A group calling itself Rings True Income Tax Reform filed an application with the state Tuesday to circulate an initiative petition to change Utah's income tax system if voters agree in 2010.
Led by a Democratic candidate for governor, Matt Frandsen, the group wants to replace the state's new 5 percent flat-rate income tax that takes effect next year with a new system they said would be more fair to lower- and middle-income taxpayers and raise more money for schools.
The group's proposal, which would tax Utahns at rates as high as 10 percent if they earn at least $22,500 annually as an individual, or $45,000 if they are married filing jointly, must be approved by Lt. Gov. Gary Herbert before it can be circulated.
Then the group would need to collect nearly 92,000 signatures statewide in the next 12 months to qualify for the 2010 general election ballot. Frandsen said there wasn't enough time to gather the needed signatures before the next general election in November even though the tax system was approved more than a year ago.
"It takes time to analyze a complicated tax structure," said Frandsen, a chemical engineer. He said the proposal would increase the taxes of some Utahns by as much as 51 percent but boost revenues earmarked for public education by up to $150 million.
The filing was made Tuesday, the same day that state and federal income taxes were due. This year, Utah taxpayers could choose between paying income taxes under the existing system or a 5.35 percent flat rate. Next year, the state shifts to a single option, a 5 percent flat rate that includes credits for deductions and personal exemptions as well as for retiree income.
GOP Gov. Jon Huntsman Jr., who is running for re-election, made the changes to Utah's income tax system a key part of his economic development plan for the state. The dual-option plan in place this year includes an $80 million tax reduction while next year's single-option plan would reduce income tax by an additional $110 million, according to the governor's office.
"Gov. Huntsman is committed to significant tax reform," said his spokeswoman, Lisa Roskelley, calling any changes "a step backward because you're not competitive. There's a disincentive to come to the state. That's a dangerous proposition to put out there."
Huntsman's policy director, Robert Spendlove, said lowering the state's effective tax rate from what had been 7 percent for nearly all taxpayers would help attract new jobs to Utah. Spendlove said only about 10 percent of taxpayers would see an increase under the single-rate system that goes into effect next year mainly those with high deductions or high incomes.
But Frandsen said suggesting companies will relocate to Utah because the state gives "a CEO a cut in his taxes is hogwash. It's ridiculous," and described the tax cuts as "just rebating money from the schools."
He said polls have shown Utahns want more money spent on education and "a multiple-rate tax code where income level determines the tax rate." The new system, he said, has "significantly wronged" Utahns.Because of the confusion surrounding the changing tax system, the Utah State Tax Commission has added a tax calculator to its Web site, tax.utah.gov, that allows taxpayers to calculate what they owe under both the current options as well as next year's revised flat-rate tax.