HOLLADAY — City officials are proposing a 6 percent tax on power and natural gas to fund $12 million for repair of dilapidated roads.

The municipal energy tax is a common but poorly understood sales tax collected by public utilities. Holladay leaders believe imposing it is the only feasible alternative to raising property tax by two-thirds.

All Holladay residents connected to power meters would pay the new tax if it is adopted as part of the city's 2008-09 budget. Beginning October 1, the average home would pay about $20 more for gas and lights per month, said city manager Randy Fitts. Customers in apartments or offices would be charged less.

Holladay would become Salt Lake County's 14th municipality to impose the tax. Cottonwood Heights and Bluffdale would be the remaining holdouts.

The energy taxes have been around in some form or another for the past 50 years, said Utah League of Cities and Towns consultant Roger Tew. Before 1996, the tax was assessed directly to the power companies. Now, the companies collect it from their customers and send it either directly to the cities or to the State Tax Commission.

"It is an alternative source of revenue; it's a common tax cities can use," Utah League of Cities and Towns consultant Roger Tew said. "It's nothing new." One reason Holladay leaders are considering the tax is because the effect is widespread. Every tenant, every business, every school and church would have to pay, Fitts said. An increased property tax would only affect property owners.

"It does make it a little bit more fair," he said, because all members of a community use roads. He added, however, that the tax could be seen as regressive because the poor and disadvantaged will be taxed at the same rate as their wealthier counterparts.

The tax is calculated on a percentage of the utility bills, so it changes with the economy. Increasing energy prices will mean the city brings in more taxes. That adds unpredictability to the budgeting process but also means individual customers can reduce their bills by using energy wisely, Fitts said.

Of 251 Utah cities, 135 apply the tax. Counties are not allowed to impose it. Of the 135 cities, all but 39 charge 6 percent. By state law, that is the highest possible rate.

Utah State Tax Commission spokesman Charlie Roberts said the tax is among the least understood forms of government revenue. Most people just look at the bottom line on their bills and may not even know they are being charged sales tax, he said.

Roberts' anecdotal opinion falls in line with a 2006 league study that found Utahns understand utility taxes poorly, with 25 percent of respondents believing the taxes go directly to the federal government. When the respondents learned that the energy tax can't be deducted from federal taxes, as property taxes can, 44 percent said they'd prefer an increased property tax over a municipal energy tax.