From Deseret News archives:
The volatile sales tax
Utah's economy is red hot, which means many cities are reaping sales-tax windfalls. Cities get to keep half of the sales taxes generated within their borders, which means the cities with the most businesses do the best. Provo's sales-tax revenue jumped by 15 percent this year. Statewide, receipts jumped by 13 percent.
But on the other side of this equation are the cities that don't have a lot of retail outlets or whose economies are struggling. Tiny Naples, for instance, saw a decline of 18.3 percent, due mainly to a drop in oil exploration. And even the prosperous cities know from experience that good times won't last forever. Today's sales-tax windfall can become tomorrow's belt-cinching, budget-cutting, layoff nightmare.
In other words, sales taxes are volatile.
A lot of Utahns still are suffering a form of sticker shock after receiving their property-tax notices this year. A combination of unusual real estate inflation, tax increases and, in some counties, archaic assessment policies led to some homeowners seeing huge increases over previous years. State lawmakers, convening their annual session next month, may tinker with the idea of reducing property taxes or shifting the overall tax burden a bit more toward sales taxes.
That would be a mistake, one that would become especially evident when the economy begins to retreat.
The property-tax problem is systemic. More counties need to adopt modern technologies that allow them to reassess all properties yearly, which would guard against huge fluctuations in tax notices during volatile years. Salt Lake County already has such a system in place, and its rate of formal tax assessment appeals this year was only 2.28 percent.
Property taxes are a stable revenue source for local governments. By state law, those governments are allowed to raise and lower tax rates to ensure they collect the same year over year.
Income taxes are less stable. They vary somewhat with the economy, as well. But sales taxes, while perhaps the least painful from a taxpayer point of view, are the least reliable source available for conducting government business year to year.
