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Republican lawmakers and the governor are negotiating a deal that could lead to state income tax reform, a $70 million tax cut and a sales-tax increase to fund expansion of mass transit in Salt Lake County.

The deal, which would have to be approved at a special legislative session, also would divert to mass transit the $90 million in hotel taxes that had been earmarked for a proposed Major League Soccer stadium in Sandy.

A key part of the agreement, which still has several hurdles to clear, would require Gov. Jon Huntsman Jr. to call a special session, probably in September, where lawmakers would vote on the necessary legislation.

"The governor is pleased to be leading out in this effort," said Huntsman spokesman Mike Mower, confirming the impending deal. "Income tax reform is a very important component in what he is seeking to accomplish as governor."

The complex agreement would offer something for everyone.

Huntsman would get income tax reform, including a flat-tax option.

The special session would allow lawmakers facing November elections to finally pass an income tax cut that they promised voters in the general session that ended March 1.

Finally, the Salt Lake County business community could get its wish and see a raise in sales taxes, rather than property taxes, to fund mass transit.

House Speaker Greg Curtis said informal discussions within a group of Republican lawmakers led to separate meetings Monday of House and Senate Republican leaders on a field trip to eastern Utah.

"There are still a lot of things to talk about," Curtis said Tuesday. But he and Senate President John Valentine confirmed that their aides are preparing bills for discussion in planned caucuses after Labor Day. If a majority of lawmakers approves of the measures, the governor would call a special session later in September.

Some key senators vehemently oppose the transit tax proposals, and Valentine says the deal is not assured. "There are a number of people who would like to see an agreement, but it has yet to coalesce around a compromise."

Under the tax-reform proposal, the state would go to a two-track personal income tax structure that would allow filers a choice: Pay under the existing system - with expanded brackets - or pay at a 5.25 percent flat rate with no credits or deductions. The new approach would return at least $70 million, mostly in surplus school funds, to taxpayers.

Democratic Rep. Ralph Becker said he worries the deal, coming before the election, seems to be driven by politics. "There are people who may want to use this for campaign rhetoric, and that's not the best way to make public policy."

Becker also said he is concerned the dual-track tax proposal has not been adequately researched.

Lawmakers also would use the special session to allow Salt Lake County to put a measure on the November ballot that would approve an increase in sales tax to pay for mass transit. The plan would replace an $895 million property tax bond to pay for early completion of four additional TRAX lines in Salt Lake County.

However, state law requires that ballot measures be written in their final form 75 days before an election. That puts the deadline at Aug. 24 or Aug. 25, said Salt Lake County Clerk Sherrie Swensen.

Because the special session would occur after the deadline, lawmakers would have to agree to suspend the law to get a sales-tax measure on the November ballot.

That's been done before, said Becker. "It is not unusual for us to change law for a single purpose."

What's at stake: If the governor, House and Senate are able to come to agreement, a September special session would look at:

* Modifying state income tax to expand brackets in the existing system in 2006 to provide a $70 million tax cut. The top rate would remain at 7 percent. Then, in 2007, adding an option to pay at a flat rate of 5.25 percent with no credits or deductions.

* Changing state law to allow Salt Lake County to put a measure on November ballot to approve an increase in sales tax rather than an $895 million property tax bond to pay for mass transit.

* Diverting $90 million in hotel taxes to mass transit that had been earmarked for a proposed Major League Soccer stadium in Sandy.