The question has been asked: "Should the Utah State Legislature abolish the corporate income tax?" The UEA recognizes that corporate income tax is an increasingly volatile revenue source. Changes in business organization types have also had an impact on corporate tax. We also recognize that nationally, states have created additional problems with the increasing lack of uniformity in the administration of the tax. Notwithstanding these facts, until there is a realistic substitute, business income tax should continue.
Another reality is that the majority of this tax is paid by larger multinational entities. For the most part, this is not a tax paid by small Utah businesses. As such, its elimination or reduction could very well be a shift from non-Utah based businesses to local entities.
Recent studies regarding Utah’s comparative business tax burden indicate it is one of the lowest in the country. Among the states that levy a corporate tax, one wonders how a state with our education demands can continue to have one of the lowest corporate tax rates in the country. While it is not a major revenue issue, we would also question why Utah’s minimum corporate tax is still set at $100. The cost of the state providing corporate status should be higher than this token amount.
The UEA is sympathetic to the need for a favorable business climate. We are neither unmindful nor naïve as to the importance of a strong economy. However, the term “positive business climate” has, in many cases, come to mean providing businesses or corporations a “tax break”. We find little empirical evidence that tax cuts pay for themselves through enhanced economic activity. This situation is particularly true where government operates pursuant to a balanced budget requirement. Whatever economic activity may be generated is almost always somewhat deferred. The consequences of the revenue reduction are immediate. If a state operates pursuant to overall good tax policy there should be very limited need for exemptions from generally imposed taxes.
Lastly, demographic and economic realities have long imposed a significant tax burden on Utah individuals for the maintenance of core public services. In contrast, direct Utah business taxes have remained relatively low. A recent report prepared for the pro-business Council on State Taxation (COST), has provided new information on just how low. The study, “Total State and Local Business Taxes” by Robert Cline, William Fox, Tom Neubig and Andrew Phillips, found that Utah ranked at or near the bottom in business taxes measured as (1) share of all taxes; (2) per employee; (3) per dollar of private sector economic activity; and (4) per dollar of capital income. How much more favorable does Utah’s business taxation climate need to be?
Corporations should pay a tax on their income. If this tax is removed it means the rest of the Utah taxpayers will have to pay more.