S.B. 223 Sales and Use Tax Exemptions Modifications: transcript

Yeah. I appreciate you, uh, allowing me to be heard here. The, the bill in its simplicity is extending, uh, a tax credit for energy production i'll alternative energy production. Yeah. The interesting thing is, is, uh, the first, the original version had that section of code in, because we were changing the definition, we were changing to, we were going to add battery storage. Uh, and last year we had that same bill. It came up and the fiscal note was about $2 million, uh, for, it did not get all the way through, obviously. And then this year when we, uh, introduced it, the fiscal note Uintah about $15 million. And, uh, I, so I checked with, with the fiscal analyst to try to figure out why. And it turns out that there are just a lot more projects going on. So it would've been a lot more. So the substitute actually just amended that, that portion out. So it took the fiscal, no back to zero, but it also took the definition of alternative energy. Out of this section, you just have, you have to refer to another section of code to see what's included in alternative alternative energy. And, and let me, let me point out what that is. It's in, um, I apologize, I forgot the code reference, but I'll get that for you. But the definition says alternative energy means biomass energy, geothermal energy, hydroelectric energy, solar energy, wind energy or energy that is derived from coal to liquids, nuclear fuel, oil impregnated, um, earth oil sands, oil, shale, petroleum coke, or water heat from an industrial facility or a power power station, et cetera. So those are the things that basically are en listed in the, um, in that definition of alternative energy. Currently, this is set to, to expire June 30th, 2027. We're proposing to extend that Sunset 10 years. We feel like it's good tax policy and it's, it's worked, served us well. It's been in place for a long time. The what, what is, you know, we've taken this position in a lot of things here in the state of Utah, not taxing inputs. And so that's, you know, I don't think that, I think that I can really defend the tax policy that, you know, moving forward does in incentivize those types of developments. Um, I was asking myself, okay, what happens if we don't in, you know, do this? You know? And quite frankly, we have a year, you know, we have one year to, to think about it. If, if we let that expire and, and my experience with the fiscal note has brought this to light, if we let that expire then, and then we came back and let's say we wanted to put a tax credit in for nuclear geothermal, it would change the fiscal note significantly. 'cause currently, because the, it is already in place and it's considered found money, the fiscal note is zero. If we, if we let it expire and came back, then we would be looking at new money. And it could be massive. You know, the, the fiscal note could be massive. So that, that's kind of the discussion around the bill. And I know here a minute, num, a number of you on the committee have had discussion about it. And so I'm open to, uh, questions, Mr. Chair and suggestions, quite frankly.

It does. All right.

Thank you, Mr. Chairman. Um, I've just got some minor concern. We, we are ending the tax credits that we do for solar last year. We, we ended those in 2027 or 2028. And I wonder if, as we move forward with this policy, I know it's a different section of code with different tax credits, but I'm wondering, would those two things be in conflict or how would that apply?

Uh, that's a good question. Um, I, and you know, I've probably got an expert with me, could an answer it better than I could, but, and if, you know, if your permission, I could ask Steve Young to come up my, my answer to that question would be that the tax credit is on production of the product. Um, I know that we've talked about tax credit or tax credits on like solar panels, individuals putting solar panels on that. So that's a separate credit and at least in my mind, but if your permission, if I could ask Steve to answer that.

