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MINUTES OF THE

REVENUE AND TAXATION INTERIM COMMITTEE

Tuesday, November 24, 1998 -- 2:00 p.m. -- Room 405 State Capitol


Members Present:    
    Sen. Howard C. Nielson, Senate Chair
    Rep. Raymond W. Short, House Chair     Sen. Leonard M. Blackham
    Sen. Mike Dmitrich         Sen. E. George Mantes
    Sen. L. Steven Poulton
    Sen. Howard A. Stephenson
    Rep. Judy A. Buffmire
    Rep. Greg J. Curtis
    Rep. James R. Gowans
    Rep. Wayne A. Harper
    Rep. David M. Jones
    Rep. Loraine T. Pace
    Rep. John L. Valentine
    Rep. Richard L. Walsh
    
    

     Members Absent:
        Rep. Kevin S. Garn
        Rep. Patricia B. Larson
        Rep. Jack A. Seitz

    Staff Present:         Mr. Bryant R. Howe,
         Research Analyst
        Ms. Rebecca L. Rockwell,
         Associate General Counsel
        Ms. L. Kaye Clark,
         Secretary



     Note:    A list of others present and a copy of materials distributed in the meeting are on file in the Office of Legislative Research and General Counsel.

1.     Committee Business_     -- Chair Short called the meeting to order at 2:00 p.m.
        
    a.    Revenue Update--Doug Macdonald, Utah State Tax Commission ("Tax Commission"), reviewed "TC-23 Monthly Revenue Summary First 4 Months, FY 1998-1999." He reported that revenues are coming in as projected. He discussed the key economic indicators including: (1) nonfarm employment; (2) Utah consumer sentiment index; (3) unit car and truck sales; (4) residential construction; (5) nonresidential construction; (6) sales tax; and (7) withholding tax.
    
2.    Income Tax Reform _
    a.     Review of Proposed Legislation - Sen. Nielson discussed the revisions made since the last committee review of draft legislation "Income Tax Amendments" including: (1) removal of obsolete language; (2) making inflationary adjustments to the individual income tax brackets; (3) changing the basis for calculating individual income taxes from federal taxable income to federal adjusted gross income; and (4) repealing the addition to the income of 25 percent of a taxpayer's federal personal exemptions.

    Ms. Rockwell explained technical changes in the legislation. She reviewed certain definitions and clarifications made at the request of the Tax Commission. Ms. Rockwell noted that the bill allows taxpayers to choose whether to use the federal standard deduction or federal

itemized deductions on their state individual income tax forms. Ms. Rockwell responded to questions regarding dependent exemptions and personal exemptions.

    b.    Comment from Utah State Tax Commission - Commissioner Johnson supported the changes to the tax policy made in the legislation. However, he noted that allowing taxpayers to choose whether to claim the federal standard deduction or federal itemized deductions increases the administrative burden of the Tax Commission.

    c.    Committee Discussion and Action - Sen. Stephenson requested that the Tax Commission determine the revenue impact of certain changes to the Internal Revenue Code since 1986. Commissioner Johnson said the Tax Commission will review the largest changes per year since 1986. Rep. Jones commented that because individual income tax brackets have not been adjusted for inflation, a family of four is paying $325 more per year in income taxes. Sen. Blackham discussed adjusting the brackets to create a revenue neutral bill.

     MOTION: Sen Dmitrich moved to pass draft legislation "Income Tax Amendments" as a committee bill. Rep. Curtis spoke against voting on a bill that has no fiscal note. Sen. Stephenson requested that interim bills receive fiscal notes. Mr. Howe provided estimated revenue costs for some of the provisions in the legislation based on an earlier analysis of certain changes to the individual income tax by the Tax Commission. Sen. Nielson did not agree with the numbers. Rep Jones spoke in favor of the motion.

     SUBSTITUTE MOTION: Rep. Valentine moved that the legislation be passed as a committee bill with a note attached stating "No fiscal note was available at the time the vote was taken." The motion passed with Rep. Harper voting in opposition. Sen. Poulton and Reps. Gowans and Walsh were absent for the vote.

3.    Sales and Use Tax Holiday _
    Chair Short explained that Florida passed a bill specifying a time frame during which the sale of clothing would be exempt from sales taxes so that items needed for school would not be taxed. The committee did not discuss this issue.

4.    Long Term Care Insurance _
    Sen. Nielson explained that draft legislation "Long-Term Care Amendments" creates an income tax deduction for long term care insurance premiums and out-of-pocket long term care expenses, and allows the use of medical savings accounts for long term care insurance and expenses. He informed the committee that the Health Policy Commission and the Health and Human Services Interim Committee have supported the legislation.

     Rep. Pace requested that education about the need for long term care be considered. Rep. Buffmire declared a conflict of interest.

     MOTION: Rep. Buffmire moved to pass "Long-Term Care Amendments" as a committee bill. The motion passed unanimously. Sen. Poulton was absent for the vote.

