Utah state government will get a $5 million income tax windfall next year because state income tax payers won't be able to deduct their vehicle property taxes for 1999.
Yes, when you fill out your 1999 tax returns you won't have to pore through your old checkbook registers at income tax time looking for that check you wrote the county assessor for your car property tax - you won't be able to deduct that tax anymore.The 1998 Legislature changed forever the way cars and light-duty trucks will be taxed in Utah.
Where you used to pay a property tax based on value - calculated on the "blue book" value of your car - starting Jan. 1 you'll pay a flat fee instead. Property taxes are deductible under Utah law, fees aren't.
The fee schedule is based on the age of the car. (See chart). The way those fees are set up results in a tax/fee cut for owners of high-end, new cars and maybe a slight tax/fee increase for the drivers of older cars.
For example, the owner of a 1997 BMW 740i - a slick sports sedan - in 1998 will pay $689.10 in property tax. But next year that owner will pay just $150 under the new fee-by-age schedule, the Salt Lake County Assessor's Office says.
That's because the top fee in 1999 will be $150 for a 2-year-old car, while the $689.10 paid this year is based on the Beemer's blue book value. Very inexpensive new cars, however, could see a slight increase.
In any case, whether you paid $6.48 or $648 in vehicle property tax in 1998, you can take a federal and state income tax deduction in that amount on your income taxes. That deduction will be gone on your 1999 taxes.
Owners of old clunkers paid so little property tax that they probably didn't bother to deduct it. Now they'll likely pay slightly more in fee than in tax, and they can't deduct anything.
"This (how much the state will make through the lost deduction) is a tough estimate to make," says the Tax Commission's Tom Williams. "But the best guess now is about $5 million" a year. That's not a lot of cash compared with how much Utahns pay in state income tax - $1.3 billion in 1997.
But it's just another example of how the state has been benefiting lately in increased income tax revenue because of changes in other tax laws.
This past session, lawmakers and Gov. Mike Leavitt decided not to make changes in Utah income tax law to compensate for increased revenue generated because of federal income tax cuts. The state is collecting an extra $11 million from state taxpayers because of that non-action.
Now will come $5 million more when the vehicle property tax becomes a fee.
Not only is the state getting an extra $5 million, but local counties, school districts and cities will get an extra $5.5 million more in fiscal 2000, which begins July 1, 1999, for state and local government entities and Jan. 1, 2000, for counties, because of the change to a fee. Vehicle fees go to those entities, not to the state.
The legislative fiscal analyst figures switching from ad valorem tax on cars and trucks to the fee system will bring in that much more money.
Sen. George Mantes, D-Tooele, sponsor of the tax-switch law, wanted the change from tax to fee-based-on-age to be revenue neutral, meaning the total amount collected would be unchanged. It just about is. But, at least according to legislative budgeteers, the favor goes slightly to the local entities collecting the tax. Those are just estimates, and local governments will have to go through a year of fee payments to see how much they actually collect.
Mantes couldn't be reached for comment concerning the extra $5 million the fee change means in state income taxes.
To make sure local governments don't lose money, Mantes' new law says that any local taxing entity that comes up a little short on revenues because of the switch can adjust its property tax rate upward to make up the difference without having to go through Truth In Taxation - a law that requires public advertisements and hearings before a property tax increase is approved.
In fiscal 1999, if a local government takes in more money through the fee system, it must lower it's property tax rate accordingly. But after 1999 - in fiscal 2000 and beyond - it doesn't have to lower it's rate if it takes in more money via the new vehicle fee system.
Yearly Vehicle fees
Vehicle age Yearly fees
Zero-to-3 years $150
3-to-6 years $110
6-to-9 years $ 80
9-to-12 years $ 50
12-plus years $ 10