Goodwill Hunting.

• Author: Miller, Maxwell
• Position: Taxation of corporate goodwill - Brief Article

Businesses Fight Goodwill Tax

When Utah finds itself at the bottom of the national barrel in per pupil spending, inevitably there is political pressure to find new revenue sources. The trick is where to find the money.

Generally speaking, there are two ways to increase government revenue. The first is to raise everyone's tax rates. The second is to broaden the tax base and hold the rates constant. Under the second alternative, exemptions are narrowed or eliminated, making more people, property or transactions subject to taxation. Either way, government gets more money. Yet, "there is always the danger of killing the goose that lays the golden egg," says Howard Stephenson, president of the Utah Taxpayers Association. Businesses often relocate operations to other, more tax-friendly states.

The dilemma is that the state needs more money, yet Utahns already pay disproportionately high taxes when compared to citizens of sister states. In 1998, Utah household taxes -- property, sales and income -- were the highest among seven Western states, according to Doug Macdonald, chief economist for the Utah State Tax Commission. "I don't think it's advisable to ratchet [taxes] up unless there's some sort of crisis," the Deseret News quoted Macdonald as saying. The Utah Education Association believes an education crisis is imminent and has urged a tax increase, the usual target being Utah businesses.

In its search for revenue, the 2000 session of the Utah Legislature created a task force to explore "alternative revenue sources for funding public education." Are Utah businesses now taxed too little or too much? The most recent iteration of this controversy has erupted over property taxes. Utah's constitution limits property taxation to "tangible property," assessed according to its "fair market value." Today, America's business world includes an ever-increasing number of mergers and acquisitions, which typically account for a significant part of the purchase price of a "going concern" business as "goodwill."

Goodwill has been traditionally defined as "the expectation of future business patronage." Acquisition of goodwill is often the driving force behind many modern purchases of a going concern, particularly for telecommunications companies. "We don't need more switches and wires," claimed one

telecommunications executive whose company does business in Utah. "What we want is a larger customer-base."

The fight over taxing goodwill in Utah has been...