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Utah Legislators Consider Consumption Tax

1 min readBy: Sarah Larson

Tuesday, members of the state legislature in Utah considered replacing the current three-prong taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. system (sales, income and property taxes) with a single consumption-based tax. Now, while the details of such a policy shift have not been identified, it reminds us that people have been talking about the potential of broad-based consumption taxation at the federal level for a long time but to no avail.

As we have stated before, the United States relies less on consumption taxation, so a shift in that direction would bring us closer to the mix of taxes employed by many European nations.

However, the consumption-based tax proposed in Utah does appear to be comparatively radical. Public schools have gotten more and more revenue from state government over time, but in every state local property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. revenue is still the principal funding source. While we understand the frustration of state legislators who want fundamental tax reform, not tinkering, local tax authority would appear to be almost nullified by this proposal.

Washington, Tennessee and several other states get the majority of their revenue from consumption taxA consumption tax is typically levied on the purchase of goods or services and is paid directly or indirectly by the consumer in the form of retail sales taxes, excise taxes, tariffs, value-added taxes (VAT), or an income tax where all savings is tax-deductible. es, i.e., retail sales taxes and gross receipts taxA gross receipts tax, also known as a turnover tax, is applied to a company’s gross sales, without deductions for a firm’s business expenses, like costs of goods sold and compensation. Unlike a sales tax, a gross receipts tax is assessed on businesses and apply to business-to-business transactions in addition to final consumer purchases, leading to tax pyramiding. es. Those are known to be successful tax systems, but the Utah proposal would go much further.

A legislative working group has been considering the matter for several months but has not made a formal proposal.