howard Stephenson - 100% sound tax policy and not increasing the burden Luz Escamilla – 94.1% – 94.1% on all taxpayers.” Deidre Henderson – 94.1% Al Jackson – 94.1% The full Scorecard is available by clicking Karen Mayne – 94.1% Brian Shiozawa – 94.1% Scott Jenkins – 93.7% Ann Millner – 93.7% here, or you can view it Scorecard on our Dan Thatcher – 93.7% Jim Dabakis – 93.3% website, www.utahtaxpayers.org. Todd Weiler – 93.3% Lyle Hillyard – 92.8%

Tax Day and Your Income Taxes: A Brief Description April 18th, 2016, Tax Day. adjusted several times over the years. The current Typically, Tax Day falls on April 15. But this rate is just 5%, which applies to everyone. year, due to a holiday on Friday, April 15th in Nationally, that’s pretty rare. In fact, only 8 of Washington, D.C., combined with the weekend, the 50 states have a single income tax rate. you get an extra three days to file. By contrast, California and Missouri have 10 Alright, now that you’ve had a minute to shake rates for income taxpayers. off that negativity, let’s delve into what you’re Take a look at the map on the next page, which actually paying, which are your income taxes. details the highest income tax rate for each state. What is it? Income taxes are the taxes paid from All of our neighboring states, with the exception of any income that is made by an individual over Idaho, have lower income tax rates than Utah. the course of a year. In many circumstances, Federal income taxes are more complicated than income taxes are taken directly from a person’s Utah’s simple 5% rate. Each year, the IRS uses the paycheck. Consumer Price Index (CPI) to calculate the past Income taxes are collected by both state and year’s inflation and adjusts income thresholds, federal government. Some states, like our deduction amounts, and credit values accordingly. neighbor Nevada, do not have an income tax. This adjustment prevents something known as Neither does Wyoming. In fact, 7 states across “bracket creep”. Essentially, bracket creep is the country to not collect any income taxes. movement into a higher tax bracket as taxable However, the citizens of these states still pay income increases, due to inflation. federal income taxes. For estimated tax rates for 2016, take a look at the How much do I pay? The income tax rate table on the following page from the Tax multiplied by the tax base determines how much Foundation of Washington, D.C. The rates range taxes are owed. Utah’s income tax rate has been from 10% to 39.6%! That’s a lot of variation. These

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income brackets are estimated for the income taxes complain) about Tax Freedom Day. Tax Freedom filed in 2017. The IRS has yet to released the official Day is the day when the nation as a whole has brackets. earned enough money to pay its total tax bill for How much are we paying? In Utah, your state the year. This includes taxes at all levels. income taxes are used to fund our public education Some of these statistics are staggering. In total, and higher education systems. In 2015, over $2.5 Americans will pay nearly $5 trillion in taxes at all billion in income taxes were collected by the state. levels. That’s more than we pay for food, clothing, Compare that to the amount Utah taxpayers paid and housing combined. to the federal government. The amount Utahns paid Nationwide, Tax Freedom Day falls on April 24th. in federal income taxes was closer to $18.1 billion in In Utah, Tax Freedom Day comes a few days 2015. That’s approximately $6,000 per person in the earlier, on April 21st, which is still far too late in the state of Utah. Strong fiscal prudence goes a long year. way, doesn’t it? Rest assured, Utah is far from the worst. Nationwide, state income taxes account for 27% of Connecticut, ranked last in the nation, celebrates all taxes paid. But how about the remaining taxes Tax Freedom Day on May 21st. you have to pay, such as property and sales taxes. The Tax Foundation, from where this data is Each year, tax wonks like us look forward to (or collected, states that nationwide, on average, it

