Conference committee pauses on House Bill 1428 after debate over clothing sales-tax exemption for nonprofits

Representative Haggard convened a conference committee on House Bill 1428 to reconcile differing House and Senate language on a sales-tax exemption for clothing sold by nonprofit thrift stores. Lawmakers spent the meeting discussing whether the exemption should apply only to used clothing, as in the House bill, or to all clothing, as amended by the Senate to meet compliance with the streamlined sales-and-use-tax rules.

The issue matters because, as Senator Rummel explained, the state must remain in compliance with the streamlined sales-and-use-tax requirements or risk losing reciprocal agreements with other states. "We missed it in the committee, and we found out that we were in violation of some issues dealing with our uniform sales tax code amongst all of the states," Rummel said, adding that the Senate amended the bill in appropriations to "come into compliance." The Senate amendment replaced a narrower "used clothing" exemption with an exemption for all clothing after members concluded the Century Code lacked a clear definition of "used clothing." Rummel said, "There is, 4 pages, I believe, in the uniform sales tax code that deals with description of clothing," and that that ambiguity created implementation problems for nonprofits and volunteers.

Supporters on the House side said the original intent was to encourage recycling and avoid double taxation of clothing already taxed when first sold. Representative Steiner said both chambers "support the concept" and that used clothing exemptions promote recycling: "You're recycling it. It's already paid tax." Steiner and Representative Toman voiced preference for returning to the House language limiting the exemption to used clothing if a workable compliance solution can be found.

Opponents warned the broader exemption for all clothing could create competitive advantages for some nonprofit stores and broaden exemptions in ways that reduce tax revenue. Senator Powers said he was "a nay on this, originally," calling it a "slippery slope" and arguing that some nonprofit stores effectively operate as profitable retailers and would benefit from the exemption. Senator Rummel also raised concerns that expanding exemptions further would be unfair to taxable retailers and noted the Century Code already contains many exemptions: "If we start expanding use sales and use tax exemptions, we already have, what, 18 pages of them in Century Code. How broad are you gonna start?"

Lawmakers discussed several practical implementation concerns raised in testimony: how volunteers at nonprofit thrift stores would distinguish taxable from nontaxable items; whether items donated with tags (for example, new clothing moved to a charity store) should be treated as new or used; and whether some nonprofit-run stores operate in effect as for-profit businesses. Rummel said that stores sometimes receive new items "with tags on it" from retailers that cannot sell them and that this blurred the line between new and used clothing. He also noted that some nonprofits run stores that are profit-driven, complicating enforcement and customer understanding of which stores qualify for the exemption.

Several lawmakers referenced the bill's fiscal note. Representative Haggard said he had reviewed the fiscal note and thought it "didn't change things," but he also suggested the fiscal estimate might understate reductions in tax revenue. Representative Toman described the tax on used items as an "irritant" but lower-priority than other taxing issues such as property-tax policy.

There was no formal vote or final action in the conference committee. Representative Haggard closed the session saying the committee would adjourn and return when it could be rescheduled. "I think what we'll do here is, we'll take in a adjourn this this committee meeting and come back when they can get us back on the schedule. Alright. Meeting adjourned," he said.

The conference committee debate leaves unresolved whether the exemption will be limited to used clothing (the House position) or cover all clothing (the Senate amendment made to maintain compliance with streamlined sales-and-use-tax requirements). The committee plans to reconvene for further work on House Bill 1428.