5.    Sales and Use Tax Exemption for Eyeglasses and Hearing Aids _
    The committee did not discuss this item.

6.    Repeal of Sales and Use Tax Exemption: Sales of Newspapers _
    a.    Review of Exemption _ Rep. Zolman discussed the proposed repeal of the sales and use tax exemption for newspapers. He estimated that the repeal would result in a $.05 increase in the price of a newspaper. Rep. Zolman then gave a brief history of the exemption. He said it is time to allow newspapers to compete with other media. Rep. Zolman explained that he will sponsor legislation to repeal the sales tax exemption for newspapers.

    b.    Committee Discussion -
    Rep. Valentine declared a conflict of interest. The committee discussed issues including the $2.7 million fiscal impact of the proposal, and the effect of the manufacturing exemption on newspapers. Mr. Randy Frisch, Salt Lake Tribune, commented that the tax would be passed on to the independent carriers.

7.    Property Tax Legislation _
    a.    Review of "Certified Tax Rate Notice Amendments" - Rep. Lamont Tyler explained that the draft legislation "Certified Tax Rate Notice Amendments" provides additional information on property tax valuation notices about the impact of a proposed tax increase on an average residence. He noted that the changes to the notice were recommended by the Task Force for Funding Education. Rep. Tyler reviewed some examples of the current tax notice to support his argument that the information contained in that notice is misleading and creates confusion. He said the Education Interim Committee recommended he work with Sen. Stephenson on the language in the bill. Sen. Stephenson requested that the legislation be referred to an ad hoc committee for review. The committee discussed issues including the impact of new growth and alternative language for the legislation.

     MOTION: Rep. Buffmire moved that the committee pass "Certified Tax Rate Notice Amendment" as a committee bill.

     SUBSTITUTE MOTION: Sen. Stephenson moved to request that the sponsor refer the bill to an ad hoc committee on truth in taxation. Sen. Stephenson then restated the motion. He moved to request that the chairs send a letter to the Property Tax Division of the Tax Commission asking them to convene an ad hoc task force to examine this proposal and suggest language to the Legislature that will accomplish the intent of the bill. Rep. Valentine commented that an ad hoc committee is not recognized in legislative rules. Sen. Blackham spoke against the substitute motion and in favor of the original motion. Rep. Buffmire spoke against the substitute

motion. The motion failed with Sens. Poulton and Stephenson, and Reps. Short, Pace, and Walsh voting in favor of the motion. Sens. Dmitrich and Mantes, and Reps. Jones and Valentine were absent for the vote.

     MOTION TO AMEND: Rep Harper moved to amend the bill (11-23-98 draft) as follows; page 2, Line 12, after "entity." add "With this proposed tax increase, new growth and other factors, (name of the taxing entity) will increase its property tax revenue from $____ elected last year to $ ____ or ____ percentage." This language will also be inserted in the bill where needed to make it consistent. Sen. Stephenson spoke in favor of the motion and added that the bill needs a hearing by those affected by the bill and needs further modification. Rep. Buffmire spoke against the amendment. The motion passed with Sens. Nielson and Blackham, and Reps. Buffmire, Gowans, and Pace voting in opposition. Sens. Dmitrich and Mantes, and Reps. Jones and Valentine were absent for the vote.

    The committee voted on the original motion. The motion passed with Sens. Poulton and Stephenson, and Reps. Short, Pace, and Walsh voting in opposition. Sens. Dmitrich and Mantes, and Reps. Jones and Valentine were absent for the vote.

    b.    Review of "Certified Tax Rates Amendments" - Laurie Chivers, State Office of Education, explained that draft legislation "Certified Tax Rates Amendments," provides that the certified tax rate for purposes of maintaining a school program above the cost of the minimum school program is the actual levy imposed in the statute. The bill removes the voted leeway and the board leeway from the public notice and hearing requirements of truth in taxation. She presented an example to demonstrate the inequities in the current formula.

    c.    Committee Discussion - Sen. Stephenson stated that the proposal enables school districts to avoid accountability for increasing the voted leeway and board leeway. The committee raised concerns about exempting increases in the voted leeway or board leeway from the public notice and hearing requirements or truth in taxation.

8.    Other Business _
    Chair Short thanked the committee and staff for their work during the interim.

     MOTION: Rep. Valentine moved to reconsider the committee's action on the draft legislation "Income Tax Amendments." The motion passed unanimously. Sens. Dmitrich, Mantes, and Stephenson, and Rep. Jones were absent for the vote.

    Rep. Valentine explained that according to legislative rules, the committee may not put a notation on a bill. The committee may either vote the bill out favorably or vote the bill out without a recommendation.

     MOTION: Rep. Valentine moved to pass draft legislation "Income Tax Amendments" without a recommendation because there is no fiscal note. Sen. Nielson spoke in favor of the motion. The motion passed with Rep. Harper voting in opposition. Sens. Dmitrich, Mantes, and Stephenson, and Rep. Jones were absent for the vote.

9.    Adjournment --

     MOTION: Rep. Curtis moved to adjourn the meeting at 5:15 p.m. The motion passed unanimously.

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