It’s old news now. In fact, I wouldn’t even call it news anymore, but it looks like we’re safe in the short term from a service tax in Utah.
Due in large part from pushback from the public, the bill was not passed. This is probably a good thing, for now.
When I first heard about it, it felt like a policy that was being pushed hard and fast, without anyone actually reading or thinking about it, kind of like Obamacare was.
Needless to say, I was worried. How would this effect our business as a developer and builder of senior communities?
But are we out of the woods yet? Sort of.
Tax Reform In Utah
If you’ve been following the stories, you probably already know that we have some challenges ahead. Utah has long been recognized as being one of the most fiscally responsible states in the Union. For some reason, that makes me happy, even though I’ve had little to nothing to do with that, aside from my vote.
I also think there is a strong belief among our representatives that some form of tax reform is due. Personally, I don’t follow the state’s balance sheet at all. I have no idea if we’re in trouble. If the bill’s sponsor is to be believed, then we are departing from a goods economy to a service economy.
That may be true, but I don’t know if it’s the largest culprit. You may be providing more services than goods, but that money you make is still often used to buy goods.
What I do know, is that we buy and sell a lot more online than we used to. Some post offices are even forcing us to install extra parcel mail boxes to accommodate all the extra online orders. Taxing those purchases and sales, has not been an easy road.
Any time that something new is taxed, that wasn’t previously taxed, heartburn ensues. The question is, will a service tax in some form come back? My understanding is that, yes, there will be more discussion on this in the near future, possibly even later this year.
Are there alternatives? Sure.
Are they any better? I don’t know. All I believe is that a quick push is not the right answer.
I get that nobody wants more taxes. It may even be true that a service tax, along with product tax reductions might alleviate the overall tax burden, I don’t know.
One thing is for sure, I don’t envy the road against public opinion that our lawmakers are facing. I’ve been there before. Sometimes when we develop a new community, the neighbors band together against us, and even if our product is better than any of the other possible project that might develop on a neighboring land, they don’t always believe it until it’s in and done.
I remember one such community. All the homes around it were your traditional single-family homes on lots. It was a good well-maintained neighborhood, but we struggled getting it started. Then once built, the neighborhood embraced it with open arms, even loved the place.
I remember working on some of the homes there, about half way through the subdivision, and watching the local preschool come and get pictures in front of our superior landscaping. The local farmers would also take the kids around the 55+ community on a hay-wagon, towed by their tractor, all dressed up in their Halloween costumes, like a big Halloween parade. It was really fun to see how they embraced it. But I digress. I was talking about taxes.
How the bill would have affected us:
My biggest worry was that the new tax bill would put a lot of contractors out of business. Imagine all the services that go into a home:
First, you have the primary services.
I consider these the most recognizable services that go into home construction: The framing, the plumbing, the electrical, the paint. These are the basic essentials of a home. Every one of these are service-based. That means, that they would all be taxed, and that is a very significant chunk of your home.
Second, you have the secondary services.
These are like subcontractors to the subcontractor. Let me explain: Many of our subcontracts, we’ll take drywallers for instance, don’t hire most of their employees in house anymore. Most of their labor crews have been split off into minor roaming subs for the main subcontractor.
These people would also need to be taxed, even though the primary subcontractor was also being taxed. This essentially amounts to a double taxation.
It gets even more complicated when you consider a planner. Say you need to hire someone to plan your house or your development. You hire a professional, who hires their secondaries, like engineers, surveyors, and lawyers. These engineers and surveyors might even hire a third level of service providers that I’ll call tertiary subs for consulting, geo studies, water studies, etc. The list could extend beyond that. If each of them are having to tax for their services, then suddenly, we have triple taxation on a single service.
If they want a real moneymaker, they found it, though I don’t think it would work in the short term. The homebuyer is really going to struggle forking over that kind of money, which is why many homebuilders will go out of business, at least, in the short term, until the housing crisis deepens, and people are willing to pay an even higher premium for homes.
It will, in effect, eliminate any efforts our lawmakers are already doing to encourage affordable home prices. So yes, it’s not hard to see why we were worried about this in our industry. But I find it hard to believe that there is an easy silver bullet that will not hurt any industry targeted by extra taxes, which brings me to my next question.
Should we turn away any new tax reforms?
I hate taxes as much as the next person. However, I do think that if our budget is being strained, for whatever reason, then we mustn’t shy away from it. It’s a tough issue, and if you knew that in your home, you’d be facing a financial pinch in the near future, you would need to seriously consider your budget also.
Usually the two main places are to look: first is where you’re spending more money than you need to, keep in mind that need vs want is a sore topic, especially on the public level. The second place to look is at finding other ways of generating additional income.
I don’t have any of the answers. I wish I did. There are plenty of people who believe they have the answers, whether they do or not, I can’t judge. But if we get enough of them together under a spirit of compromise and common sense, then hopefully something good will come out of it. Needless to say, some real thought and consideration is in order.
At least that’s my opinion. Maybe you have a different one. We live in the greatest state with the most going for it. We’ll get this figured out.