Businesses in Utah are among the least taxed- How does your state rate?

Report fuels debate whether climate is too tax friendly

Millions of dollars in tax breaks to help Utah’s ski industry compete with Colorado. Millions more to help industry defray the costs of pollution-control equipment. Millions more for this and millions for that.

By Jerry D. Spangler and Bob Bernick Jr.
Deseret Morning News

http://deseretnews.com/dn/view/0,1249,590044859,00.html

In all, the state grants hundreds of millions in various tax exemptions and incentives to help Utah businesses. But a new report http://www.statetax.org/Content/ContentGroups/Home_Page_Content/Right_Column_Area/50-StateStudy.pdf
from the pro-business Council on State Taxation, based in Washington, D.C., is fueling debate on Utah’s Capitol Hill that the state has gone too far in creating a tax-friendly climate for business.

The report, compiled by the accounting firm of Ernst & Young, uses a variety of formulas to measure tax burdens. And in every case, Utah ranked among the four states in the nation with the lightest tax burden for business.

"You have to ask why our citizens are among the highest taxed in the nation but our businesses are among the lowest," said Sen. Ed Mayne, a West Valley Democrat who is sponsoring legislation to repeal some tax breaks. "And if tax incentives are such a good idea, there shouldn’t be any unemployed people in the state, and businesses should be flocking to Utah. But they are not. Why?"

The issue of tax breaks has been a volatile one on Capitol Hill for years. Various task forces and legislative committees have studied a variety of repeals and promised reforms.

But majority Republicans have dug in their heels. Last year, Mayne introduced a bill to repeal some business tax breaks to generate tens of millions of dollars during a cash-strapped year that saw education funding decline for the first time in two decades. But Republicans promptly replaced Mayne’s bill with a sales tax on cable and satellite television subscribers.

This year, Nucor Steel in northern Utah is lobbying lawmakers to renew a $100,000 per year tax break instituted several years ago, even though the company is profitable.

"It’s criminal," Mayne said. "We’re talking about $100,000 of taxpayer money into the pocket of Nucor shareholders."

Maybe so, but that hasn’t stopped Democrats from supporting tax breaks of their own. Mayne is a co-sponsor of a tax break for companies using alternative fuels to generate energy. And Senate Minority Whip Ron Allen, D-Stansbury Park, is sponsoring legislation to give tax breaks to Utah’s motion picture industry.

According to the Council on State Taxation study:

• When the business tax burden is measured as a share of all taxes paid, Utah ranks 49th among all 50 states.

• When the tax burden is measured in relation to employees, it ranks 50th.

• If the formula measures private sector economic activity, Utah ranks 48th.

• Utah ranks 47th when it comes to tax rates in relation to capital income.

• Businesses account for 34 percent of all state and local taxes paid in 2003, compared to 77 percent in Alaska.

Republicans call the report "great news," saying it validates years of tax policy designed to foster economic development and help Utah — a land-locked state without a major population base — compete better.

"We can’t offer coastal ports, but we can offer a positive business infrastructure, quality of life and a good work ethic," said Senate Majority Whip John Valentine, R-Orem.

Sen. Howard Stephenson, R-Draper, praised the report but said Utah should be doing more to roll back business taxes and create a consistent tax policy whereby the "tools of production" are not taxed.

"We need a sales tax policy that taxes the final purchase by the end user instead of multiple taxes on each stage of production and distribution," said Stephenson, who is president for the pro-business Utah Taxpayers Association.

But is the balance between taxes on individuals and businesses out of whack? Stephenson says no, that taxes on businesses are added to the cost of goods produced and are therefore hidden. "When taxes are imposed on individuals and homeowners directly, government tends to be more accountable and voters can hold elected officials responsible," he said.

Businesses, he added, have an obligation to pay taxes on profits, wages and end-products sold to the consumer.

The new study confirms what the Utah Tax Commission reported last month in its biennial report on tax burdens in Utah.

That study showed that while the tax burden on the average Utah family has increased, the tax burden on Utah businesses continues to decrease, if only slightly. And over the past 30 years, there has been a tax shift as the burden on businesses has dropped as a percent of all taxes paid, and taxes have shifted to individuals and families in the state.

The Ernst & Young report is certain to fuel efforts by Gov. Olene Walker, who has assembled a team of tax experts to look at revamping Utah’s tax policy from top to bottom. She says the state’s tax system has become antiquated and ill-suited for a 21st century economy.

The GOP governor, who has not announced whether she will seek her party’s nomination, has the near-unanimous support of Democrats, who see the tax breaks as a drain on funding for public schools, colleges and programs for the poor. In fact, they say the deficits of recent years could have been erased without budget cuts had the Republican majority had the political will to impose fair tax policy on their friends in big business.

While the report offers Democrats ammunition for the debate over tax breaks, even Democrats say it could be seen as good news, showing Utah has created a business-friendly environment that should help attract companies with higher-paying jobs.

"That said, we have to ask why we are sending these messages (on moral issues) that make it harder to attract businesses here, especially harder to attract tourists here and enhance tourism," said House Minority Leader Brent Goodfellow, D-West Valley. "We treat business well, but then we do things that harm us, things that just make us look weird. That doesn’t make sense."

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