Utah Proposal to Modernize State Sales Should Avoid Layering Taxes on Business Inputs

Lawmakers in Utah considered and temporarily tabled a plan to expand the state’s sales tax to bring the Utah tax code in line with a 21st-century economy. The Tax Equalization and Reduction Act (HB 441 S1), proposed by Representative Tim Quinn (R), would expand the sales tax base to include nearly all goods and services. The new revenue would pay for reduced tax rates for both sales and income taxes. However, the sales tax expansion also captures a large swath of business inputs. This creates a harmful effect known as “tax pyramiding” whereby economically distortive taxes stack up through the stages of business production, causing retail consumers to pay taxes upon taxes when they make a retail purchase. The legislature does not intend to act on this proposal before wrapping up its session on March 14, leaving the opportunity to adjust the Tax Equalization and Reduction Act for a future session. The Tax Equalization and Reduction Act Major provisions from…

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