Utah House passes bill to remove sales tax on most food; debate centers on $166 million fiscal hit and local offsets

The Utah House of Representatives on Jan. 25 voted to pass House Bill 109, a proposal to remove the state sales tax on most food and food ingredients while slightly increasing municipal and county local sales tax rates to offset local losses. Representative Newbold, sponsor of HB109, said the state’s strong revenues — which he described as "$1,000,000,000 in new revenue" — made the change possible and argued the measure would return money to taxpayers.

"It is now time to remove the sales tax on food," Representative Newbold said in opening remarks, laying out three principal changes: add "food and food ingredients" to the list of sales tax exemptions, raise municipal rates by 0.1 percentage point, and raise county rates (the sponsor said county rates would go from 0.25 to 0.28) to hold cities and counties harmless under a base-year distribution formula. He cited a fiscal note estimating about a $166.7 million reduction in state revenues if the exemption is implemented.

The bill’s supporters said the change would be broadly progressive in reach because every household buys food; Representative Bigelow called the proposal a way to "benefit every single person in the state." Proponents also said the hold-harmless distribution and the modest local rate increases were designed to protect local budgets.

Opponents raised several concrete concerns. Members asked whether the fiscal note accounted for impacts to the Utah Transit Authority and other restricted local taxes (so-called "wrap" or "zap" taxes), and whether the state surplus cited as backing for the tax cut was largely one-time revenue. Representative Becker noted the fiscal note and asked specifically whether UTA funding and local-option taxes had been addressed; the sponsor acknowledged they had not been fully quantified in the bill language or fiscal note. Representative Farrin and others warned that cutting roughly $166 million from general-fund receipts could erode funds available for highways and other multi-year projects and argued that long-term commitments should be considered before enacting an ongoing exemption.

Members also debated which food items would remain taxable. Newbold said the bill would follow the Streamline Sales Tax Group’s definition of "food and food ingredients" and that prepared foods and certain non-food grocery items (for instance detergents or hairspray) would still be taxed; staff told members that national implementation questions (for example, some bakery goods) were still being worked out.

Representative Snow asked for—and won—an amendment correcting a typographical error in an earlier amendment and then engaged in detailed questioning on the distribution formula; the sponsor said the amendment did not change the fiscal note and that the distribution formula sets a 2005–06 base year to guarantee no city receives less revenue than the base. Members repeatedly pressed whether the $1 billion the sponsor cited was ongoing revenue or largely one-time money; Newbold and others said a portion was ongoing and some was one-time, and representatives emphasized that final appropriation choices later in the session would determine precise offsets.

The House ended debate under a previous-question motion and passed HB109 as amended on a roll call of 57 yes, 17 no, 1 absent. The bill will be referred to the Utah Senate for further consideration.

What happens next: HB109 proceeds to the Senate, where lawmakers can amend the language, request additional fiscal analysis (including detail on UTA and local-option taxes), or take other action. Lawmakers and staff will also need to finalize the statutory definitions and the mechanics of the hold-harmless distribution before enactment.