Utah has long-since prided itself on its status as a tax-friendly state. A recent annual report from the Tax Foundation confirmed that Utah remains one of the top ten states in the nation in terms of tax friendliness for businesses; however, with other states reducing or eliminating their income tax and taking other measures to cut taxes, Utah will have to start doing more to maintain or improve its place in the rankings.

First, let’s review what Utah does well to achieve its ranking as eighth in the nation for State Business Tax.

  • Utah has a flat, low rate for income tax
  • Utah’s income tax is equal for both individuals and corporations, avoiding unnecessary discrimination (e.g. Texas does not recognize LLC or S corporations; Utah doesn’t have this problem)
  • Utah’s standard deduction for married joint filers is exactly double the standard deduction for single filers.

Of the other top 10 states, seven have eliminated one of the major taxes – individual income tax, corporate income tax, or sales tax. Utah has all three, but with low rates on broad bases. The Utah Taxpayers Association has always considered this principle to be essential to good tax policy.

A high ranking on the State Business Tax Index indicates a strong tax system, and this is a major incentive for businesses considering relocation. According to the Department of Labor, most mass job relocations happen within the United States – from one state to another rather than to other countries. It is worth making a state’s tax system competitive. Tax implications are also felt instantaneously by a business, meaning states which improve their tax system can quickly see the impact. Excessive tax credits and tax incentives to specific companies usually disguise a weak tax system and are not a long-term method of encouraging business within the state.

What can Utah do better?

Of the states which saw significant improvements on the State Business Climate Index rankings, the majority had introduced measures to cut income tax rates. Such was the case in Louisiana, New Mexico, Oklahoma and Nebraska. Other states, such as Iowa and Kentucky have introduced legislation to trigger future tax cuts when revenue thresholds are met. Kentucky’s HB 8 will reduce the tax rate by 0.5% in years where this threshold is met and does not preclude the eventual elimination of the tax.

Although Utah currently ranks eighth on the Business Climate Index, we risk being overtaken if we do not learn from the example of other states and reduce the income tax rate. Your Utah Taxpayers Association continues to encourage legislators to do exactly this, and maintain Utah’s status as a tax-friendly state for business.