Most states allow some sort of local sales taxing option, but Utah has a more extensive system than many.
The rules vary widely.
In some states, it’s fairly limited like it is in Idaho, where local sales taxation power is mostly limited to resort cities. Even Montana, which doesn’t have a statewide general sales tax, still levies a 4 percent “bed tax” on hotel and campground stays and lets certain resort communities collect a tax of up to 3 percent on lodging, restaurant and drink sales, recreation facilities and luxury goods.
In Utah, every city and the unincorporated portion of every county levies a 1 percent local option sales tax; resort communities can levy an additional 1 percent. And in 2015, state lawmakers approved letting counties that choose to levy a tax of an additional one-quarter of 1 percent to fund transportation. Attempts to pass additional transportation taxes in 2015 and 2016 had mixed results, with some counties’ voters passing them and others rejecting them.
Utah’s municipalities can use the money for anything they want.
In the Salt Lake City area, much goes to public transportation — 71 percent of the Utah Transit Authority’s funding comes from local option sales tax. That 1 percent sales tax is the primary general fund revenue source for most cities in Utah, said Roger Tew, senior policy analyst with the Utah League of Cities and Towns.
In Idaho, that primary revenue source is the property tax, while in Utah property taxes are generally lower because cities get more of their money from sales tax. The owner of a $150,000 home, for example, would on average pay $1,032 a year in Utah property taxes, compared with $1,157 in Idaho, according to data compiled by the website SmartAsset.
Tew used to be a Utah State Tax Commissioner and was the lawyer for the commission before that, and he is well versed in the history of the state’s tax system. The League’s website jokes he “has been a player in the Utah tax arena for so many years that realistically some taxes could be named in his honor.”
Utah’s local option sales tax started in 1959 as a half-cent tax collected and kept by the municipality where the retailer was located, Tew said.
This, he said, led to controversy as smaller communities with fewer retailers clamored for a bigger cut, and in the early 1980s the Legislature changed the law to raise the tax but also put the extra money into a pool shared statewide among all municipalities on a population-based formula.
Tew said there has been talk at times of making various changes to the formula since then, but it’s a heavy lift.
“Politically, it’s almost impossible to unless (you) put new money on the table, because any distribution change means you’re picking winners and losers,” he said.
One issue, he said, has been that competition for sales tax revenue encourages cities to chase retail, including poaching businesses from each other. There have been a few cases, he said, where a city tries to entice a business to move across the street so it can get the sales tax money.
“There has been improper or inappropriate competition to chase sales tax dollars because of that,” Tew said.
One change that expanded local taxing authority in Utah was in 2015, when lawmakers voted to let counties ask their voters to impose an additional .25 percent sales tax for transportation funding, as well as raising the gas tax and making some changes to it to increase the amount going to local governments for transportation funding. Tew said transportation funding had been a topic of debate for more than a decade, and this came after big lobbying efforts by cities, counties, business groups and the Utah Transit Authority.
Money raised from the additional tax is divided between municipalities, counties and, in areas that have them, local transportation authorities, and goes toward both roads and public transit. Eighty-six cities passed resolutions encouraging their counties to pass the new tax, according to the Deseret News, and 17 of Utah’s 29 counties put the question on the ballot in November 2015. The tax passed in about half of the counties that proposed it. The UTA plans to expand its bus and rail service in those counties.
“The surprise was it didn’t pass in Salt Lake, which was the primary place that was pushing it,” Tew said.