This is an archived article that was published on sltrib.com in 2004, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

Gov. Olene Walker's plan to reform Utah's antiquated tax system would seem to shift a bigger tax burden onto individual taxpayers.

Touting the 2-inch-thick tome as an economic development tool, Walker on Monday proposed eliminating corporate income taxes. To make up the difference, the state would begin taxing services - including everything from medical care to haircuts - and raising property tax rates. At the same time, every Utahn would pay a lower flat income tax of between 4 percent and 5 percent.

Walker's proposal is meant to transform a tax system written when Utah's 20th-century economy was based on goods - agriculture, mining and manufacturing - into a network of taxes for a 21st-century, service-based economy.

Blaming increasingly "volatile" state revenues and swelling school populations, Walker said Utah leaders can't wait to act. "Politically, it is not an easy thing to do to reform taxes to the degree that we are going to propose," Walker said. "But now is a good time to look at [tax reform] and not in a crisis when we would have to raise taxes. We have some critical problems if we do nothing."

Walker is leaving office in January. It's up to her successor, Gov.-elect Jon Huntsman Jr., and state lawmakers to follow through. The governor says her plan must be considered as a package. If so, it could be in trouble already.

Senate President-elect John Valentine said legislators are unlikely to turn Walker's book into an "omnibus" tax reform bill. The governor's "philosophy" of tax reform will give lawmakers a framework from which to draw ideas.

"It would be extremely difficult for one legislator to try to tackle all those myriad of bills that would be required to match the philosophies that are in the proposal," the Orem Republican said.

Huntsman did not respond to requests for reaction on the plan. Instead, his aides issued a prepared statement hailing the merits of generic tax reform.

Walker's strategy - crafted by nine of the governor's hand-selected tax experts over nearly 12 months - lists 16 recommendations ranging from basing the distribution of sales taxes on city populations to charging a sales tax on gas and cutting the per-gallon gas tax.

The most dramatic changes would target sales and income tax policies. Sales and income taxes generated more than $3 billion for state coffers last year.

The governor suggests replacing the state's graduated income tax with a simple, flat state income tax that can be calculated on a postcard-sized income tax form. Currently, married Utahns earning adjusted gross income more than $9,000 a year pay the top rate of 7 percent - a de facto flat tax. Under Walker's plan, Utahns would pay a flat income tax of between 4.1 percent and 4.9 percent. If legislators chose to allow residents to continue deducting home mortgage and religious contributions from their state taxes, the higher rate would be imposed. If those deductions were eliminated, the state could adopt the lower rate.

At the same time, the state would begin charging sales tax for services, including day care, legal work and landscaping, services currently not taxed in Utah. Insurance, education and banking services would be exempt. Utah's base sales tax rate would be cut from 4.75 percent to 3.75 percent. That rate would be monitored and change as revenues go up.

Under Walker's plan, business sales tax exemptions would be eliminated and replaced with a single sales tax exemption for capital assets. But Utah businesses would pay higher property taxes.

The backbone of Walker's plan is making Utah more competitive with its neighbors in the nationwide scramble for businesses looking to move or base their headquarters. The governor insists a flat income tax rate and lower corporate taxes will draw business and pay for the state's growth. She calls her plan "family-friendly" and "business-friendly."

Draper Republican Sen. Howard Stephenson, president of the Utah Taxpayers Association, called Walker's plan an "economic development proposal."

"It hits everybody a little bit in ways they don't like," Stephenson said. "But it will benefit every family and every business in the state. If the governor and the Legislature are smart, they're going to give this a thorough debate."

But advocates for low-income Utahns questioned whether families will be "better off" as Walker promised.

Under the governor's proposal, Utah families would pay lower sales taxes on everything and slightly higher property taxes. Walker's plan assumes wealthier Utahns will pay lower income taxes but pick up a bigger share of property taxes and a new sales tax on services than lower and middle-income families.

Based on models for Utah families earning between $25,000 and $200,000 a year, Governor's Tax Review Commission Chairman Keith Prescott said, "In every circumstance, our families would be slightly better off," Prescott said.

Citizens for Tax Justice State Tax Policy Director Matt Gardner questions Prescott's rosy prediction for Utah families. While Walker's plan extends the tax base to make it more fair, Gardner says the proposed flat income tax and broader sales taxes could end up costing lower and middle-income Utahns a larger proportion of their income than the well-to-do. "This thing could be a big windfall for the wealthiest Utahns," Gardner said.

Prescott claims, however, "the rich get nicked in a way they haven't been nicked before."

Utah businesses that would be charging the new sales tax on services are skeptical. Utah Bar Association President George Daines, a Logan attorney, notes that lawmakers backed away from the idea of taxing professional services a decade ago after learning how difficult the tax would be to implement.

Utah Medical Association spokesman Mark Fotheringham, said hospital and doctor support for a tax on medical services depends on how the tax would be collected.

"If they do it on [health insurance] premiums and pass costs onto the consumer, that would more broad-based and less repugnant that taxing services directly," Fotheringham said. "It doesn't make sense to tax those who are sicker and make them pay more than healthy people."

---

Tribune reporter Kirsten Stewart contributed to this story.