by Howard Stephenson
Utah Taxpayers could be deeply affected by a current proposal before the Utah State Tax Commission and a recent decision of Utah’s new Tax Court. The pending issue before the Tax Commission which is proposed by eleven rural counties could automatically increase local property tax rates statewide annually. The recent Tax Court decision overcomes longstanding resistence by counties and the Tax Commission to allowing taxpayers unbridled access to the courts.
Counties Seek Automatic Property Tax Increases
County Auditors and attorneys from eleven rural counties met with the Utah State Tax Commissioners in an informal hearing during July to discuss a proposal that would modify the calculation of certified property tax rates. The counties were asking that equalization adjustments to property tax rates currently used for locally assessed properties be extended to include centrally assessed properties as well. (Centrally assessed properties are those taxpayers whose property values are set by the State Tax Commission and whose properties usually cross more than one county or state. These include mines, utilities, pipelines, and railroads.)
The impact of this proposal would be an automatic increase in property tax rates on all taxpayers, not just centrally assessed, in every county of the state.
After learning that the informal hearing had been held without taxpayer notification and therefore without taxpayer input, the Utah Taxpayers Association met with the Tax Commissioners to express the Association’s objection to the proposal, and submitted a letter to Tax Commissioners formally outlining the Association’s objections to the proposed change. The Association pointed out that counties can currently impose a judgment levy that holds local governments harmless in cases where the commission or the courts determine centrally assessed properties have been over-valued. Judgement levies are one-time taxes which are subject to the public notice and public hearing requirements of Utah’s Truth-in-Taxation law.
The Association also argued that if equalization adjustments are allowed to compensate taxing entities for valuation decreases in centrally assessed properties, then local governments would be held harmless twice—once with the judgment levy and again with the new equalization adjustment. The Association emphasized that the county proposal tries to have it “both ways.”
The Association also pointed out that if the Tax Commission is seriously considering the county proposal, they should also consider correcting a feature of the Commission’s current interpretation of the rate-setting formula in which all increases in centrally assessed valuations are treated as “new growth,” even though there has been no new construction or equipment purchases by the centrally assessed taxpayer. This interpretation means that the certified tax rate is not adjusted downward for the larger tax base and the so-called new growth results in a revenue windfall. However, in years when large decreases in centrally assessed valuations occur, the certified tax rate automatically floats upward. The Association recommended that the commission consider treating centrally assessed valuation increases and decreases in a manner consistent with Utah’s Truth-in-Taxation law.
Any student of Utah’s property tax laws knows that the county proposal is unnecessary because the state’s current exclusion of centrally assessed estimates of equalization adjustments in calculating tax levies does not financially harm rural counties. In fact, most of the eleven counties raising this appeal have enormous property tax bases thanks to the existence of these centrally assessed corporate taxpayers. Millard School District, for example, has an assessed valuation per student that is 175% higher than the statewide average. Because of the existence of centrally assessed properties, these counties are able to enjoy lower overall property tax rates, although some don’t. Millard County’s effective tax rate is 18% below the state average and is ranked 18th out of 29 counties. Daggett County’s effective rate is the lowest in the state and is 46% below the state average.
On the other hand, there are some counties high in centrally assessed values who have chosen to go for the gold and impose high tax rates on their high values. These are sometimes referred to as the “greedy counties.” For example, Emery County’s total effective tax rate is 12% higher than the state average and ranks 4th overall despite the tremendous values resulting from coal mining and power plants. Resource-rich San Juan County’s effective county-wide rate is the highest in the state and is 123% higher than the state average.
The Taxpayers Association’s complete arguments contained in its letter to the Tax Commission can be found on the Association’s website at www.utahtaxpayers.org . The Tax Commission has not yet made a decision on the counties’ proposal.
Taxpayers can have their day in court
Taxpayers really can have their day in court and there is no presumption by the court that tax collectors are right, according to a recent Utah Tax Court ruling by Judge Lynn W. Davis. In commenting on the landmark decision, which is a huge victory for taxpayers throughout Utah, Parsons Behle & Latimer tax attorney and Utah Taxpayers Association Board Member Maxwell A. Miller said receiving the decision was like having “Christmas in May.”
In a paper he wrote to help taxpayers understand the meaning of Judge Davis’ decision in Alliant Techsystems v. Salt Lake County, Mr. Miller pointed out that the decision clearly overturns Evans & Sutherland which had struck down the original Tax Court which stated that the Tax Commission’s constitutional authority cannot be vested in the District Courts. Miller noted that Judge Davis’ ruling also alters Bluth, which dismissed a taxpayers’ lawsuit that challenged the legality of a Tax Commission rule and ruled that taxpayers must run the Tax Commission gauntlet before they can go to court.
Mr. Miller explained that Alliant Techsystems finally places taxpayers on par with taxing agencies, stiking down the ages-old presumption that taxpayers are guilty until proven innocent. The decision clearly shows that Utah’s new Tax Court Law, sponsored by myself and then-Representative John Valentine in 1998 and approved by nearly 75% of voters overcomes Bluth and Evans & Sutherland. In their arguments for Proposition 6 in the Voter Information Pamphlet Valentine and I wrote, “A vote for Proposition 6 will help ensure fair and equitable taxation in Utah by reestablishing a tax court in the state and providing a more taxpayers-favorable place to appeal a tax assessment.”
Based on the new Tax Court constitutional amendment and statute, Judge Davis wrote, “The incompatibility of the Tax commission as ‘impartial adjudicator’ and simultaneous ‘advocate’ is obvious. . . [L]egal questions, which the Tax commission cannot answer (or should not answer because the Tax Commission has chosen to compromise its roles), must be resolved in District Court.” Mr. Miller wrote that the ruling is significant for every Utah taxpayer who believes in the rule of law. “The words “trial de novo” in the Tax Court Act mean precisely what they say – appeals from the Tax Commission to the District Court will be tried as if they originated there, without deference to the Tax Commission. Equally important, those cases which the Tax Commission has no jurisdiction to adjudicate, such as federal constitutional challenges to assessments, can and should be heard by District Courts.”
Mr. Miller’s complete paper can be found at www.utahtaxpayers.org .