Tax issue divides task force

Members of a legislative task force are evenly divided over whether the state's corporate income tax should be eliminated.

In an unofficial vote Monday among members of the Individual Income Tax and Corporate Franchise and Income Tax Task Force, four members said they favored eliminating the 5 percent tax on corporate profits, while four others opposed taking any action.

Some task force members said that by not taking any action, corporate tax revenue collected over time would shrink as traditional corporations switched to so-called "Subchapter 'S' corporations" or limited liability corporations, where income is directly passed to shareholders to avoid double taxation.

The corporate income tax generates roughly $170 million annually for the state, according to Bryant Howe, a policy analyst for the task force. The revenues, which account for 8.7 percent of the total Uniform School Fund, must be used solely for education purposes.

Rep. Greg Hughes, R-Draper, said a tax cut was appropriate and good for business. A rebounding economy, he said, would offset the cuts by generating additional tax revenues in other areas.

Yet Sarah Wilhelm, fiscal analysis director for Utah Issues, a poverty research group, opposed eliminating the tax, saying such a move would do little to spur economic development.

"In fact, eliminating or cutting corporate tax can also lead to losing businesses, because businesses rely so heavily on the services that the state can provide," Wilhelm said. "We see that the state would get no real economic reward for cutting its revenues."

A representative of the Utah Association of Certified Public Accountants told the task force that eliminating the corporate income tax would place an unfair tax burden on individuals in "S" corporations and in partnerships.

Others, like Sen. Gregory Bell, R-Farmington, and Sen. Bill Hickman, R-St. George, questioned whether over time the tax would diminish and become insignificant.

"If we don't want to do anything," Bell said, "then what do we want to tell the Legislature is going to be the future of the Uniform School Fund?"

According to the state's Office of Legislative Research and General Counsel, the corporate income tax peaked in 1998, when $193 million was generated. In 2002, that amount dropped to $111 million. Last year $148 million was captured.

But Tom Williams, senior economist for the Utah State Tax Commission, said he doubted corporate income taxes would lose relevance over time.

"I don't see it going away," Williams said. "In 10 years it's going to be a lot more than it is now."

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