The Utah legislature passed Senate Bill 2001, and the governor signed the bill into law on December 18, 2019.
In general, the legislation reduces income taxes, while increasing sales taxes on food and fuel, eliminating certain exemptions, and expanding the state’s sales tax base to include certain services.
The bill failed to receive a 2/3 majority vote in both the House and Senate, and at present, opponents of the tax changes have begun circulating a referendum petition to place a potential repeal of the bill on the November 2020 ballot. Under Utah Code §20A-7-301(2), “when a referendum petition has been declared sufficient, the law that is the subject of the petition does not take effect unless and until it is approved by a vote of the people at a regular general election or a statewide special election.” A petition will be declared “sufficient” when the lieutenant governor has counted and verified the required signatures.
Details of the tax changes that affect businesses are summarized below. The effective dates presented below are those contained in the bill. The bill’s provisions will not be effective, if at all, until after the November 2020 election if the referendum petition effort is successful in placing a repeal proposal on the ballot.
Under current law, Utah’s corporate income/franchise tax rate imposed on Utah taxable income is 4.95%. Senate Bill 2001 reduces the rate to 4.66%.
The current tax rate imposed on resident individuals is reduced to 4.66% (from 4.95%).
The effective date of the income tax rate changes is retrospective to tax years beginning on or after January 1, 2020.
Under current law, food and food ingredients are subject to sales tax at a reduced 1.75% state rate.
Effective April 1, 2020, amounts paid or charged for food and food ingredients will be taxed at the 4.85% state sales tax rate.
The legislature also adopted a new refundable “grocery credit” for low to middle-income residents that is based on number of household members. The credit is intended to reduce the increased burden imposed on lower-income individuals as a result of increasing the tax on groceries.
Effective April 1, 2020, Utah sales and use tax is imposed on certain new items and services, as noted below:
Also effective April 1, 2020, new sales and use tax exemptions apply to sales of feminine hygiene products (as defined) and sales of some tangible personal property consumed in the course of providing certain taxable services. Specifically, the bill would exempt amounts paid for tangible personal property (other than electricity, gas, machinery, equipment, vehicles, parts, office equipment or office supplies) that is consumed in providing repair and renovation of tangible personal property, assisted washing and cleaning services, and laundry and dry cleaning services.
Senate Bill 2001 repeals a number of current exemptions from sales and use tax, including those for newspapers and newspaper subscriptions, sales to a ski resort of electricity to operate a passenger ropeway, amounts paid for admission to an athletic event at an institution of higher education, amounts paid for the lease or use of a vehicle issued a temporary sports event registration certificate, sales to a public transit district, sales of tangible personal property to a subcontractor of a public transit district when the property is installed or converted to real property, sales of fuel to a common carrier that is a railroad for use in a locomotive engine, sales of textbooks for higher education courses (unless the bookstore is owned by the institution of higher education), amounts paid or charged to access a database if the primary purpose is to view or retrieve information from the database.
Senate Bill 2001 also modifies current law exemptions for food sold from a vending machine that does not exceed $1 per item, sales of cleaning or washing tangible personal property if the cleaning or washing is not assisted, and sales or rentals of the right to use or operate an unassisted amusement device for amusement or entertainment. The exemption will be available only if paid for through a machine that accepts only cash and the machine is the only method by which to pay. Operators of food vending machines are also required to pay use tax on an amount equal to 150% of the cost of the food to qualify for the exemption.
Senate Bill 2001 overhauls the current motor fuels tax structure by imposing the state sales tax on sales of motor fuel and non-diesel special fuels effective April 1, 2020. Application of the sales tax to motor fuel sales is expected to generate tax of about $0.10 per gallon.
In addition, the bill imposes an additional special fuel tax of $0.06 per gallon on diesel fuel effective April 1, 2020; the special tax will increase to $0.10 per gallon on January 1, 2022.
Finally, also effective April 1, 2020, the motor vehicle rental tax rate is increased from 2.5% to 4.0%. This tax is imposed on short-term leases and rentals of motor vehicles not exceeding 30 days.
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