Lawmakers spanning the political spectrum nixed the five-year phase-out of the corporate tax due to concerns it would cost public schools hundreds of millions. Some said they would consider a repeal, but only as part of a comprehensive tax-reform effort.

The 39-29 vote took the governor's office by surprise and severely weakened one of Huntsman's top legislative priorities - one he was hoping to use as a tool to attract new businesses to Utah.

House Bill 78 would still provide corporations with a tax break, but Huntsman Deputy Chief of Staff Neil Ashdown said the change will only put Utah on the same level as many states. Huntsman wants to have "a competitive advantage" with no corporate income tax, like Nevada and Wyoming.

Still, many lawmakers were uncomfortable at the prospect of losing $150 million to $200 million in annual revenue earmarked for education without knowing for sure where they would make it up.

"There is no guarantee that doing away with this will bring the economic benefits that we need," said Rep. James Dunnigan, R-Taylorsville, who proposed stripping the bill of its tax repeal provision.

Dunnigan got solid support from House Democrats, as well as from a number of Republicans, including Majority Leader Jeff Alexander, who wants to continue studying a repeal after the legislative session.

But Huntsman's staff and the original sponsor of HB78, Rep. Wayne Harper, R-West Jordan, promised not to give up yet.

Harper said he would try to win over colleagues who have concerns and could possibly add back the repeal into the bill, which is what Sen. Curtis Bramble, R-Provo, would like to see happen.

"I hope the House would reconsider," said Bramble, who is slated to carry the bill in the Senate. "The repeal is an important piece of economic revitalization."

The original plan was to delay the implementation of the five-year phase-out until 2008 to see if the state could attract enough new businesses to overcome the loss in school revenue. Harper said if the proposal did not work, the Legislature would have the time to change it.

Ashdown promised the corporate tax repeal would act in harmony with future tax code changes.

"It is our goal to have broad tax reform. We never intended to have the corporate income tax repeal to stand alone," Ashdown said. "Regardless, double-weighted sales is the right approach."

Double-weighted sales refers to HB78's remaining provision, which would change the way the corporate tax is calculated.

The current system taxes corporations based on their sales, wages paid and value of property in Utah. Doubling the effect of sales would drop the tax for companies whose goods are purchased primarily out of state.

This alternative is expected to result in a revenue loss of $7 million a year in school funds.

mcanham@sltrib.com