SALT LAKE CITY — Committee staff told the Utah Legislature’s Revenue and Taxation Interim Committee on Sept. 16 that federal tax changes in HR 1 will materially alter Utah’s starting points for state income‑tax calculations and could reduce state income‑tax collections by hundreds of millions of dollars in the near term.

Chris Stitt, committee staff, described a package of federal changes that alter adjusted gross income (AGI) and other federal starting points Utah uses to compute state individual and corporate taxes. He told the committee the package could produce a “very wide” first‑year fiscal impact depending on how the Internal Revenue Service implements the changes, and that staff’s working range for the first year is roughly $300 million to $480 million in reduced Utah income‑tax collections.

Why it matters: Utah starts its individual income‑tax calculation from federal AGI. Changes at the federal level that are treated “above the line” on federal returns therefore alter the base the state uses to calculate taxes. Several high‑value provisions in HR 1 produce one‑time or front‑loaded reductions in tax receipts even when the long‑run tax base is unchanged, the presentation said.

Major provisions and staff’s preliminary fiscal impacts

- Increased standard deduction and indexing: HR 1 raised the federal standard deduction for 2025 (single filer example from $15,000 to $15,750; married filing jointly from $30,000 to $31,500). Because Utah’s Taxpayer Tax Credit is tied in part to the standard deduction, staff estimated a $59.4 million reduction in FY 2026 income‑tax collections attributable to this change.

- Restoration of 100% bonus depreciation and expanded expensing: The reinstatement of full expensing (100% bonus depreciation) and expanded immediate expensing for certain tangible property are timing changes that front‑load deductions. Staff estimated a $95.4 million reduction tied to business equipment bonus depreciation and a $32.0 million reduction tied to qualified production property in year one; full expensing of domestic research and experimental expenditures produced the largest single FY 2026 impact in staff’s examples — about $101.0 million — because it allows prior years’ amortization to be accelerated into the first year.

- Business interest limitations and other depreciation changes: Changes to the business interest limitation (adding back depreciation and amortization into the adjusted taxable income measure) showed an estimated $13.7 million reduction in the first year. Other increases to expensing caps produced smaller, front‑loaded reductions (for example, about $7.0 million in the first year for increased dollar limitations on expensing certain depreciable assets).

- State and local tax (SALT) cap and related workaround: HR 1 makes the $10,000 SALT cap permanent but enacted a temporary $40,000 cap through 2029 (indexed). Because the Taxpayer Tax Credit interacts with itemized deductions, staff estimated an initial $4.7 million reduction in FY 2026. Stitt also reviewed Utah’s existing pass‑through entity election (the state workaround that lets pass‑through entities pay at the entity level), noting that the workaround preserves prior state treatment even though federal treatment changes.

- New temporary individual provisions with uncertain state effect: HR 1 created several temporary, above‑or‑below‑the‑line deductions for tax years 2025–2028 — including deductions for tips, overtime pay, certain auto‑loan interest, a temporary $6,000 senior personal exemption, and a limited deduction for charitable contributions by standard‑deduction filers. Those items could materially increase the fiscal impact if the IRS places them “above the line” (affecting AGI). Staff’s examples showed first‑year impacts for these possible items — for example, a potential $81.7 million hit for temporary overtime‑pay deductions and a potential $67.4 million for the temporary senior exemption — but Stitt repeatedly emphasized the uncertainty and said the IRS’s implementation decisions will determine whether and how much these affect Utah collections.

‘‘These are static estimates,’’ Stitt said, explaining that the numbers do not account for behavioral responses or dynamic effects. He also repeatedly framed several large impacts as timing shifts that “equalize over time,” because amortization and depreciation rules move deductions between years rather than eliminating them.

Uncertainty and next steps

Commissioner John Valentine of the Utah State Tax Commission told the committee that the agency had not yet received all proposed federal return forms, instructions or other guidance and could not offer final certainty on state impacts. ‘‘The shorter answer is no,’’ Valentine said when asked whether the IRS timeline was known, adding that the IRS had suggested materials might be available as late as the week of filing in January and that ‘‘we hope to have them before then.’’

Committee members discussed options for addressing a near‑term revenue shortfall caused by front‑loaded deductions. One suggestion from members was to consider using one‑time reserve funds to bridge a temporary reduction in receipts; the committee chair and analysts noted that doing so would be a policy call with risk if a downturn arrived while reserves were being used.

What’s next: Staff and the Legislative Fiscal Analyst’s Office will refine estimates as IRS guidance becomes available. The committee will consider policy responses — including whether to propose changes to state code or to recommend temporary offsets — once the federal implementation details are clearer.

Sources: presentation to the Revenue and Taxation Interim Committee by Chris Stitt, committee staff; Legislative Fiscal Analyst Office support; remarks by Utah State Tax Commission Chairman John Valentine."