by Howard Stephenson
Total property tax collections in Utah will surpass $2 billion in 2006, according to calculations by the Utah Taxpayers Association based on data from the Utah State Tax Commission. Earlier this year, the state passed another revenue milestone as individual income tax revenues surpassed the $2 billion mark for the fiscal year that ended June 30, 2006.
Every year in November, the Utah Taxpayers Association estimates property tax revenues for the current year based on raw data from the Tax Commission.
The official Tax Commission report is not released until late summer in the following year. In previous years, the association November estimate for real and personal property (excluding FIL)
has been within 0.25% of the Tax Commission’s official value released in the following year. FIL revenues are more difficult to predict.
Excluding vehicle FIL, taxes on real and personal property will be $1.84 billion in 2006, up 7.8% from 2005. Including vehicle FIL, property tax revenue will be $2.03 billion, up 7.2% from 2005.
The statewide effective tax rate (ETR) on real and personal property (excluding FIL) decreased from 1.289% in 2005 to 1.185% in 2006. The reduction in ETR is due to a significant 17.3% increase in property valuation.
Effective Tax Rates and Taxes Charged for Local Governments
School districts will receive 55% of all property taxes, about the same proportion as in 1986 but up from 50% in 1996. Counties will receive 18.3%, cities 15.5%, and special service districts 11.2%
The high property tax revenue increase for cities and the low property tax revenue increase for counties are attributable to the incorporation of Cottonwood Heights. Excluding Cottonwood Heights, city property tax revenues grew by 7.4%.
Utah Property Tax Growth Rates, 1976 to 2006
Property taxes are a stable source of revenue, especially compared to corporate income taxes, severance taxes, and individual income taxes. In a typical year, property taxes can be expected to grow 4% to 8%, especially if the legislature hasn’t passed bills that have dramatic impacts on property tax revenues.
Prior to Truth-in-Taxation’s enactment in 1986, property tax revenues frequently grew at double-digit rates (some of this is attributable to high inflation, particularly during the late 1970s and early 1980s). In 1996, the Legislature reduced the statewide basic levy for education beyond the reduction mandated by Truth-in-Taxation. In the late 1990s, the Legislature allowed counties to impose a county-option sale tax in exchange for dollar-for-dollar reductions in property taxes.
County-wide Effective Tax Rates
County effective tax rates are determined by dividing total real and personal property taxes charged by all tax entities within a county – including school districts, cities, special service districts, and the county itself – by the county’s total assessed valuation.
Valuation-weighted tax rates vary dramatically from county to county for several reasons. Some local governments operate more efficiently than others. Local governments with low property tax bases, which may be due to low property values and/or low population bases, need to provide the same services as counties with high property tax bases.
The accompanying chart shows effective tax rates for all twenty nine counties.
Impact of 45% Primary Residential Exemption
In 2005, the 45% primary residential exemption shifted $230 million in property taxes from primary residences to other types of properties, primarily businesses, according to calculations by the Utah Taxpayers Association based on Utah State Tax Commission data.
This calculation assumes that removing the 45% exemption would be accompanied by a corresponding reduction in property tax rates to maintain revenue neutrality. However, if the 45% exemption were removed without a reduction in property tax rates, the impact on home owners would be $718 million.
In addition, residential non-vehicular personal property such as computers, washing machines, refrigerators, furniture, etc. are 100% exempt from property taxes while businesses pay property taxes on personal property ($111.5 million in 2005). The spending lobby complains that businesses benefit from “loopholes”, but in Utah home owners (and 501 (c) (3) non-profits) get the property tax breaks. In a couple of weeks, we’ll let you know who’s getting the sales tax breaks.
Highest and Lowest Tax Rates
Every year, the association lists the five highest and five lowest property tax rates for each type of local government.
In addition to local government efficiency, other factors impact property tax rates. At the city level, property tax rates are impacted by cities’ decisions to impose utility franchise fees. Most urban cities impose this tax while many rural towns do not. City property taxes are also impacted
by city sales tax bases, which explains why so many mayors, council members, and city “economic development” directors like to subsidize retail businesses.
School district property tax rates are impacted by enrollment growth rates and assessed valuation per student. Growing districts, in addition to usually having low assessed valuations per
student (except for Washington and Wasatch), typically have high property tax rates to cover construction bonds.
When all cities are included (not just the 30 largest), the highest property tax rate is found in East Carbon (0.006207). Several small rural towns have property tax rates exceeding 0.003500
including Cannonville, Coalville, Wendover, Roosevelt, and Delta.
Highest Combined Tax Rates
Utah’s highest combined property tax rates – which include tax rates for county, school district, city, and special service districts – are found in Ogden, according to the Utah Taxpayers Association’s analysis of Utah State Tax Commission’s 2006 Taxing Areas/Tax Rates report.
Utah has more than 1,000 taxing areas due to the numerous combinations of 29 counties, 40 school districts, 247 cities, and a couple hundred special service districts. Twenty-nine of these taxing areas are found in Ogden City, and all of these taxing areas have rates that are higher than any other taxing area rates in the state.
In 2006, a typical taxing area in Utah has a property tax rate of about 1.2%. Excluding Ogden tax areas, less than 2.0% of all Utah tax areas have tax rates exceeding 1.5%.