The state's $70 million income tax surplus is growing, officials in Gov. Norm Bangerter's office believe, and as more and more tax returns are processed it becomes clearer in their minds that a special summer legislative session should return the money to taxpayers.

But while the governor wants the Legislature to return the money, at least one Republican leader - Rep. Nolan Karras, R-Roy - would like to see the refund issue put on the ballot this November.The State Tax Commission still stands by its $67 million surplus figure, plus or minus $15 million. By early June, all of the state returns should be processed by the commission and the surplus clearly identified. But Reed Searle, the governor's chief of staff, said he and others believe the final surplus will be "higher than $70 million," increasing the pressure for a tax rebate or refund.

Searle was brought into the Bangerter administration last year to attend to political and community issues.

"From my viewpoint, and I've talked to a lot of legislators and others about this, a special session to return this money is a political plus for Republicans," Searle said. He acknowledged, however, that some GOP legislators oppose the special session to return the money.

"They feel that it will make us look bad, that it will be seen as a political ploy in an election year." But, he adds, Bangerter and Republican legislative leaders promised, in supporting the record $160 million tax increase last year, that any surplus would be returned.

They even passed a law in the 1988 Legislature that automatically returns any income tax surplus this year as part of the 1988 filings, due in April 1989. Of course, the election is Nov. 8 of this year, so voters wouldn't see any tangible evidence of that refund until six months after the election.

A rebate approved this summer could put the money in taxpayers' pockets well before the Nov. 8 election.

Democratic Party Chairman Randy Horiuchi is one who scoffs at a special session. "In no way is it a positive for them (Republicans). It will be seen for what is is: political expediency. It shows what the Republican control of the state means. One minute you have big tax increases, the next tax cuts. It doesn't make any sense," Horiuchi said.

Karras anticipates a partisan special session. Accordingly, he said Republican leadership wants a unified stand on any tax refund or rebate before a special session is held in June or July. Republicans hold majorities in both the Utah House and Senate.

"We plan to hold several caucuses, beginning in our May interim meeting, to explain the income tax and decide exactly what we want to do," Karras said.

Bangerter estimates that a tax rebate would average $20 to $30. Karras is skeptical that such a small rebate would sway voters. "I would like us to put the refund on the ballot this November. Let the people say if they want $30 back or if they want it for education. I'm not running scared, and we Republicans shouldn't be running scared. We had critical needs when we raised taxes and those needs haven't gone away. Maybe the people will say `keep it, we need it for education.' Or maybe they'll say `give it back.' Let them decide this," Karras said. He doesn't oppose a special session, believing that's one way to settle the tax issue.

Searle said there are many options the state could take in giving refunds. "But as I see it there are two main options: We can do nothing and let the current law act next year, or we can return part or all of the deduction on state returns for federal income tax paid."

Searle said that a number of Republican leaders favor returning the federal deduction. That deduction, taken away on the 1987 returns, would cost the state about $90 million - and the surplus may reach that much, Searle believes.

Returning the federal deduction would help anyone who paid state and federal income tax, but it clearly helps wealthier Utahns - who pay more federal tax - than poorer Utahns.

Horiuchi said his party will benefit if the Republicans reinstate the deduction. Democrats can then reinforce the old argument that Republicans look after the well-to-do at the expense of the less fortunate, he said.

But Searle and Karras don't see such a political liability.

"Taking away the deduction means we now tax a tax, a bad policy, and people would get the tax break (of the deduction) proportionately to how much tax they pay. Many believe that is fair," Searle said.