As tax reform bill stalls, Park City businesses worry about potential impacts
In the last two weeks, a bill that sought to alter sales taxes for businesses and consumers in Utah surfaced, stirred up controversy and stalled. Businesses that would have been affected by the bill were left wondering what the next few months will bring.
The proposed bill, H.B. 441, aimed to reduce the state’s sales tax rate while implementing a tax on services to broaden Utah’s shrinking tax base. Businesses that have previously been tax-free, such as travel agencies, law firms and hair salons, would have had to charge their customers a tax. Several Park City businesses were upset about the bill, which the Utah Legislature ultimately decided to abandon. With the backing of Gov. Gary Herbert, lawmakers on Thursday, however, said they plan to take up the tax overhaul again in the coming months, potentially in a special session.
Craig Dell, an attorney who owns an estate planning business in Park City, was against the bill because he said the tax might dissuade people from purchasing services they consider to be non-essential.
“I’m disappointed by any sort of tax that would make the cost of a certain product or service more expensive and, therefore, make it not as accessible to people,” he said.
He, like other Park City business owners, said he would rather absorb the cost of a sales tax on his services than increase the rates for his clients. Such a tax would impact his business, he said.
He first heard rumblings of the widely anticipated tax reform bill a couple months ago, but said he did not think it would go anywhere.
Now that legislators appear set on implementing a sales tax on services, he is concerned. But, he said, he is glad lawmakers chose to delay a decision so they could study the issue further.
Herbert and lawmakers have been talking about lowering the tax rate and making more items taxable for the past year. Heber City Rep. Tim Quinn, whose district includes Park City, took on the issue and sponsored H.B. 441.
Quinn and Herbert have said multiple times that Utah needs to address the sales tax because consumers are purchasing fewer products and more services. Quinn told the House during one meeting that the state’s general fund, which is funded by sales taxes, has been decreasing over time.
When Herbert and Quinn announced during a press conference Thursday that they were scuttling the bill for the session, they said lawmakers hope to address tax reform in the summer.
One of the biggest concerns lawmakers had about the bill was that it was introduced late in the session, which ends Thursday. There was confusion about what specific businesses would be taxed and other aspects of the bill, one of the most complex and ambitious tax proposals in recent years.
Molly Miller, who runs a consulting firm, Miller Media and Communications, said it seemed that legislators were trying to rush H.B. 441 through at the last minute. She would have had to charge sales taxes, and several of her customers that own small businesses would have had to charge them, too.
“It’s also very concerning to me, a service-based small business owner who relies heavily upon my income to keep my family afloat, that this bill appears to place the heavy burden of staying ‘revenue neutral’ on the backs of Utah companies which provide services,” she said, referring to the bill’s goal of offsetting revenue from taxes on services with a reduction in the tax rate.
She was glad to see the bill stall, but does not think the push to tax services is going away soon.
Harriet McEntire-Lanka, owner of Align Spa, also said the bill was rushed. Massages were on the list of taxed services under the bill, and she said taxes would most likely hurt her business.
“Day spas are not highly profitable businesses,” she said. “If my tiny bit of income that I am accepting through services all the sudden gets bitten into, that doesn’t feel good at all.”
She worried that if she raised prices, her regular customers might reconsider paying for massages. But, she said, she did not want to absorb the costs and cut her employees’ pay.
Bill Malone, president and CEO of the Park City Chamber/Bureau, said businesses that were vocal on Capitol Hill against the bill had similar arguments. They said it would make their business less competitive. Plus, businesses would have had to quickly learn how to collect and account for taxes.
“It’s a huge shift,” he said. “It’s having a large effect and obviously some consternation with small businesses that have never been in the sales tax collection business before.”
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