Can Utah afford to lose state income-tax revenue? No, but…
Jan 12, 2024, 7:00 PM | Updated: 7:19 pm
FILE - A portion of the 1040 U.S. Individual Income Tax Return form is shown July 24, 2018, in New York. The IRS has been tasked with looking into how to create a government-operated electronic free-file tax return system for all. Congress has directed the IRS to report in on how such a system might work. (AP Photo/Mark Lennihan, File)
Credit: ASSOCIATED PRESS
(AP Photo/Mark Lennihan, File)
SALT LAKE CITY — If Utah were to end its income tax, how and where would that money be offset? A tax expert says other states are talking about it and now so is Utah.
Say what?
“I would love not to have income tax in the state,” Gov. Spencer Cox told more than 100 lobbyists, elected officials and others gathered Monday for the Utah Taxpayers Association’s annual legislative outlook conference as reported by Deseret News.
Welcome, tax expert
As of 2023, nine states — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming — do not levy a state income tax, according to nerdwallet.
Rusty Cannon, of the Utah Taxpayers Association, talks to KSL NewsRadio about Utah joining the group of nine states.
Last year, Utahns received about $400 million in tax relief from state lawmakers. About half of that ($208 million) came by lowering the income tax rate from 4.85% to 4.65%.
Lower taxes are an attraction
Cannon said the reason the conversation about shunning income tax is happening in Utah now is because other states are talking about the same thing.
“Everybody is moving to these lower low-income tax states . . . and they’re leaving high-tax states. That’s plainly obvious by the data,” he said. “So it works. And so that’s why the conversation is happening, but it will not be in the near term.”
Cannon said the state Legislature controls about $12 billion, which is made up of sales and income taxes.
“‘I’m rounding numbers, but roughly $8 billion is income tax [and] $4 billion in sales tax, right? Property taxes essentially all goes to local government, so that’s a separate issue,” he said.
The most common move for states to phase out wage tax is to shift the burden onto sales tax and others.
“Yes, it would mean higher property taxes,” Cannon said. “[But ending income tax] attracts a serious movement to their state, which is made up in the sales-tax growth and the corporate-tax growth with that two-legged stool, so that’s why the conversation is happening.”
Moving to a state with no tax on wages and salary is a major deciding factor for high-earning individuals and for corporations, too, Cannon said.
“For instance, where did Tesla move? They moved to Texas. There’s zero income tax there.”
How high would sales tax have to rise to offset lost income-tax revenue?
Cannon said the state portion of the sales tax is 4.85%. With local taxing entities added in, the sales tax statewide varies from about 6% to 8%.
“I’m trying to do some really quick math in my head, but the sales tax base space is really, really big, and therefore, it wouldn’t be as big of a percentage increase in the sales tax as you think.”
Related: The good news for taxpayers in Utah — lower state and local tax rates
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