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Bait and switch: making a bad tax worse?

Sandy officials are allegedly trying to change the distribution of restaurant tax revenues so that cities spend the revenues instead of counties.

Currently, counties impose restaurant taxes and spend the revenues generated by this tax. In most counties, the rate is 1.0%. In Utah County, the rate is 0.65%. Emery, Millard, Piute, and San Juan do not impose restaurant taxes. Statewide, Utah restaurants collected $25.6 million in restaurant taxes in FY2005, according to the Tax Commission’s annual report.

However, we predict that Sandy's real goal is not to take the counties' restaurant taxes but to allow cities to impose -- with legislative approval --their own restaurant taxes. This appears to be an attempt by Sandy City to find another means to subsidize Real Salt Lake's soccer stadium.

Restaurant taxes are bad policy
Taxing restaurants to fund recreation, athletic, and cultural facilities violates several principles of sound tax policy.

General government programs like recreation should be funded by general taxes, not by earmarked taxes. Except for user fees like water fees, gas taxes, etc., taxes should not be earmarked for specific programs. Earmarking taxes reduces government flexibility in establishing spending priorities. Government officials need to annually prioritize expenditures, and government programs need to compete against each other for prioritization. Earmarking prevent this.

Disposition of tax revenues should be related to its collection. For example, gas taxes should be used to fund roads, not Medicaid or the arts. There is no direct relationship between restaurant meals and cultural, athletic and recreation facilities. These facilities -- if they are to be funded at all -- should be funded by user fees and/or general taxes.

Who pays restaurant taxes?
More than 80% of restaurant taxes are paid by Utahns, according to the Utah Restaurant Association, even though restaurant taxes are billed as a means to tax tourists. Some restaurants, like those in Park City, Moab, and downtown Salt Lake, are heavily patronized by out-of-state tourists, but the majority of restaurant taxes is collected in places like Cafe Rio in Draper, Quizno's in American Fork, Gandolfo's in West Jordan, and hundreds of other restaurants where the vast majority of customers are Utahns.

Does Sandy's claim make sense?

Sandy argues that restaurant taxes are generated in cities, and therefore cities should get the revenues. Technically, nearly ALL tax revenues -- including individual income taxes, corporate income taxes, gas taxes, etc -- are generated in cities. Does this mean that the state constitution should be changed so that cities should get income taxes instead of school districts and higher education because these revenues are generated in cities?

This is just a bait and switch. Counties' restaurant taxes won't be touched.

The counties really don't have much to worry about. When county leaders tell legislators that restaurant tax revenues are being used to pay off existing bonds for recreation and cultural facilities, the issue will be dead. Sandy's next proposal will be a city-option restaurant tax.

What Curtis and Sandy want, Curtis and Sandy get.

Don't even waste your time fighting this one my friends.

The premise that Sandy wants this as a funding source for the proposed Real stadium is uninformed and its own version of 'bait-and-switch'. For years, Salt Lake County government has sucked reveues from cities and funneled it into Salt Lake City. Until the current law is changed as UT has suggested, why preclude Sandy or West Jordan or Holladay from using the restaurant tax to develop recreational, athletic and cultural opportunities within their borders. Why must all such funding flow into the Salt Palace money pit? The fight is on to keep the money within SL County government because they blew the budget on the Salt Palace remodel and need to somehow cover the overruns. Where is Mark Crockett complaining about that situation? Seems he only cries when his own (SL Co) pocketbook is threatened. Perhaps UT can continue its public service by investigating that little boondoggle before questioning the motives of cities trying to change the status quo.

The Salt Palace "money pit" is an engine for economic growth because it brings money into the state that otherwise could go to other states. Out-of-state tourists pump money into our economy but don't impose large burdens on taxpayers (especially K-12, higher education, etc.)

This contrasts with the proposed RSL stadium which will be patronized primarily by locals spending discretionary income.

We met with Mayor Corroon, and his numbers show that TRCC dollars are distributed throughout the county, not just Salt Lake City.

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