GOP legislative leaders have unveiled their solution to the complex and difficult property tax problem caused by the AMAX Corp.'s recent Utah Supreme Court decision.
No one will be happy with the solution, leaders say, but it only increases the property taxes of local businesses by an average of 1.1 percent - and no better solution is to be found.The total amount of property taxes paid by homeowners - on average across the state - won't increase, which is a major goal of the leaders and GOP Gov. Norm Bangerter. Homeowners in some counties will pay more; in other counties they'll pay less.
The last thing the politicians want is for homeowners' taxes to go up in November, just months before all the House members and half the senators start their 1992 re-election campaigns.
In the AMAX decision, the Utah Supreme Court said the magnesium-mining company must get the same 20 percent property discount given homeowners and local businesses. AMAX is a state-assessed property, as are all multi-county businesses such as mines, railroads and utilities. State-assessed property hadn't been given the 20 percent discount that locally assessed property received. At risk is $56 million, the amount of property taxes the state-assessed properties feel they no longer have to pay under the ruling. Legislators must decide how to make up that $56 million.
Rep. John Valentine, R-Orem, a tax attorney who was put in charge of coming up with a solution, reiterated Tuesday that the Republican leaders' solution doesn't guarantee that homes in different places won't see some kind of small tax shift. But, overall, homeowners' taxes won't go up.
For example, the average home in Salt Lake County, valued at $76,400, would see a $2 increase in property taxes under the leaders' plan. However, because of a rippling effect in tax-rate changes, personal property - mainly cars, trucks and boats - will have a tax decrease. The average car in Salt Lake County will be assessed $5 less in property taxes. Thus, a Salt Lake County homeowner who owns a car will see a $3 decrease overall.
Of course, his example is in the aggregate. It doesn't take into account how individual property owners will be affected. Nor does it account for how individual taxing entities are affected.
"When we first looked at holding homeowners harmless - no tax increase for them - we were looking at an 8 percent increase on local businesses. This is a pretty good solution at only 1.1 percent (increase on businesses)," said House Speaker Craig Moody, R-Sandy.
Part of the leaders' solution entails taking away each county's authority to set personal property tax rates. Instead, the Legislature would set a tax rate for cars of 1.66 percent of fair market value. That sounds great, because for years people have complained of unfair taxation, because a car's tax in Salt Lake County is higher than the same car's tax in Rich County.
So a car in Salt Lake County would see a property tax decrease of 8.4 percent, under the leaders' plan. In Weber County, car taxes would go down 1.3 percent. But the same car in Rich County would see a property tax increase of 52 percent; in Utah County, 11.5 percent; and in Summit County, 12.7 percent.
But, points out Rep. Glen Brown, R-Coalville, there's good reason for those discrepancies. "In Salt Lake County they walk on sidewalks. (In Coalville) I walk on a dirt path. They want more improvements, they pay for them. If you go the in lieu, flat-rate route (on personal property), local governments will have to look more and more to real property taxes - homes and businesses - because they can't change the personal tax rate. Plus, you'll have local officials coming to the Legislature each year asking us to raise the 1.66 rate so they can have more money."
The in lieu tax causes "significant" problems for government budgets in high-tax counties, like Salt Lake, said local officials. The complete tax change, as outlined by leaders, would mean a $5 million reduction in Salt Lake County's property tax take, said county deputy attorney Karl Hendrickson. "That's 2.5 percent to 3 percent of our general fund budget. How can we make it up? Raise the property tax rates on everyone? It's not a great solution for us."
But it is the best solution leaders could come up with. "We even asked all the smart lobbyists out there (in the Capitol hallways) if they could come up with something better. We're still listening," Moody said.
Certainly not pleased with the leaders' solution will be several large industries who, because they get significant tax breaks because of the AMAX decision, are targeted by the leaders' plan to bear new or higher taxes to offset those breaks.
Proposal's key provisions
Here is the GOP legislative leaders' solution to making up tax revenue lost because of the Utah Supreme Court requirement that property taxes for some businesses be reduced:
- Assess all real property in the state at 100 percent of fair market value, subtracting 5 percent for "intangible" real estate costs like agent fees on properties assessed using the comparable sales method.
- Set the discount for primary residences at 29 percent, as allowed by Utah Constitution, thus assessing homeowners' property at 67.5 percent of market value and giving them a special tax break.
- Change personal property assessments - mainly cars - to 1.66 percent statewide, making it uniform from county to county.
- Place a variety of new or higher taxes on state-assessed properties to "recapture" more than $10 million of the property tax break they'd otherwise get. Those new taxes include: eliminating the Intermountain Power Project's municipal exemption, raising $2.7 million; placing gold, silver and copper severance taxes on a sliding scale, raising $4 million to $6 million; increase the oil severance tax slightly, raising $1 million to $2 million; tax the sale of out-of-state municipal bonds, raising $1.8 million; tax magnesium extraction - a clear attempt to get AMAX to pay it's full cost of the tax shift - raising $600,000.