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NOTE: On January 28, 2020, Utah repealed the tax law changes discussed in this Alert before they took effect. For details, see Tax Alert 2020-0212.

On December 18, 2019, Utah Governor Gary Herbert signed SB 2001 (the bill), which cuts corporate and individual income tax rates, imposes sales and use tax on various services, repeals certain sales and use tax exemptions, and increases the tax on food and gas, among other changes.

Although Governor Herbert signed the bill, the tax changes in SB 2001 may not become effective. SB 2001 was not approved by a two-thirds majority in both the Utah House and the Utah Senate, and therefore is subject to referendum. A referendum petition seeking voter approval of the tax changes in SB 2001 has been filed.¹

If the referendum petition fails to meet the signature requirement by January 21, 2020,² the bill will take effect 60 days after being signed by the governor (February 16, 2020), with varying effective dates. Generally, the income tax changes will be retroactively effective for tax years beginning on or after January 1, 2020, and the sales and use tax changes will take effect April 1, 2020. If the referendum is certified for the November 2020 election, the bill's provisions will be placed on hold and will not take effect unless approved by voters.

Income tax changes

Effective for tax years beginning on or after January 1, 2020, the corporate and individual income tax rates decrease to 4.66% (from 4.95%).

The bill also modifies the Utah personal exemption, provides individual taxpayers a tax credit rebate, establishes a refundable state earned income tax credit (EITC) for certain individuals, modifies the nonrefundable retirement tax credit and the nonrefundable tax credit for social security benefits, and enacts a refundable grocery tax credit.

Sales tax changes

The bill extends Utah's sales and use tax to amounts paid or charged for the following:

• Access to digital audio-visual works, digital audio works, digital books, or gaming services, including the streaming of, or subscription for, access to those digital goods and gaming services, regardless of:
• The delivery method
• Whether the amount paid or charged for access provides a right to a single-use access or
• Whether access rights are conditional
• Storage, use, or other consumption of prewritten computer software (delivered electronically or by load and leave) or seller-hosted prewritten computer software³
• Security system monitoring
• Personal transportation that originates and terminates in Utah
• Parking or garaging
• Tow truck services
• Pet boarding and grooming
• Dating referral services
• Identity-theft protection

The bill repeals sales and use tax exemptions for:

• Amounts paid or charged to access a database if the primary purpose for accessing the database is viewing or retrieving information from the database
• Certain sales of cleaning or washing of vehicles
• Sales of newspapers and newspaper subscriptions
• Price of admission to college athletic events
• Lease or use of a vehicle issued a temporary sports event registration certificate
• Certain sales to a public transit district
• Fuel sales to a railroad that is a common carrier for use in a locomotive
• Sales of textbooks for use in higher education courses

The bill expands the exemption for purchases or leases made by a qualifying data center to include an occupant of a qualifying data center.

The bill creates exemptions for:

• Sales of menstrual products
• Amounts paid or charged for tangible personal property that is:
• Not electricity, gas, machinery, equipment, vehicles, parts, office equipment, or office supplies
• Consumed as part of repairing or renovating tangible personal property, cleaning or washing tangible personal property, or laundry or dry-cleaning services

The bill would repeal and replace the current exemptions for:

• Certain food, food ingredients, and prepared food sold through a vending machine
• Certain sales of cleaning or washing of tangible personal property and vehicles
• Sales or rentals of the right to use or operate unassisted amusement devices

The new exemptions only apply, however, if taxpayers pay for those items through a machine that accepts only cash and the machine is the only payment method.

Other sales and use tax changes contained in the bill include the following:

• Increase the sales and use tax rate imposed on food and food ingredients to 4.85% (from 1.75%)
• Increase the motor vehicle rental tax to 4% (from 2.5%) on all short-term leases and vehicle rentals not exceeding 30 days
• Establish a new sales tax on motor fuel (paid by the distributor) and non-diesel special fuel (paid by the supplier), and an additional special fuel tax on diesel fuel imposed on suppliers

Implications

If these changes take effect, taxpayers will need to review their systems to adjust for the expanded sales and use tax base.

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ENDNOTES

¹ See Vote.Utah.gov for the petition and current signature totals. A second referendum petition, which would have used paid signature gathers, has been rejected.

² The state has until mid-March to verify signatures.

³ The term "seller-hosted prewritten computer software" is defined to mean "prewritten computer software that is accessed through the Internet or a seller-hosted server, regardless of whether: (a) the access is permanent; or (b) any downloading occurs."