If you want to see a Utah legislator's eyes glaze over in incomprehension, ask him to explain the AMAX property tax problem.
He can quickly say that most homeowners won't see their property taxes go up come November because of AMAX. But ask him how that is possible, watch the stuttering begin."It's one of the most difficult problems we've faced," said Senate President Arnold Christensen, R-Sandy, who has spent hours studying the problem.
The Utah Supreme Court ruled recently that the way AMAX Corp.'s property taxes are calculated is unconstitutional. AMAX is a state-assessed entity, as are all large businesses such as utilities and mines, whose property crosses county lines.
While the decision only applies to AMAX, 26 other state-assessed businesses have filed suit seeking the same tax break. Basically, they argue - as did AMAX - that state-assessed properties must get the same 20 percent assessment discount that locally assessed properties - homes and small businesses - now receive under state law.
If all state-assessed properties got the 20 percent discount, the state's Uniform School Fund and local governments would lose about $56 million. The state school fund would lose about $30 million, said Sen. Lyle Hillyard, R-Logan, who chaired a legislative committee that studied the AMAX problem this past year.
Lawmakers seek to recapture that $56 million without raising homeowners' property taxes.
Republican and Democratic caucuses in the House and Senate discussed the problem this week, some members leaving the meetings with a look of confusion in their eyes.
Utahns have definite feelings on the matter. The latest Deseret News/KSL-TV poll shows citizens prefer that the state-assessed properties pick up some of the cost and that homeowners' taxes not be raised - just the solution Hillyard and others are talking about.
Hillyard believes several things will be accomplished this session:
- Legislators will change property tax law to assess all properties at 100 percent of fair market value - the crux of the Supreme Court's decision.
- As provided in the Utah Constitution, lawmakers will then increase the specific discount allowed for a primary residence. That discount is now 25 percent (an additional discount above the 20 percent granted locally assessed homes and businesses). Hillyard thinks the constitutional discount will have to go to 35 percent so no tax increase on homes will be seen in light of going to the 100 percent assessment. "Most homeowners will actually see a property tax decrease, I believe, if we go to 35 percent discount," said Hillyard.
- Lawmakers must also lower the state-mandated tax rate used to support the Uniform School Fund. Otherwise the fund will increase above the $360 million now brought in. That rate decrease effects all property, homes, small and large businesses.
- Finally, and most importantly to taxpayers, lawmakers must find some other revenue source for the state-assessed property taxes lost under the new property tax system.
This is the heart of the problem. Hillyard believes some new taxes will be placed on the state-assessed properties - perhaps an increased severance tax, a new pollution tax or a gross receipts tax.
However, it's also likely that some of the tax shift will be picked up by locally assessed businesses and those who own second homes; primary homes will be protected under the 35 percent discount.
Of course, state-assessed property owners don't want new taxes placed on them. They want the $56 million shifted to other property taxpayers. Those state-assessed properties are some of the largest businesses in the state, like the Intermountain Power Project and US WEST (see chart). The tax breaks they get under the most popular solution to the problem - which is assessing every property at 100 percent but giving homeowners the constitutional tax break - means the three largest entities, IPP, Utah Power & Light Co. and US WEST, get tax breaks of between $1.4 million and $1.9 million.
But Gov. Norm Bangerter and legislative leaders are adamant that large, profitable state-assessed businesses won't get a tax break at the expense of homeowners.
The above legislative actions would protect homeowners and solve the funding problems of the state's Uniform School Fund. But they don't help local governments and school boards who also levy property taxes, and so will see falling revenues because of AMAX.
Hillyard said those entities will either have to lose about $20 million in revenue or raise property tax rates. Any rate increases by those entities would increase property taxes on homes within those entities, but Hillyard believes if the state increases the homeowner discount enough, rate increases by counties or schools will be offset in most cases.
But not all. "There's no perfect solution," said Bill Asplund of the Legislature's staff. "Some homeowners in some counties will probably see a tax increase."
"There will be pressure to give local governments greater or new taxation authority (so they won't suffer financially). For example, we may give counties the authority to impose a utility franchise tax," said Hillyard. That will be a separate, but related political battle.
Finally, Hillyard said some legislators may also want to examine the manner by which state-assessed properties are valued. Currently, such businesses' property taxes are calculated, in part, on their profitability. "You can have the case where a coal mine is sold for $13 million, but paid property taxes on only a valuation of $100,000 because it wasn't clearing a big profit. You pay property taxes on your home based on its value, regardless of your income or ability to pay. This isn't the case with state-assessed (properties). Some may argue that they (state-assessed) should be assessed just like the rest of us."
DESERET NEWS/KSL-TV POLL
A recent Utah Supreme Court decision requires a change in state property tax law. The case is complicated, but simply put, legislators in the upcoming session must shift about $55 million in property taxes now paid by large, multicounty industries - like utilities, railroads and mines - to other taxes or other taxpayers or lose the revenue.
Which of the following solutions being considered by legislators do you favor:
A. Lose the $55 million, letting schools and local government just do without those funds.
B. Impose new taxes on the multicounty industries in an effort to make up the $55 million lost via property taxes.
C. Change the property tax formulas to place the $55 million on local business owners' properties but leave residential property owners' taxes the same.
D. Change the property tax formulas to place the $55 million on local business and residential property owners.
E. None of the above
F. Don't know
Copyright, Deseret News. 1991
Possible tax decreases
Decrease in property tax paid by state-assessed properties if lawsuit is successful:
Company Tax reduction
Agency $1,906,482 (-5.68%)
Pacificorp (UP&L) 1,667,272 (-5.68%)
US WEST Communications 1,427,770 (-9.05%)
& Transmission 550,362 (-5.68%)
Kennecott 784,577 (-9.25%)
AMOCO 578,331 (-7.29%)
Questar (Mountain Fuel) 592,431 (-8.52%)
Union Pacific 415,155 (-8.41%)
Coastal 291,545 (-7.29%)
Chevron 258,017 (-7.29%)
AT&T 373,333 (-9.05%)
Delta Airlines 257,770 (-8.41%)
Pennzoil 132,421 (-7.29%)
Mobil Oil 109,703 (-7.29%)
Southern Pacific Railroad 142,175 (-8.41%)
Texaco 101,129 (-7.29%)
Phillips Petroleum 78,735 (-7.29%)
Linmar Petroleum 55,343 (-7.29%)
of America (AMAX) 48,493 (-7.08%)
Northwest Pipeline 44,135 (-7.29%)
Communications 72,574 (-9.05%)
Flying J 41,909 (-7.29%)
Plateau Mining 38,409 (-6.36%)
Enron Oil & Gas 39,002 (-7.29%)
Union Oil of California 36,905 (-7.29%)
Total 10,043,975 (-6.97%)