This article is one of several to be published by Kanab City to provide citizens with background information regarding issues the city will be facing during the upcoming budget session. The focus of this article is sales tax.

Approximately 30% of Kanab City’s budget is funded with sales tax. Before exploring the impact of the recent recession on local sales tax revenues, there is value in explaining the composition of your local sales tax.

State Sales and Use Tax-4.70%

County Option Sales Tax-0.25%

Rural Hospital Tax-1.00%

Local Option Sales and Use Tax-1.00%

Resort Community Tax -1.00%

Total-7.95%

It is important to understand only 2.00% of your sales tax is assessed at the option of Kanab City. 7.95% is the second highest sales tax rate in Utah.

However, you need to recognize the value you receive from this rate that is not available to most other communities. 1.00% allows you to have the Kane County Hospital.

In addition, the local option sales and use tax and the resort community tax provide a way for tourists to share in paying for the cost of running your city. These two taxes are also responsible for Kanab City offering one of the lowest property taxes in Utah and the lowest of any community in Kane County.

Perhaps the greatest single disadvantage of a high sales tax is families with children carry a disproportionate portion of the sales tax burden. Some argue large families also have a larger impact on the community.

The current recession has taken a huge toll on Kane County’s sales tax revenues. During the fiscal year ending June 30, 2009, Kanab’s local sales and use tax revenues were $49,990 less than projected, and the resort community tax was $33,786 less than projected. These numbers echo the experience of cities around our nation.

Unfortunately, the recession has continued into the current year and projections for the year ending on June 30, 2010, are even bleaker. The projected sales and use tax deficit for the year will be $112,640, and the projected resort community tax deficit will be $70,657. Together, the combined sales tax deficit for the year is estimated to be $183,297.

We have consulted with economists from the Utah Tax Commission Governors Office of Planning and Budget. They are somewhat optimistic that the recession is bottoming out, but do not see an increase in sales tax dollars for at least the next two years. It is possible city sales tax revenues may even continue declining, though at a lesser rate, for a few more months.

The bottom line is Kanab City’s sales tax projections for the upcoming year will need to be reduced by approximately $200,000. This reduction will need to be offset by a reduction in services, increased efficiencies, new user fees or perhaps a property tax increase. Kanab City welcomes ideas regarding how to address this budget session. Next week, we will discuss Kanab’s property taxes.