Local Economic Development: Importance of the Sales Tax and Other Factors


Utah Foundation and the University of Utah’s Center for Public Policy & Administration (CPPA) have released a joint research report examining the factors that affect local economic development. This report initially set out to examine the influence that the sales tax has on local economic development. However, it became apparent that while the local tax structure does bear on city officials’ economic development decisions, there are many other, sometimes more influential, factors that affect local economic development. Major findings include:

  • Cities rely heavily on the sales tax. Not including Salt Lake City, the sales tax makes up 46% of city tax revenues statewide. This tax structure can create a preference for retail development rather than other commercial developments that may provide higher-paying jobs.
  • Despite some evidence of a preference for retail development, local officials describe many other influences that affect their choices, including: supply and demand for land, business decisions on development feasibility, previously approved plans and zoning, costs imposed by developments, and local political culture and characteristics.
  • The sales tax may actually be a more balanced economic incentive than it seems at first glance. Many retailers prefer locating in a city with good jobs and well-to-do residents, creating an incentive for cities to pursue balanced development to foster strong retail sales.
  • Changing the tax structure could create more revenue-neutral city decisions. This could be done through modifying sales tax distribution formulas or rates; sharing income tax with cities; changing property tax exemptions, rates or distribution; or changing local fees, such as impact fees. However, each potential change could cause significant problems.

Read this report:

Executive Summary
Full Report

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