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A bill that could subject private property owners to a residency test passed unanimously Tuesday through the Utah Tax Review Commission on its way to the Legislature.
Keith Prescott, chairman of the group that advises the governor and Legislature on tax policy, said the bill was a long time coming as it attempts to develop a uniform policy through legislation. He said the process of investigating unpaid state income taxes is now handled through the Utah Tax Commission and then litigated in the courts.
By developing a residency test, he said the state can create "a bright line" that defines whether a person is subject to Utah income tax. Revenues from the tax are earmarked solely for public and higher education.
Bruce Johnson, chairman of the Utah Tax Commission and a member of the advisory policy panel, said the bill with the residency test would likely remedy "95 percent" of the cases that end up in court. Some of those cases are people who are operating without clear guidance on their income-tax responsibility. Others simply skirt the system and use the nebulous residency rules to their advantage.
"The cases we typically see are people with a temporary job in an oil field in Wyoming or a mine in Nevada," Johnson said. "But they come home on the weekends, the kids are being educated in Utah schools but they say they are domiciled in Wyoming and I'm not going to pay income tax."
Wyoming and Nevada have no state income tax.
There are three layers to the residency test.
The first includes having a child enrolled in public schools, grades K-12. It also includes a spouse enrolled in a public college.
"If you're claiming a child as a dependent, and they're attending Utah schools, you should pay Utah taxes," Prescott said.
The bill also seeks to establish Utah residency by determining if a person is registered to vote in Utah. Residency is also determined to be established if the property owner is now getting the 45 percent tax break on a primary residence.
Prescott said the bill would establish much-needed anchor points for both residents and the Tax Commission in navigating what makes a person responsible for state income tax. He said it now costs the commission $50,000 or more per case to litigate.
"It's not cheap," Prescott said.
The commission did establish some exceptions for the residency test, including allowing an individual to be absent for 720 consecutive days, with annual stays of up to 30 days in the state.
The bill now goes to the Legislature's Revenue and Taxation Interim Committee on Nov. 17 for review.