I'm a state and local tax attorney at Holland and Hart, and I've been practicing in this area for 30 years. So I deal with these tax policy issues on a daily basis and I appreciate the question. So what we're talking about today is a sales tax exemption. And lemme just give you a bit of brief history. 1933, we adopted sales tax to avoid double taxation. We exempt all items for resale. And that's been the, the case for years. And then in, uh, at the time, we should have exempted tools of production. We did not, because the reason you exempt tools of production is that you avoid double taxation, you create more taxable business outputs, and you increase supply and bring down prices. So it's the right policy of the 45 states with sales tax, 39 of them exempt all tools of production. Utah being one of those 39. And we exempt almost all tools of production. 1979, we exempted agricultural tools of production 85 manufacturing, 2008 mining. We, we basically try to incentivize wealth producing activities with the sales tax. That's been the policy in virtually every sales taxable state around the country. This is a sales tax exemption. What you're talking about with the, the solar credits and the sales tax exemption is broadly applicable to many, many energy producing industries. What you're talking about with the, the solar credit is an income tax credit, is to try to incentivize production of renewable energy, uh, through the use of the income tax. And legislative bodies around the country have done that on occasion for various industries. And this legislative legislature made a decision last year to not do that. And that's perfectly fine, but that's a completely different economic dynamic and incentive when you're dealing with sales taxes because we wanna do everything we can to incentivize more production of wealth, creating activities, more manufacturing, more agriculture, more mining, more oil and gas production. We had this big press conference, uh, a couple of days ago about let's get more production of oil and gas. So we bring the prices down, same with electricity. We increase more production of electricity, we bring the prices down for the consumers of Utah. And that's why this is so much different than that income tax credit that we were dealing with last year.

Thank you for that. Maybe a question if I could, Mr. Chair,

Do you know why we put a Sunset date on this to begin with?

You know, to be honest with you, you, I don't, I should have checked with the good president of the Senate since he's the last, the one that last extended it. Um, and I'm, you know, I, I know that we've done this in certain sectors at the, you know, with a, with a number of these sales tax credits. So, uh, I'm assuming that there was just a, a period of time where they wanted to come back and review it and see how effective it was.

Okay. Thank you.

Thank you, Mr. Chair and thank you committee. Billy Hesterman with the Utah Taxpayers Association. I won't echo everything that Steve Young said, but, uh, I would say ditto to all of it. That, uh, from a tax policy, we believe this is a, a sound tax policy to make sure that we're exempting the inputs and, uh, taxing the outputs. We wanna make sure that the, the seed that the farmer's using to create is his final product is, is not being taxed. And we believe that's what's happening here. So for that, we ask you moving forward and appreciate your consideration. Thank you.

Thank you Mr. Chair. I move that we pass out Senate Bill 2 23 sales and use tax exemption. Uh, first substitute with a favorable recommendation.

I would like, like to make a substitute motion to adopt house amendment one.

Thank you. Just had to kinda refresh to get that an amendment to pull up. So your proposal then is on line 4 66 to change, I'll, an alternative energy to a base load dispatchable electricity production facility. Is that correct? That's

Correct. Um,

could I ask a question of the sponsor of the motion? Yes, we'll allow

That. And, and there are probably some on the committee that know a lot better than I would. Is is that definition somewhere in our, our code that we could refer to that would include like a list of things that are included in that or?

I, I believe it is in our Energy policy.

Okay. Thank you. Okay. Um, I guess, you know, um, I, I guess if nothing else that creates, uh, I don't have to admit, I don't know what that would do to the, the policy itself or the fiscal note, you know, but we could tell, I mean, if the committee chooses to do that, it could certainly continue the discussion we could find out between now and the time that it'd be discussed on the floor.

Yes. Thank you. My, my question is the same, um, with the good senator is what's the difference between dispatchable, uh, is it limiting? Is it expanding, I guess? Um, I don't know if that's a question. So attorneys,

Okay. It's an engineering question.

Okay. Thank you so much for That. So the amendment would change this to resources that are dispatchable and, and would, would meet the definition of what, uh, Mr. Young mentioned about bringing more resource on as customers need it versus other resources that maybe don't bring it on when you need it. Okay. So I have a follow up to that, if you don't mind. So this basically gives entitlement to the provider if they wanna continue with different types of resources, whatever those may be, and it's not limiting.

Perfect. Thank you. Thank you for that clarification chair.

Yeah. Thank you, Mr. Chair. So under your, uh, your amendment, um, base load dispatchable would include geothermal and nuclear, correct?

That is correct. Thank you.

