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No ‘easy solution’ on tax base

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A legislative task force considering changes to Utah's corporate taxes — such as eliminating the corporate income tax — has its hands full, according to one expert who addressed the group Monday.

Gary Cornia, professor of public management at the Romney Institute of Public Management at Brigham Young University, told the Individual Income Tax and Corporate Franchise and Income Tax Task Force that changing elements of the tax base could put Utah at a disadvantage with other states.

"I don't see any easy solution around the base of the state corporate income tax," said Cornia, one of several people studying corporate income taxes. "Dealing with the base, I don't see anything we could do that would easily solve our problems without putting us at a distinct competitive disadvantage or political disadvantage with other states."

Cornia and others spoke of what could happen if changes to the base or rate were to occur, but each had disadvantages, including trying to find ways to make up for the lost corporate tax revenue.

"Now, I'm not one who has to find the millions and millions of dollars if we did that . . . but if I were you, I would think of another committee to serve on, because this is one that's going to cause a lot of frustration. There are no easy answers to any of this stuff."

Keith Prescott, chairman of the Utah Tax Review Commission and former chairman of the Corporate Tax Task Force during the early 1990s, also said changing rates could put Utah at a competitive disadvantage, "either in actual or psychological terms."

"Then you have economic base going out of the state instead of into the state," he said. "We just can't afford to do that with the problems that this state is facing."

Forty-five states have a corporate income tax, but between 1980 and 2002, the percentage of that tax as a portion of all state tax revenue fell from 9.65 percent to 4.84 percent as corporations found ways around paying the tax, Cornia said.

"The outcome of that is a tax that we believe, and many people believe, has serious problems in terms of its viability. Maybe 'viability' is too strong a word, but clearly it has serious problems," Cornia said.

Sen. John W. Hickman, R-St. George, said the corporate franchise tax today "is really kind of a dinosaur."

"It's really obsolete, with the changes taking place in our economy and corporate structure and all of these things. . . . I would rather find a way to replace that revenue or a significant portion of it and get rid of the darn thing if we cannot use it as a vehicle to generate additional economic activity," Hickman said.

Prescott said it is "more politically feasible" to change the corporate income tax than it would have been in the 1990s, but making up for the revenue shortfall would have to be addressed. As it is, the tax is volatile and difficult to project.

Tom Williams, senior economist for the State Tax Commission, listed several factors that would need to be weighed before dumping or changing the corporate income tax.

"After many years of using a tax and it being of some significance, I would be reluctant to dump it unless it could be done so without a major replacement required. . . . On balance, I say keep it with some adjustments if needed," Williams said. "Dumping it is not difficult, but replacing it is."

Rep. Greg Hughes, R-Draper, said he is not interested in playing a "shell game" with taxes, instead preferring to find ways to increase revenue through increased economic activity, citing Utah's boom periods that produced more tax revenues.

"What I would like to see is not trying to find out where we're not charging enough, because we just don't get enough from taxes. I want to see where we're going to put back into this economy to get the economy returning more dollars," he said.

"And if we can't find a fair base — to make a broad base and fair way to administer our corporate income tax — well, wouldn't that be a shame, that 4 percent of that whole tax base were eliminated and we gave those small businesses and other businesses that money to reinvest back into this economy?"

E-mail: bwallace@desnews.com