Utah's counties are considering suing the state after the Utah State Tax Commission yanked $8.7 million in sales-tax revenue and gave it to cities instead.

Counties are scrambling to cover the unexpected losses and talking about future tax increases to make up the differences. Davis County Clerk/Auditor Steve Rawlings said the tax rate in unincorporated areas might double in December to keep current service levels.

The money technically belonged to the cities to begin with, but was shipped to the counties after telecommunications providers incorrectly reported their taxes.

The bad math has been going on since 2005, and now counties are paying for it.

County leaders believe the tax commission is taking too much money.

"It is that illegal, immoral adjustment that they did, and they are going to be sued over it," Salt Lake County Councilman Joe Hatch said.

The Utah Association of Counties has hired Karl Hendrickson, an attorney for the Salt Lake County Council, to represent the counties in possible litigation. Salt Lake County District Attorney Lohra Miller also volunteered one of her civil prosecutors to help with the case.

The tax commission already took three years of misallocated money back and plans to collect another seven months worth. County leaders believe the tax commission should only go back 90 days.

"As far as we're concerned, they've violated their own rules when they looked back over a three-year period rather than 90 days, which is typical," Salt Lake County Auditor Jeff Hatch said.

A spokesman for the tax commission said the 90-day rule only applies to boundary disputes. "This is a whole different ballgame," said Charlie Roberts, Utah State Tax Commission spokesman.

For the counties, it's about the timing of the whole thing.

The tax commission started diverting the revenue in the middle of the budget year, leaving counties unprepared to deal with it.

"They didn't give anybody any notice," Hendrickson said. "It's a huge financial impact, and they took no thought of it."

In Utah County, Clerk/Auditor Bryan Thompson said he received a letter in the mail telling him about the hit July 17 — a week before the money would be diverted.

"We need a little bit of a chance to plan for an adjustment like that," Thompson said. "Give us a heads up, let us know. They could have let us know at budget time last year ... then we would have projected this year differently."

Roberts, the tax commission spokesman, acknowledged the timing is unfortunate but said "the best time is as soon as we find out about it, to make that correction."

The sales tax from the telecommunications companies largely pays for things like public works, roads and animal services.

Salt Lake County will end up taking a $3.2 million hit. Hatch said it has enough money in municipal services fund reserves, but said "it's going to be a real challenge to absorb this."

It will either take a reduction of service levels or a tax increase to get through the problem in the future, he said.

"In order to continue the policing and roads and all the municipal services, we would probably need a property tax increase to make up for this loss in sales tax in the near future," Hatch said.

Utah County leaders are trying to make up for a more than $987,000 loss by pinching pennies everywhere, Thompson said. He'd like to avoid tapping into reserve funds, and a tax increase would only be used as a last resort.

In Davis County, things are so tight that leaders will likely have to more than double the property tax rate in the unincorporated area, Rawlings said. The county already gave up $700,000, and Rawlings said the tax commission could take up to another $300,000 in the next round of adjustments.

"It leaves us in a real hole," Rawlings said. "That's going to be devastating for us."

For now, Davis County will likely tap into general reserve funds and reimburse it after a tax increase, Rawlings said.

E-mail: [email protected]