Maybe. Okay. Maybe if Mr. Chair, I, I know this may not be outta order, but, uh, could I ask one more question just to clarify?

and kind of thinking on, uh, and maybe, uh, representative Reck or say Jack could even answer this as we go to, if we change it to dispatchable, basically dispatchable, that would probably bring in, I'm assuming that would bring in other types of energy, you know, you know, I can think of of, um, coal and natural gas, those types of things. I'm assuming that we already have them in some kind of a tax credit part of the code, but I, I could be wrong there, but, so I'm, I'm wondering the, currently the, the definition of alternative energy, you know, the list I read, and some of those are dispatchable, some aren't, um, which is fine. Uh, but I'm wondering if this also maybe double dips on something. Uh, I don't, I don't know, to be honest with you. I'm just, I'm just wondering if that, if we already have some of those other sources of energy under some kind of a tax credit, a sales tax credit in another part of the code.

So I, I think that's an excellent question. And, uh, with the leave of the substitute motion, which I think we've already had, Representative Moss agreed to the substitute motion, I would propose a new substitute motion. And my substitute motion would be to hold the bill and to answer to, to do a real good, a better job of researching Senator Vickers questions and then bring that back to the committee.

I I think my substitute motion raises enough questions that I'd be happy to entertain that.

I, I thank you, Mr. Chair. I think you, I think there's somebody in the room that probably answer that. Mr. Hesterman, can you Who Could I comment on the substitute motion?

Yeah. Almo almost. Yeah. Okay, thanks. I'm just trying to get this in the right order. I know, Senator, it's, It, it is a little tricky and it's a new order session. You know, we ought to have a little fun, Hadn't we? I know, I know. So what is, yes, I'm not sure if we wanna hold it. If, if these things are being already getting a tax credit with the change that's been recommended. And the answer is they're not. And it may be a huge fiscal note, and here's why. Because I would love, as a matter of tax policy, I, I said all these areas of production are included in our sales tax exemptions right now, agriculture, mining and manufacturing. But what we left out in 2008 when we adopted mining was oil and gas production, which from a policy perspective is a really bad idea. Anderton's had a bill several times over the past five years to do that, but we just haven't had the money to pay for it. And then also, uh, production of natural gas and coal-fired power are not included in the exemption currently. So if, if, if this dispatch dispatchable definition, which is not in the sales tax code, but if it's somehow in another part of the code includes coal-fired and natural gas power, that's gonna be an enormous fiscal note because it's not currently in the exemption. And that's definitely something we should discuss. I can certainly get with whomever and have those discussions soon if you wanna hold the bill or pass it out and then have the discussions before we get to the floor. Any of that would, would make a lot of sense. And I think there's a, a way to thread this needle. We just need probably a little bit of time to do that in the statutory language, which I work on often with, uh, LRCG.

Can I withdraw my motion? I'll withdraw my motion.

Yeah, thank you. I, I, you know, I, we've obviously raised some questions and I know that we're trying to do the right thing, and that's the thing that we care about. Um, and we, and as Mr. Young mentioned, we could have the discussion, you know, hold, you know, hold it in committee that that had only give us us, I dunno, when your next committee is maybe a day or so. It's, uh, Friday. Yeah. See, that'd only give us a day, uh, if we went ahead with the, the motion to amend, it'd actually give us longer to have some discussion about it. Try to come up with, you know, what the fiscal note, I'm, I'm not even sure I can, what the fiscal note, if I could get the fiscal note between now and your next committee meeting. So I, that would, that'd be my only question. I guess if you, uh, it, it, it would actually literally bias more. And I'm just thinking logistically and, uh, and I'm certainly open to whatever the committee would like me to do, quite frankly. But, uh, it would give us more time to discuss it if it was amended, and then we could, uh, discuss that even. And if it ends up at just not working, you know, we just, you know, circle the bill or don't put it on the board, you know, so.

Representative Peterson know I have A question to that point and something that, that Steve Young, the not football player said, um, if the list that the good sponsor read earlier is what we're already doing, why is it that making this change, because a base dispatchable electricity production facility is listed in the list that he read as an alternative energy source. Why would it have any impact on the fiscal note If it's in that list?

