On buggy whips, liposuction, and Uber rides – Wacky Tax Wednesday

In his 2019 State of State the Address, Utah Governor Gary Herbert provided a beautiful example of how absurd sales tax can be. “We still tax the sale of buggy whips (even though they don’t generate much revenue),” he noted. “Meanwhile, an Uber or Lyft ride is tax exempt.”

It isn’t that Utah is fixated on taxing anachronistic travel accoutrements and in the pocket of the ride-share lobby; buggy whips are subject to sales tax in Utah because the state has taxed most sales of tangible personal property since it first levied a sales tax, in 1933. And the services provided by Lyft and Uber are exempt because most services are exempt from sales tax in the Beehive State, as is the case in the majority of states.

Unfortunately for Utah sales tax revenue collections, sales of buggy whips are down across the United States, while Lyft, Uber, and similar ride-share services have seen meteoric growth: Uber offered its 10 billionth ride in July 2018, shortly before the younger Lyft hit one billion rides.

I’m not sure Americans are purchasing fewer things than we used to, but there’s no denying more of us are spending more of our dollars on services. We pay people to clean our homes, cut our lawns, push us to be fitter versions of ourselves, even remit our taxes. And apparently this can make us happier.

But it’s taking a toll on sales tax revenue. Gov. Herbert knows the numbers: “In 1980, 70 percent of the [state] economy was part of the general fund tax base. Today, it’s only 40 percent, and that number continues to shrink.” If this trend continues, he said, “It is absolutely unsustainable.” Therefore, he wants to “modernize” sales tax.

Sales tax peculiarities

In building his argument for “tax modernization,” Gov. Herbert highlights some of the other “peculiarities” found in Utah sales and use tax law: “Did you know that limousine services aren’t taxed but auto repairs on the family car are taxed? Did you know that lobbyists and lawyers don’t have to tax their services, but computer repair persons do? In Utah, you don’t have to pay taxes on an elective liposuction procedure, but women pay taxes every time they buy feminine hygiene products.”

Music to my ears, Gov. Herbert. Sales tax is wacky.

But it won’t be for long, if the governor gets the budget he wants.

His proposed solution is a broader tax base. He doesn’t want to exempt buggy whips — or DVDs, or stationery, or any of the multitude of items that still exist but are wanted by fewer and fewer people. Instead, he’d like to lower the sales tax rate for all transactions from the current 4.85 percent to 1.75 percent. And he would expand the sales tax to “all the goods and services that benefit from our business-friendly, well-managed state.”

The governor says he’s open to discussing any and all options with the Utah Legislature, but he has yet to put forward a concrete plan to support his ambitious goals. We’ll just have to wait and see — and appreciate the wackiness of Utah sales and use tax in the meantime.

Update 8.9.2019: The proposed sales tax changes discussed above failed to pass.

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