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Day 26 - HB203: focusing on real economic development

Rep. Scott Wyatt is proposing legislation that will positively impact local government economic development decisions.

Most Utah mayors and city councilmembers would rather have a grocery store move into their city than have a company like Microsoft, Oracle, or Boeing open a facility in their city. This is unfortunate because real economic growth is dependent on industries that pay high wages, export goods and services, and improve productivity, such as IT and manufacturing. Retail does not create economic growth but rather responds to economic growth. Retail happens on its own. It does not need to be subsidized.

While some of this preference for retail can be attributed to economic illiteracy, the real driver in these decisions is the current distribution formula for municipal sales tax revenues.

When a taxable purchase is made, a 1.0% city sales tax is imposed (along with 4.75% from the state, 0.25% in most counties, and in some cases additional "boutique" sales taxes such as ZAP and mass transit). Revenues from the 1.0% city sales tax are distributed 50% based on population and 50% based on point of sale. The 50% point-of-sale component incentivizes cities to focus on attracting retail to their cities instead of focusing on high-wage exporting industries like IT and manufacturing. Only a very small portion of a typical IT or manufacturing company's sales occur within the city in which the company is located. Therefore, most cities are unfortunately not interested in these types of companies, even though these are exactly the kind of companies our state's economy needs.

Rep. Scott Wyatt is sponsoring HB203 which would allow voters in counties of the third class or smaller to change the revenue distribution formula generated by the 1.0% local option sales tax.

HB203 would allow qualified counties to increase the population component in the revenue distribution formula of the 1.0% local option sales tax if the following occurs:

- Two-thirds of local governments, consisting of all of the cities in the county and the county government itself, agree to submit a proposal to voters to increase the population component in the sales tax distribution formula. (Counties with seven or fewer cities would require 100% approval)

- A majority of voters in the county approve the proposal in a general election.

By decreasing the point-of-sale component, cities will have less incentive to subsidize retail. Rep. Wyatt's bill is a sound approach to correcting the current problem of cities incentivizing business activity that does not need to be incentivized.

Disclaimer: Like all legislation, HB203 may eventually be modified, meaning that the above points may no longer be 100% relevant.