personal exemption with a 100-percent federal personal exemption. He said the bracket and rate
changes would: 1) raise all bracket amounts by 245 percent to compensate for bracket creep since
1973; or 2) raise all bracket amounts by 43.2 percent to compensate for bracket creep since 1986.
Other approaches would: 1) impose Utah income taxes at 31 percent of federal taxes; or 2)
impose Utah income taxes at 6.4 percent of the federal taxable income. Mr. Asplund noted that
in the mid-1980s a bill almost passed imposing Utah income taxes at approximately 5.8 percent
of federal taxable income.
Mr. Asplund referred to a chart showing the tax levels for a family of four for the various
proposals. He added that option no. 6 is the most progressive change. Rep. Jones noted that the
exemptions are generally eliminated with a flat tax system. If exemptions are allowed under
proposal no. 6, it would not necessarily be progressive. Sen. Hillyard said that there is an
alternative minimum tax on the federal level that is not really based on federal taxable income
but there is no such tax on the state level.
Chair Cornia said that option no. 6 could be moderately progressive but there has not
been a great deal of work done on state income taxes and their influence on economic activity
within a state. One study indicated that high marginal rates on state income taxes tend to slow
down economic growth in a state to some extent. He felt that the TRC needs to be careful not to
send a negative signal to business. Commissioner Oveson agreed and said that in the 1980s,
companies maintained that executives were more concerned about their personal income taxes
than corporate taxes. He noted that companies moved out of state because of this issue. Mr.
Buchi asked if information would be available on upper-end taxpayers who might move.
Judge Memmott suggested that the administrative costs of options no. 1 through no. 5
remain about the same while administrative costs are saved with options no. 6 and no. 7.
Commissioner Oveson cautioned that implementing options no. 6 or no. 7 would mean the
elimination of state checkoffs and credits. Rep. Jones said he would like to see an option that
would cut income taxes especially for persons having incomes below $100,000 without
attempting to make up the losses through income taxes. Chair Cornia said that if you balance
state and federal tax burdens, the taxes owed in Utah are lower partly because families are larger
and there are higher donations to charities. Ms. Owen asked if research has included all the tax
burdens including income, property, and sales. Mr. Asplund said that type of research has not
been done for a decade but there has been little change. Sen. Stephenson said that the property
tax is a more stable source of revenue, therefore, reducing income tax would probably be
acceptable to the taxpayer.
Rep. Jones asked to see the impact of the overall tax burden and how the changes would
affect it. Tax commission Chief Economist Doug McDonald said that information could be
made available. Chair Cornia asked that the federal income tax burden also be included.
3. Intangibles _ Ms. Rockwell distributed a draft memorandum on the property taxation of intangibles. She suggested the members review the document and discuss it in the future.
Commissioner Oveson distributed a handout and a diagram of property, taxable and
nontaxable. He said the number of property tax appeals this year is similar to the number of
appeals in the past. He added that taxpayers believe centrally assessed property have been
overvalued and intangibles are part of that overvaluation. He noted there is $100 million in
dispute. Sen. Hillyard asked whether more appeals are likely. Commissioner Oveson said that
appeals had to be made by June 1 for this assessment year. He added that there is no time frame
on adding intangibles to present appeals. He outlined the effect of the appeals on the average
household and how it increased property taxes for residences. Sen. Hillyard said that homes in
his district were impacted severely by adjudications in favor of centrally assessed taxpayers.
Sen. Stephenson noted the past tradition has been that 10 percent of appeals moneys are returned.
Commissioner Oveson said that the WilTel decision will probably increase that amount significantly.
Ruland Gill, Questar, discussed the mathematical methods used to value property in
Utah versus the methods used in other states. He noted other states have few appeals because
their methodologies are more fair. Chair Cornia said that the tax commission's direct-
capitalization method of valuation captures intangibles that other valuation methods do not.
Rep. Short noted that $21 million is the worst case scenario of revenue lost. He expected
that at a restitution rate of 20 percent, repayment would only be $4 million. Sen. Mantes noted
that there has been a cumulative property tax shift from business to residential taxpayers. He felt
a solution is needed to bring relief to residential taxpayers.
Commissioner Oveson reviewed the taxable and nontaxable properties including
moneys, credits, inventory, bonds, stocks, representative property, franchises, copyrights,
patents, goodwill and other intangibles, various fees, services, closing costs, and brokerage
commissions, enhanced value of property due to operations in an ongoing unit, registered
vehicles, personal business property, buildings and improvements, and land. He noted that the
Legislature needs to provide statutory guidance on the intangible issue.
Sen. Hillyard asked if the funds set aside to do the assessment review were still available
for that study. Mr. Asplund said he would look into that. Chair Cornia said that the assessment
review could still be conducted but there are only six months to do it. Mr. Lee said that
nationwide residential property taxes are lower in Utah while business property values are
higher. He felt that centrally assessed properties are appraised higher than in other states and that
is why there are many appeals. Sen. Mantes said he was concerned that there are many pieces to
the puzzle but the balance between big business and the rest of the taxpayers needs to be
determined. Mr. Buchi recommended having a study done on the process of valuing and
assessing state assessed property.
Mr. Randy Kelly, Weber County Assessor's Office, said that the locally assessed
property values are updated annually and are reassessed every five years based on comparable
sales. He said that recently there has been a shift in the tax burden to locally assessed properties.
Chair Cornia asked Mr. Kelly to return in the future and explain how his county's appraisal
process works. Judge Memmott recommended that in the special session money be requested to
study the intangibles issue. Chair Cornia agreed that a study be done because the tax
commission faces difficult issues. He added that he would seek funding if someone could be
hired to do the work.
4. Other Studies
Telecommunications update _ Mr. Asplund distributed and reviewed S.J.R. 10 which passed in the 1997 Annual General Session dealing with the telecommunications industry. He
noted that S.J.R. 10 makes the assertion that Utah's tax policy discriminates between locally
assessed telecommunications providers and centrally assessed providers. He said it also asserts
that Utah's unit valuation of centrally assessed telecommunications property is the highest in the
country. He suggested that staff and the tax commission could research those assertions to make
sure they are correct or determine the true situation. He noted there may be other issues that need
to be addressed as well. He asked the TRC to study the resolution and direct staff and the tax
commission on issues needing study in the near future so staff can make an appropriate study and
presentation in the October meeting.
5. Other Business --Chair Cornia provided an update on the progress of the model state legislation for taxing telecommunications being prepared by a national committee. He said he
thought the legislation should be ready in about one year. The next meeting of the TRC will be
held on July 11 at 9:00 a.m.
6. Adjournment --
MOTION: Sen. Hillyard moved to adjourn the meeting at 4:00 p.m. The motion passed unanimously.
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