Gov. Jon Huntsman Jr. has backed off his call for the elimination of corporate income taxes even though that had been a key part of his economic development effort.
"More important to me is a flatter, fairer tax," the governor said during Thursday's taping of his monthly news conference on KUED Channel 7. "The corporate income tax certainly is important . . . but not at the expense of destroying broader tax reform in other areas."
Asked if he was willing to accept a package of tax reforms from lawmakers that did not include the eventual repeal of the state's corporate income tax, Huntsman answered simply, "I am."
That's a far different stance than he took during his first legislative session at the beginning of the year. Huntsman pushed unsuccessfully during the 2005 Legislature for a bill that would have phased out the 5 percent tax on corporate income by 2012.
In the end, lawmakers decided to send the issue to the newly created Tax Reform Task Force to study along with changes to the state's other major sources of revenue such as the individual income tax and sales taxes.
Concerns have been raised that the cost of the tax break would be too high, especially to schools. For example, in the budget year that ended June 30, more $201 million was collected by the state in corporate income taxes.
Also, lawmakers have questioned why businesses not based in Utah that sell products here should benefit from the tax break. There is some talk now of tailoring the tax removal to apply primarily to Utah-based companies.
Sen. Curt Bramble, R-Provo, who carried legislation to repeal the corporate income tax last session said the corporate tax doesn't have to be taken off the table to sell the public on other tax changes. "I don't think one would inherently prohibit the other," Bramble said.
But Thursday, Huntsman said he's willing to give up the tax break for businesses in exchange for what he described as "a fairer, flatter tax" for individuals. And he said he plans to start speaking out next month on his vision of tax reform.
"I'm going to be pretty active through September, taking this discussion to the people of this state," the governor said. "Because I do believe that once people understand the importance of a flatter, fairer tax, they will buy into the concept of what we're trying to do."
Huntsman wants the 2006 Legislature to act on a tax reform package. "It's kind of now or never. And if it isn't now then it's kind of the same old thing since the 1950s, which is forget about the whole tax end of public policy."
Just what package the governor will be pitching remains to be seen, other than he won't force the issue on repealing the corporate income tax. "I'm not going to hold everything else hostage in the name of corporate taxes," he said after the taping.
"If through it all the corporate tax is put on hold, or changed, or taken off altogether, I think what is most important to more people in the state is the former, and that's a flatter, simpler and fairer tax policy."
As far as the impact on economic development of keeping the corporate income tax, Huntsman said that changes to other taxes could still help sell the state to the business community.
"What this does is take a step toward competitiveness," he said, adding that reducing the individual income tax rate to between 4 and 5 percent would help everyone, "not only help those who are starting business, building businesses, looking at moving into the state."
Most Utahns are in the state's top income tax bracket, which is currently 7 percent.
Former Gov. Olene Walker, who kicked off the tax reform effort shortly before leaving office, proposed either a 4 percent flat-tax rate without deductions or a 5 percent rate with deductions.
The governor also said that a new rate should not include any deductions, including for charitable contributions. The Church of Jesus Christ of Latter-day Saints issued a statement in May saying that the deduction should remain.
"I'm not giving in to any level of deductibility at this point," Huntsman told reporters after the taping. "I'm not there yet."
Rep. Chris Cannon, R-Utah, told members of the Tax Reform Task Force Thursday that they should consider repealing the corporate income tax, a move that would distinguish the state because very few states have no corporate income tax. Even if the initial costs looked daunting estimated at $200 million by fiscal analysts last year the end result could mean more businesses locating operations in Utah.
"There are some concerns about the loss of revenue, but I think this would actually be a money maker," Cannon said. "If you look closely, you will see how it can make the state more competitive."
Senate President John Valentine, R-Orem, said that the biggest hurdle for repealing the corporate taxes, however, was that loss of significant revenue. Instead, he said that any changes to the laws would probably target Utah-based companies by providing them an alternative tax on sales, while out-of-state corporations would still pay the full corporate tax."That's a big part of our school funding, an area where we already struggle," Valentine said about the corporate income tax. "We would have to shift a lot of that burden to individual taxpayers."
Contributing: Josh Loftin