It would not, it actually isn't the, I don't remember that term. I've been dealing with sales taxes my entire career, and I've never heard that term in the sales tax code. So it, uh, I just need to see what you're talking about in the energy code to see what the definition is. If it includes coal-fired power, like the Rocky Mountain Power power plants and IPP and things like that, or natural gas fired power, like the new IPP plant, that's where the enormous fiscal note would come in. I just don't know what the definition of base load dispatchable is.

I see, I see. So we would need to move the location of base load dispatchable instead of changing. I take, Can I, can I have a follow up question?

Yeah, you bet. In fact, I was just looking at that. So alternative energy, so it's not, you know, specifically base load or dispatchable, and it's, it's focusing on things that are aren't typically normal. So biomass, uh, geothermal, which certainly is, uh, base load hydroelectric, which is base load, solar and wind, which are not. And then energy that is derived from coal to liquids, nuclear fuel, which would be certainly the base load. Oil impregnated dia, cautious Earth Dac. Thank you. Oil sands. I'll, I'll get a, a medical term that you can't pronounce one day. Oil sands, oil shale, petroleum coke or waste heat from an industrial facility or power station in which an electric generator is driven through a process in which water is heated, turns into steam and spins a steam turbine.

So, so those things are currently in sales tax code That's in, that's currently in this exemption?

Yeah. Yeah. This, this, and they were added in 2012 by Senator Adams bill because they were all new, unique alternatives to what was currently being produced in the state. So that, that's what we were trying to incentivize was new way to think, increase more production, bring prices down, and that those have been in the exemption for 14 years now. Okay.

But let's, uh, I would, I would like to go back to, to my standing motion to hold the bill and let us figure out what is the right way to distinguish on the list that's in tax code and how to make that dispatchable and then see where we go from there. Are you okay with that, Senator Vickers?

I am, like I say, I, I'm, I'm open to whatever the committee would like to do and, and just figure it out. Um,

And that leaves us essentially where the bill is today and gives us another whatever, 24 hours to, to solve what that other thing is. You pr You're probably on the same schedule I am, aren't you? You have a meeting Friday and then maybe one Tuesday? Yeah.

Yeah. Okay. Is it Monday? I, I'm guessing? Yeah, I'm guessing. And it's probably Friday. It'd probably be Tuesday before we could figure it out. But that, I'm fine with that, you know that. Okay.

All well then, then I will, I will make that motion to the committee that, that we hold this, let's sort that out. Let's get it in the right order and, uh, figure out how to improve that. Are there any comments that people want to make to my motion to hold?

Thank you, Mr. Chair. I approve. I I wanna go with that motion. I think that's the smart way to go. We're making all of this effort in the state to diversify our energy toward nuclear and stuff like that. And I don't, I don't like that what we're doing in this bill here is kind of cherry picking, or could be cherry picking a tax credit. I, it kind of makes me feel a little bit like, um, what happens with Walmart and small towns. Like, they come in and say, we'll, come into your town if you give us a tax credit. And then as soon as that's almost up, they want another one to do something else. And I just wanna make sure that we're not just favoring one thing, right? It's gotta be all the things. If we're gonna do this, I feel like, so I, I think hold is a good idea to make sure we, that that's actually done correctly. Okay. Thank you.

A quick question. Yes. Do you have a point person on the committee, uh, you or Representative Peterson or Representative Albrecht? Somebody do you want, do you want me to work with, or,

Let's, let's figure this one out. Sounds good. Thank you.

Thank you, Mr. Chair. Let see. Is that mic on? I guess. Yeah, I can hear You. There we go. Thank you. Thank you, Mr. Chair. Appreciate the opportunity to coming before you. This, um, uh, we actually, you heard this bill last year and we actually passed out a committee and it, uh, the fiscal note kind of killed it in the house, and that's always that opportun possibility this year as well. But we, we feel like it's important to bring it forward, especially since the time is running, running out on it. Uh, I don't need to school this committee, especially the Senator Vickers, are here on what's happened and how Utah has taken the approach to not do double taxation, not tax inputs, those types of things. In, in 2012, president Adams sponsored Senate Bill 65 to add the exemption of nuclear oil, shell oil, sound sands, coal to liquids and other forms of energy, and extended it to 2027. So, Senate Bill 2223 extends the exemption in another 10 years to 2037, and it adds energy storage over two megawatts consistent with Senator Harper's Bill two 13 from last year, which exempts energy storage for energy storage, manufacturing facilities. And with that, with your permission, I have, uh, uh, an expert with me that Steve Young, that would like to spend, uh, just a few minutes to explain some things.

