October 2, 2007 Changes to Municipal Sales Tax
There have been a number of questions about the tax changes made during the 2007 Legislative session and how they will impact Utah cities and towns. In particular, there have been questions about what action cities may have to take in response to legislative actions.
It should be noted that virtually all of the tax changes were part of the comprehensive tax bill which incorporates virtually every tax change made during the session. This bill was Second Substitute Senate Bill 223 sponsored by Sen. Niederhauser. The bill incorporated not only all of the sales tax related changes but also the income tax reform. It also included a number of special business tax changes.
The following information outlines the primary changes that affect our cities. Obviously all cities are not impacted by every tax change. However, there was enough of an overlap that we chose to outline all of the tax changes here in this information.
The Removal of Food from the Specialty Taxes
Non-prepared food was exempted from the sales tax base for the specialty tax levies (previously referred to as the “boutique taxes”). In some instances there have been attempts at offsetting revenue increases. All sales tax changes take effect on January 1, 2008. Be aware that the actual impact of the food removal will vary from community to community and will depend entirely on what portion food sales represent of your community’s tax base.
Municipal Local Option Tax (1%)
This municipal local option tax was not affected by the partial removal of sales tax from unprepaired food items. There will be no revenue implications associated with this revenue source.
Municipal Transportation Tax Levies and Transit Levies
There are a number of specialized transportation levies that were impacted by the removal of food. To offset the impact of the food removal the tax rates were raised on the remaining tax base. The cities are required to amend their ordinances on this matter. If you wish to recapture the money that was associated with sales tax on food, you are allowed to raise the municipal transporation levy from .25% to .30%. This must be done prior to November to ensure that the new rate is reflected in January when the rate changes take effect. If you have questions on the oridnance, we have attached a sample ordinance for you to review. Also, please feel free to call or write with additional questions.
Resort Community Tax
The legislation authorized an increase in the base resort community tax rate cap from 1% to 1.1% to minimize the impact of removing food. Since this action involves an increase in a rate cap, cities will have to pass a new ordinance to implement the new rate cap. Be aware that although the law change itself does not take effect until Jan. 2008, current law requires a 90 day notification to the tax commission prior to implementation. As such, impacted cities should not delay making decisions and necessary ordinance change. Lastly, there was no offsetting rate increase on the additional .5% resort tax dedicated for debt reduction.
Generally speaking, the offsets that were provided in the legislation cover any anticipated losses that would be associated with a reduction in the tax base. While this is predicated on the composition of the tax base for each affected community, it is fair to say that most cities and towns will see little or no negative impact related to the removal of sales tax on food, and in many circumstances the net result will be revenue positive.
Hopefully this information helps. Please call myself or Lincoln with any additional questions or concerns.