WASHINGTON — Utah's tax structure is not all that friendly to businesses. Then again, it's not all that hostile either, according to a new study by the Tax Foundation, a nonpartisan tax policy think tank in Washington, D.C.

The Tax Foundation looked at taxes paid by businesses in all 50 states, and Utah's business tax structure ranked 26th best.

"That study is consistent with our own observations," said Mike Jerman, vice president of the Utah Taxpayers Association, which agreed with the findings of the national study. "We have more than 2,000 members, most of them multi-state companies, and what they tell us is that our business climate is not good, not bad, just average."

South Dakota, Florida and Alaska had the best tax structures for business; Hawaii, New York and Minnesota had the worst, according to the study.

The national study looked at 109 different variables in the tax structure of each state. Five major categories included corporate income taxes, individual income taxes, sales taxes, unemployment insurance taxes and the state's fiscal balance.

"Nearly all the best states raise sufficient revenue without imposing at least one of the three major state taxes: sales taxes, personal income taxes and corporate income taxes," said Scott Hodge, president of the Tax Foundation and author of the study.

Jerman agreed there are factors other than tax rates that play into whether or not a state's tax structure is business friendly. One is how broadly the tax burden is spread around, and Utah's tax base is fairly broad, he said.

Another factor is tax incentives offered to businesses, whether to relocate to the state, expand operations or help them recover. Utah typically ranks near the bottom in that category, Jerman said.

"Utah offers very few incentives compared to other states," Jerman said, adding that an expansion of incentives could improve Utah's business tax climate but would be a difficult sale politically.

"Targeted incentives are always controversial," he said.

The Tax Foundation study found that tax incentives can be dangerous to states, and that state lawmakers should focus on fundamental tax policy rather than short-term inducements to businesses.

"The temptation is for state lawmakers to lure high-profile companies with packages of tax bonuses," Hodge said. "But that strategy can backfire."

Robin Riggs, vice president and general counsel to the Salt Lake Chamber, had not seen the study, but he suspects "the report understates the positives we have here" and that a positive business climate is about more than just a state's tax structure.

Riggs pointed to other studies that show Utah ranks among the best states for workers' compensation rates, low property taxes and other business factors "that might improve our ranking if they were factored in."

Studies that look at tax rates also fail to look at the Utah quality of life, the state's entrepreneurial spirit and its highly educated work force, Riggs added.

The ideal tax structure, Hodge said, should be "neutral to business activity. In such a system, people would base their economic decisions on the merits of the transactions rather than the tax implications."

---

E-mail: spang@desnews.com