Rising home values not bringing higher property taxes

In Utah, when prices at the mall go up, so does the money local and state governments get from sales tax. Not so with rising home prices.

As home values soar in Utah, all that growth doesn't always mean money in the bank for Utah's cities. And it doesn't mean you'll necessarily have to pay more in property tax if you're a homeowner.

That may seem counterintuitive to some Utahns, who might expect that a tax on property values would automatically bring in more money for cities as values go up. The average price of a Utah home was 17 percent higher in the first three months of 2006 than during the same period in 2005, the Utah Association of Realtors announced last month. The U.S. Office of Federal Housing Enterprise Oversight this month named St. George as No. 1 of 275 U.S. cities for increases in home values and ranked Utah 15th among the states.

But a Utah property-tax law, known as Truth in Taxation, measures tax increases not by tax rates but by the total amount of tax revenue collected by municipalities. So when home values increase, cities must lower their levy rates to keep property-tax revenues the same as the previous year, or else advertise to the public a "tax increase" and hold a public hearing.

"Just because the values are going up doesn't mean entities will try to capitalize somehow and try to raise their taxes," state Property Tax Division assistant director Craig Jolley said.

Property owners in some areas may see increases in their overall property-tax bills because some taxing entities will decide they need more revenue, not because home values have gone up. That's the case in several cities that have proposed property-tax increases this year, including Taylorsville, West Valley City and Kaysville.

According to a Deseret Morning News analysis last November of 500 cities, counties, school districts and other taxing entities statewide, property taxes increased 6.2 percent from the previous year. During that same year, home prices climbed 14 percent, according to the Utah Association of Realtors.

Each year, the state Property Tax Division gives every local taxing entity a "certified tax rate." The rate is an up-or-down adjustment from the previous year's levied rate. The state's formula for calculating the certified rate requires the local government to collect the same amount of revenue as the previous year, plus any extra revenue generated by "new growth": new subdivisions, commercial developments, an extra room built onto an existing home. If property values rise to the point that they would exceed the previous year's revenue, plus the revenue from new growth, the state adjusts the rate down.