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Tax-cut proposals jump a big hurdle

Committee passes number of reforms on to Utah Legislature

SHARE Tax-cut proposals jump a big hurdle

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Paying your taxes next year could be a very different experience if just three of the two dozen or so tax-reform items coming before the 2006 Legislature pass.

A final hurdle was jumped Wednesday when a legislative committee heard — and passed on to the 2006 Legislature — a number of recommended reforms and tax reductions.

These include:

A new, flat-rate income tax of 4.8 percent that all taxpayers, except the lower income, would pay.

A single sales-tax rate of 6.4 percent assessed uniformly throughout the state.

No sales tax placed on unprepared food.

Much work remains before any of the specific bills and/or tax-reform ideas heard before the Interim Revenue and Taxation Committee of the Legislature can become law in the 2006 general session, which starts Monday, Republican and Democratic leaders say.

During the next 45 days more than two dozen tax bills will be debated, changed and honed, said Sen. Curt Bramble, R-Provo, co-chairman of the committee.

Not all will pass, but with legislators facing $1 billion in new one-time surpluses and ongoing tax revenue, now is the time the state can afford tax reform, said Rep. Greg Hughes, R-Draper, a member of this year's Tax Reform Task Force.

Some of the proposed changes, by state taxation standards, would be radical.

A bill by Rep. John Dougall, R-American Fork, includes removing the sales tax from food and — a variation of Gov. Jon Huntsman Jr.'s personal income tax recommendation — a 4.8 percent tax rate for all.

Combining that rate reduction (the current top rate, which most pay, is 7 percent) with removing the food tax would mean a tax cut for three-fourths of Utahns, new numbers released Wednesday show. About a fifth of taxpayers would see no change in their tax payments, while a smaller group — more likely those who don't give to charities or have a home mortgage — may see slight tax hikes.

Giving all Utahns at least a $300 household credit, as Dougall's bill would do, would mean that even renters and older Utahns who have paid off their home mortgages would get a tax break aimed at encouraging homeownership, legislators were told.

In order for state government to grab an estimated $260 million in uncollected, but due, sales tax on items purchased out-of-state via catalogues or the Internet, Utah must adopt a single sales-tax-rate system.

Currently, local option sales taxes create dozens of geographic taxing entities in the state, said Rep. Wayne Harper, co-chairman of both the task force and the revenue and taxation committee. Harper's single 6.4 percent rate statewide would mean a tax cut in counties and cities where, because of a quarter-cent transit district tax or a zoo-and-arts tax or some other special tax, the current rate is higher than 6.4 percent.

But a single rate would mean a tax-rate increase in some other areas.

Sen. Lyle Hillyard, R-Logan, said most of Cache County now has a sales-tax rate of 6.35 percent.

"I can live with the small increase" to 6.4 percent, said Hillyard. "But I've told (Harper) you lose my vote if you come in with a single rate of 6.7 percent" as was considered at one time.

"I won't vote for such a large tax hike," said Hillyard.

Harper's one-rate bill would mean a tax-rate cut for Salt Lake, Davis and Weber counties — Wasatch Front areas that together by far generate most of the sales tax in the state.

The bill would do away with so-called boutique taxes, like those going to the Utah Transit Authority, ZAP and resort communities. In the shift between the state and local option taxes, counties would get a higher rate. And each county would then give a grant to its local transit district, zoos or art organizations — the result being those groups wouldn't lose any money, said Harper, R-West Jordan.

However, when the current voter-approved special sales taxes expire, there would be no automatic renewals. Harper said each entity would either lose its dedicated source of sales tax or have to get its home county government to raise property taxes or somehow otherwise make the special groups "whole," as officials call it.

Committee member Rep. Merlynn Newbold, R-South Jordan, said she will be carrying a bill that would remove the sales tax from prepared food. The much-discussed issue may be the hottest tax reform item before lawmakers, costing the state between $150 million and $166 million in lost revenue.

Newbold said Wednesday that her bill, not yet drafted, would simply remove all of the state and local sales tax on food. The state would just see a revenue loss. But to keep cities and counties whole, she would allow local governments to increase their current sales-tax rates slightly.

Newbold wouldn't allow the boutique taxing entities, like the UTA, to raise their sales-tax rate to make up for lost food-tax revenue. Rather, she would give counties enough leeway to raise their sales taxes to, in turn, give money to the special taxing districts.

The effort to remove the food tax suffered a blow, however, when the Salt Lake Area Chamber of Commerce on Wednesday came out against that specific tax cut, preferring instead to urge that more money be spent on roads, transit development and economic development.

Transportation funding and economic development are two of three issues the chamber identified Wednesday as priorities for the legislative session. Health care is the third priority.

"It's interesting, because typically you'd see the business community crying for additional tax cuts," said Clark Ivory, chairman of the chamber's board. "Certainly there is a place and occasion for a tax cut, but right now, we think the lion's share of these surpluses needs to not go back to individuals and businesses as tax cuts, they need to be invested in those things that make the greatest difference."

Other business advocates say no to taking the sales tax off of food because individuals buy food, businesses don't. And if the sales tax on nonfood items were raised slightly to offset food-tax losses, then most Utah businesses would actually end up paying more sales tax.

Transportation was listed as the chamber's top priority, with the group advocating that hundreds of millions be given to fund roads and transit over the coming years. Transportation is critical to economic development and viability, according to the chamber.

Said Ivory: "We need more than what the governor asked for (in transportation spending) and hope the House and Senate will really step up."

"The only way to have a very prosperous economy," said Chamber President Lane Beattie, "is if we make some very hard choices now."

E-mail: bbjr@desnews.com; nwarburton@desnews.com