Utah Tax Reform Working Proposal and Principles of Good Tax Policy

2018 Utah Tax Reform Working Proposal Rep. Steve Eliason and Sen. Howard Stephenson Co-Chairs, Revenue and Taxation Interim Committee

Principles of Good Tax Policy Utah s tax system should be: 1. Simple 2. Economically neutral 3. Reliable 4. Equitable 5. Responsive to interstate and international competition 6. Designed to minimize burdens of compliance and administration 7. Accountable and transparent

Proposals Expand single sales factor Clarify nexus for corporate income tax Repeal net operating loss (NOL) carryback Increase accountability for income tax credits for businesses Give electric vehicle owners the option of paying a registration fee or participating in a VMT program Sales taxation of streamed media and amusement devices Exempt business personal property less than $1,000 Expand the manufacturing sales tax exemption to include: Materials used or consumed in the manufacturing process Machinery, equipment, and parts with less than a three-year economic life Standardize rate cap for the School Board Local Levy Freeze the State Basic Rate Allow a portion of inflationary adjustments on the certified tax rate for all local governments and school districts Simplify Truth In Taxation newspaper ad

Pre-and Post-Truth in Taxation Law This law has done more to curtail irresponsible property tax increases prior and during the early 1980s. At the time the law was passed, Utah ranked 24th highest among the 50 states in the percent of personal income taken by property taxes at 3.54%. According to the most recent calculations, Utah ranks 34th at 2.49% of personal income.

UTAH CORPORATE INCOME TAX STATE APPORTIONMENT FORMULAS Source: Tax Foundation

State Apportionment Formulas for Manufacturing Industry 40 25262828283030303030303232323334343434 30 Number of States 17192122 20 131415171718 911121313 10 10 5 5 5 5 56 67 1 1 1 1 1 1 1 1 1 1 1 1 1 12 2 2 2 2 2 2 2 1979 7 45 5 5 5 5 0 1981 1988 1998 2008 1980 1982 1983 1984 1985 1986 1987 1989 1990 1991 1992 1993 1994 1995 1996 1997 1999 2000 2001 2002 2003 2004 2005 2006 2007 2009 2010 2011 2012 2013 2014 Sales Factor Weight Greater than 1/3 Single Sales Factor Source: Various state statutes

Comparison of Sales Tax Exemption for Business Inputs Across the U.S.

Sales Tax Base as Percent of Economy Sales Tax Base % of Personal Income Sales Tax Base % of GDP 80% Sales tax base as a percent of personal income and GDP is eroding 60% 40% 20% 0% 19651967196919711973197519771979198119831985198719891991199319951997199920012003200520072009201120132015 9

Income Tax Base (Tax-Credit-Adjusted) as Percent of Apportioned FAGI 90% 80% Utah has become more heavily reliant on personal income tax 70% 60% 50% 40% 30% 20% 10% 0% 1996 2003 2010 1994 1995 1997 1998 1999 2000 2001 2002 2004 2005 2006 2007 2008 2009 2011 2012 2013 2014 2015 10

Sales and Income Tax Revenue 4,000,000 3,500,000 Utah has become more heavily reliant on personal income tax 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 - Unrestricted Sales Tax Income Tax 11

5.50% 5.40% 5.30% Our Schools Now Proposal ($715 million) 5.20% 5.10% 5.00% 4.90% 4.80% 4.70% 4.60% 4.50% Sales Tax Rate Income Tax Rate Current Our Schools Now Proposal 12

Proposals Expand single sales factor Clarify nexus for corporate income tax Repeal net operating loss (NOL) carryback Increase accountability for income tax credits for businesses Give electric vehicle owners the option of paying a registration fee or participating in a VMT program Sales taxation of streamed media and amusement devices Exempt business personal property less than $1,000 Expand the manufacturing sales tax exemption to include: Materials used or consumed in the manufacturing process Machinery, equipment, and parts with less than a three-year economic life Standardize rate cap for the School Board Local Levy Freeze the State Basic Rate Allow a portion of inflationary adjustments on the certified tax rate for all local governments and school districts Simplify Truth In Taxation newspaper ad

2018 Utah Tax Reform Working Proposal Rep. Steve Eliason and Sen. Howard Stephenson Co-Chairs, Revenue and Taxation Interim Committee