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takes 46 days to earn enough money to pay off the individual income tax. Don’t some people receive tax credits? At both the state and federal level, some exemptions are allowed for certain income earners or purchases and donations made throughout a taxable year. For example, Utah allows for income tax exemptions if you donated to a nonprofit organization, bought a clean energy vehicle, or even if you have children. You can find out more about these at the Tax Commission’s website. You can also learn more about changes across Where can I find helpful resources? For those of you the country in 2015 regarding income taxes and that may not have filed quite yet, there are some great, the Tax Freedom Day on the Tax Foundation’s free resources on the Utah State Tax Commission’s website. website. We’ll link you over. Senate Rejects Removing Local Option Sales Tax For Salt Lake City as Location of New State Prison In the final two weeks of the 2016 Legislative not there from Salt Lake City’s leaders to pursue it Session, the Utah Senate failed to repeal the prison at this time, it should not be given as an open- sales tax. ended option to fund government on the backs of SB 180, sponsored by Sen. Lyle Hillyard (R - both city residents and commuters alike. Logan), one of the chief architects of Salt Lake City already has one of the highest sales Utah’s budget, looked to eliminate a tax rates in the state with a rate of 6.85%. If Salt 0.5% local option sales tax for Salt Lake City opted to use the entirety of the local Lake City for being chosen to host option sales tax, the rate would jump to an the new state prison. astonishing 7.35%, punishing families of all sizes Let’s take this bill and add some and socioeconomic status. context to see why this option is In 2015, then-mayor Becker argued that the sales atrocious for taxpayers all across the tax option city and the state. Sen. Lyle may be As recently as February of this Hillyard needed due to year, a representative from Salt Lake defray the City said there was no plan to move costs of forward with the tax increase at this time, but services from wanted it kept in the “toolbox” for the future. the number of Prior to this, during several debates in the 2015 commuters Salt Lake City mayoral race, both former mayor that travel to Ralph Becker and current mayor Jackie Biskupski the capital city both took an even stronger stance by saying there for work, and were no plans to use this option. Former Salt Lake City Mayor Ralph then return to Sen. Hillyard, sponsor of SB 180, calls this local Becker and current Mayor Jackie their homes Buskupski debate in 2015. (Photo option sales tax a “loaded gun”, and the elsewhere in the credit: Tom Detrich – Salt Lake Association could not agree more. If the desire is valley. However, Tribune)

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this principle is inherently wrong by placing the one day see a tax hike. That sounds like a deal that cost burden on taxpayers that are less likely to use needs to be reconsidered. more city services as its full-time residents. That is exactly what Hillyard was attempting to Sen. Luz Escamilla (D - Salt Lake City) represents do. Unfortunately the Senate thought otherwise the west side of the city, including the new prison and rejected the proposal. site, told the Salt Lake Tribune in 2015 that she The lobbying efforts from the Salt Lake City believes that the prison location determination and Mayor’s office and some other special interests the sales tax option should have been separated. appeared to be the difference as to why the bill was Despite taking this position, she voted against SB torpedoed. Some lawmakers lost sight of the 180 and removing the option for the tax increase. families and businesses in the state and sought to SB 180 passed the Senate Revenue and Taxation protect revenue for the government. Committee unanimously just the week before the Additionally, the entire state (its taxpayers) are full vote on the Senate floor, but was defeated by a footing the bill for the prison and is not asking the narrow vote of 13-15. city to directly shoulder any of the costs. This is Senators opposed to removing the sales tax option simply a case of government showing how it has a argued that taking away this potential revenue spending problem. source would be going back on a promise that the Your Taxpayers Association is working with Sen. Legislature made in 2015 to allow the city that had Hillyard and other interests to bring the bill back in the new prison placed in it to receive the option to the 2017 Legislative Session to ensure this possible raise the sales tax. tax increase is defeated. The Association stands to However, when the Legislature first passed the represent and remind lawmakers that they are local option sales tax in association with the prison, tasked with keeping taxpayers and their hard- there had not been a city picked to host the new earned dollars in mind as they create policy. Expect prison site. The only promise made in 2015 was that to hear much more about this in the coming year. taxpayers in the city that received the prison would

Association Accomplishments During March:

v Successfully lobbied the 2016 Utah Legislature for lower taxes and better tax policy. v Met weekly with House and Senate leadership to discuss legislative issues with other members of the Utah Business Coalition. v Defeated bills that would have increased taxes and/or implemented poor tax policy, including measures on double-dipping for retired state employees. v Advocated for legislation to improve Utah’s tax climate and economic outcomes through the legislative initiative, Utah 2.0. In the News:

v Comment on SB 244 • Salt Lake Tribune

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