On Jan. 28, 2020, Utah Gov. Gary Herbert signed House Bill 185, repealing the entirety of a tax reform package enacted fewer than six weeks earlier in mid-December. Recall that on Dec. 12, 2019, the state enacted a sweeping tax reform package, Senate Bill 2001 (2019), that included a complex combination of tax cuts and base broadening. The bill cut both the individual and corporate income tax rates from 4.95% to 4.66%. It also increased the sale and use tax rate on food from 1.7% to 4.85%. Most significantly, the law significantly broadened the sales and use tax to include many additional goods and services. Products and services such as streaming media, installation services, car washes, and admissions to athletic events were set to be subject to the tax. The bill also repealed a number of sales and use tax exemptions.
Facing public backlash, particularly over the expansive sales tax base broadening and a reduction of tax revenues to the state education fund, the governor repealed the entire tax reform package. The repeal passed unanimously in the state senate and by a 70-1 margin in the state house. Opponents of reform had even collected enough signatures to put a measure repealing the law on the upcoming November ballot.
Utah taxpayers should consider that a second effort at tax reform may still occur this year.
Takeaways
Businesses, particularly those operating in multiple states, should be aware that state tax laws can and do change frequently. In this case, a major tax reform effort lasted fewer than two months. Most states do not make such radical changes to their tax system in such a short time period. However, hundreds of tax laws and regulations change each year. All companies should conduct a periodic review of the tax laws in the states in which they conduct business. As the 2020 state legislative season ramps up, taxpayers are encouraged to work with their tax advisers in identifying new and amended tax laws that will impact their state tax profile.
