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Utah’s New Flat Tax

2 min readBy: Jonathan Williams

Members of Utah’s Legislature recently held a special session and one of the major action items was instituting a new “dual-track” income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. structure for individual taxpayers. From the Washington Post:

“Utah residents will be able to choose between paying state income taxes at a rate of 6.98 percent — down from the previous 7 percent rate — or a “flat taxAn income tax is referred to as a “flat tax” when all taxable income is subject to the same tax rate, regardless of income level or assets. ” rate of 5.35 percent with no deductions, under a bill approved by lawmakers. The flat-tax option, approved late on Tuesday, will not kick in until the April 15, 2008, filing deadline.”

The optional flat tax plan has its flaws, such as having to calculate your taxes under both systems to determine which is most beneficial. However, Governor Jon Huntsman Jr. seems to be using the new optional flat tax as a first step in his laudable quest to make Utah’s tax system more competitive.

From the Deseret Morning News:

“Gov. Jon Huntsman Jr., his trusted advisers and leading tax-reform legislators were already talking Wednesday about additional tax reform and tax cuts measures for the 2007 Legislature. The talk of further tweaks to the new “dual-track” income tax system that gives taxpayers the option of paying a flat rate comes just one day after Utah legislators adopted the tax alternative, and even before the governor’s signature on the new law was dry.”

Each year the Tax Foundation publishes a comprehensive study of the 50 state tax systems as a guide to lawmakers who wish to make their state’s business tax climate more competitive in the regional, national and international marketplace. Utah ranks 18th nationally in the 2006 Index. While Utah’s ranking is not among the worst in the nation, there is still significant room for improvement – especially given the fact that regional states such as Colorado, Nevada and Wyoming all have tax structures that rank better than Utah’s in the 2006 Index.

To read more about Utah’s tax system, click here.