howardnlby Howard Stephenson
In an previous column I informed you of the Utah State Tax Commission’s informal hearing with 12 counties seeking automatic increases in property tax rates. The counties requested that the “estimated equalization adjustments” used in calculating property tax levies be changed to include estimates of adjustments in values of centrally assessed properties.

This change would allow tax rates to automatically increase each year on all taxpayers to accomodate the effects of estimated adjustments to centrally assessed property values (such as mines, utilities, and railroads). Every property taxpayer in the state of Utah will be negatively affected by this proposed change in tax rate calculations if it is adopted. However, not one taxpayer was notified of the July 8 informal hearing. Consequently, taxpayers were unable to respond to the points made by the counties and can only guess what the counties may have argued, since the meeting was not recorded.

Upon learning of the meeting, the Utah Taxpayers Association sent the Tax Commission a letter outlining why the counties’ request should be denied. The Commission has now responded by setting a formal rule hearing for 9:00 a.m. on Wednesday, September 24, 2003 at the Tax Commisssion Building, 210 North 1950 West, Salt Lake City 84134. All taxpayers oughtt to be concerned.

A Remedy Already Exists

In its letter, the Taxpayers Association pointed out to the Commission that the legislature has already adopted a policy regarding the subject of the county proposal by enacting “judgment levy” legislation which ensures that there are no significant property tax revenue shortfalls or windfalls resulting from centrally assessed appeals. The counties are asking the Commission to use estimates of centrally assessed adjustments when the legislature has already provided exactly what is needed to make budgets whole. If the Tax Commission allows local entities to also increase their tax rates for the estimated adjustments of centrally assessed property, taxing entities are able to be made whole twice – once when the new rule requires the tax rate is set at a higher level, and again when a judgment levy is imposed.

There Is No Cogent Reason to Depart from Historical Interpretation

From the time the certified tax rate and Truth-in-Taxation process was enacted in 1985 until now, this equalization adjustment in property tax rates has only included adjustments to locally assessed property values by the county boards of equalization. In the context of levy setting, the term “equalization adjustments” has always referred to county board of equalization adjustments. The Utah Taxpayers Association argues that to change the longstanding policy, practice, and interpretation of the statute and rule without a statutory change or directive from the courts would be inappropriate.

The Taxpayers Association believes Utah case law supports their position. In Husky Oil Co. v. Tax Commission, 556 P.2d 1268 (Utah 1976), the Tax Commission promulgated and applied an administrative rule from 1937 until 1971, when it amended the rule without any impetus from the legislature or the courts. The Utah Supreme Court analyzed whether the 1971 amendment should be applied to a taxpayer and stated that: “prior determinations are entitled to great weight . . . and radical departures from administrative interpretation consistently followed cannot be made except for most cogent reasons.” The Court then struck down the 1971 amendment for the reason that “[t]he Commission has made radical departures from an interpretation unchangingly followed by it for more than three decades” and “does not infuse congency into the reasons for those departures.”

For 18 years the Tax Commission and county property tax administrators have interpreted “equalization adjustments” to mean board of equalization adjustments of locally assessed property. I am unaware of any legislative or judicial impetus for the proposed radical change from this interpretation. If the counties or the Tax Commission wish to make such a change, they should propose legislation to do so. However, local taxing entities have failed at the legislature to circumvent the accountability required under Utah’s Truth-in-Taxation law (TNT). Last session alone the legislature rejected two bills which would have removed or relaxed the protections of TNT. This new proposal seems to be an end-run around the legislature.

As Long As We’re Talking About Changes . . .

At the same time Tax Commissioners are considering this proposal, they ought to consider two real problems in Tax Commission practices and statutory interpretations which have inadvertantly given the very 12 counties seeking the proposed rule change unfair, automatic property tax increases.

A Fluke in “New Growth” Interpretation results in higher taxes

The first of these is a practice which currently gives counties an unwarranted increase in property tax rates as valuations of centrally assessed properties fluctuate over time. Under the Commission’s current interpretation of “new growth” (which is excluded from the property tax rate calculation formula), whenever centrally assessed values increase, the new values are considered “new growth” and provide additional revenues to taxing entities. Centrally assessed increases are all considered new growth even though there may have been absolutely no new construction, no new equipment, and no new mines or wells or power plants. The “new growth” may have simply resulted from an increase in oil prices, for example.

However, when centrally assessed values drop, the certified rate is automatically pushed up to hold taxing entities harmless. As a result, this see-saw effect in centrally assessed values always produces higher taxes; either through “new growth” tax windfalls in the up years or through increased certified tax rates in the down years. When oil prices rise, counties get a property tax windfall. When oil prices drop, county property tax revenues are protected through higher tax rates on all taxpayers. Over time, these see-saw tax hikes have resulted in tens of millions of dollars in permanent tax increases on all taxpayers. As long as changes are being sought, this ratcheting of rates ought to be eliminated.

Collecting Twice for “Uncollectables” results in higher taxes

Another change that should be made is the current practice of allowing the certified tax rate to be automatically increased by the percent of uncollected property taxes for the previous five years. Local taxing entities are currently “double-dipping” in their compensation for delinquent property taxes: once when the property tax rate is adjusted upward by the five-year average of unpaid taxes, and again when the property taxes are redeemed either at the sheriff’s tax sale, or when taxpayers pay their taxes prior to the property being sold for taxes. Counties always, sooner or later, get their money from the property owner, plus penalties, plus interest. The millions of dollars collected annually as property tax redemptions are never figured into the certified tax rate formula and therefore, taxing entities get to collect the money twice. Your Taxpayers Association estimates that this double dipping results in more than $75 million in excess property taxes annually. We wonder why the Tax Commission and the Counties are not seeking to remedy this inequity.