This is consistent with our longstanding practice in the state of Utah, of exempting business inputs from sales tax so that we get more business outputs to impose that tax on of the 45 states with sales tax around the country, 39 of them exempt the tools of production just like this. And we've done this for agriculture, we've done it for manufacturing, we've done it for mining, and we've done it in this industry for electric electricity production for many, many years. And this just extends it out, uh, for another 10 years, uh, consistent with what's been done for the last 15 years. And this is really good bang for the buck, especially for rural, uh, areas of the state. Uh, one project had an investment of $500 million on just 20 acres of property. So, so it's a, a really significant capital, uh, investment proposal. And this really incentivizes, uh, taxpayers to invest here. Competing states have very similar, uh, tax exemptions to incentivize activity there, including Arizona, New Mexico, and Colorado, which are competing for this type of, uh, investment. So it, it's, uh, I think a really wise tax policy provision and consistent with what we've done as a state for decades. Does that conclude your presentation? It does. Thank you, Mr. Chair.

Do you have a updated fiscal note on this bill? I was just looking, did you see that? I apologize. Uh, look up, um, Senate Bill three 11 from 2025. Did you have it? Okay. Yeah. 2.7 million. It's in the last, so I, I don't expect to see it changing.

Thank you. I move that we pass out favorably Senate bill to 23.

I'll waive. Thank you. Okay, thanks.

Um, I appreciate, uh, I'll just add that I, uh, I see the purpose on this bill. I'm thinking that there are some, there is some value, uh, for sure to it and appreciate, uh, the measured approach by extending the Sunset. I'm surprised actually that there is a, that there is a fiscal note other than we must be collecting on it already, otherwise we wouldn't have a fiscal note, so, mm-hmm.

Um, what we're doing is proposing to extend a tax credit on energy production equipment. Actually the last time, uh, it was extended was in 2012. Actually, president Adams, you did that. And so we're proposing to extend that credit, it expires. Now we're also proposing to add, uh, battery storage into it, unfortunately. And we had this last year and the fiscal no, was about $2 million. But since there's so many more, uh, projects going on, the fiscal no Uintah like 15 million. So the substitute essentially just takes away that, that fiscal No. Brings it back to zero because since we're exempting, uh, uh, you know, our current, just extending a current exemption exemption, that would take the fiscal note back to zero. So with that, I'd like to make a motion to delete and title and body Senate a bill 2 23 and replace it with first substitute 2 23.

to any further description or explanation of the sub? No. That, that pretty well explains the whole bill. Really.

Yeah, just let me, you know, like I say, we're extending, you know, an existing sales tax exemption for energy production equipment, alternative energy production equipment in the, in the, uh, electricity field. And, you know, with, uh, nuclear falls under this. So as we, as we start moving forward into that arena, it'll be helpful in, in being able to develop that. But it is just, that's what it is.

Thank you, Mr. President. I would, uh, waive summation and move the first substitute Senate Bill 2 23. Be read a third time

Thank Mr. President Pro Tem. This bill extends the tax credit on, uh, alternate, uh, energy producing equipment that was put in place, um, and quite a few years ago. Uh, this does extend that, that tax credit orig the original bill we were adding in battery storage, we exempted out just a point of information. I see that it's still listed with a fiscal note, but the fiscal note is actually caught up to the first sub and it it's zero. So, uh, if that has any bearing on the vote, but with that, I'm open for any questions.

Wa summation and move the first substitute Senate bill 2 23 pass

Thank you Mr. President Proti. Um, SB 1 39 Notary Amendments, um, basically requires what is already a standard of practice and that is, uh, for notaries to, uh, maintain a journal. Um, uh, most notaries already do this,