howardnlby Howard Stephenson

The Utah Taxpayers Association will be issuing a 50-State Property Tax Report in  a few weeks. The accompanying chart is taken from that report and summarizes Utah’s effective property tax rate rankings for various types of property.

The report shows that property taxes on primary residences in Utah rank 47th lowest of 55 urban cities in the fifty states and the District of Columbia.  (Four states in the study included more than one major urban city: Illinois, Kentucky, Virginia and Florida – thus the 55 city comparison.)  Commercial and industrial properties in Utah ranked 36th and 37th among the 55 urban cities depending on the mix of real property, personal property, inventories (which are tax exempt in Utah and nearly all other states), and fixtures.

The study’s comparison of property taxes in a sample rural community for each of the 50 states shows that Utah rural primary residences rank 40th on a $150,000 residence and 42nd on a $300,000 residence.  Commercial and Industrial properties in Utah ranked from 22nd to 30th among 50 rural communities depending on the mix of property types

Effects of Property Classification

There’s an old adage “Businesses don’t pay taxes – people do.”  Economists understand this well and explain that so-called business taxes are always passed on to people, either in the form of higher prices for those who purchase the products or services produced by the business, lower wages for employees of the business, or lower profits for business owners.  In essence, business taxes are a way for politicians to hide the true costs of government from those who ultimately pay them.

Property taxes are imposed by all 50 states but some states impose a disproportionate burden of the property tax on businesses.

Property taxes paid on commercial, industrial, and residential property varies dramatically from state to state. Some states have several formal classifications of property with each classification of property being taxed at a different assessment level. Arizona has nine classifications with residential properties assessed at 10% mining and utility properties assessed at 25% and most other classes of property taxed at assessment levels between 10% and 25%. Many states do not have formal classification systems, but the various credits, exemptions, and deductions act as a de facto classification system. Utah technically does not have a classification system, but its 45% primary residential exemption functions like a classification. Please refer to page five of the April 2005 edition of The Utah Taxpayer which explains the impact of the 45% primary residential exemption. As a result of the exemption, $204.7 million in property taxes are shifted from primary residences to other classes of property.

Differences in the quality of assessments among various classes of property can produce a de facto classification system even in the absence of statutory classification schemes.

State-by-state classification effects can best be measured by calculating the ratio of effective tax rates (ETR) of industrial and commercial property to the effective tax rate of primary residences. Typically, if a state has a statutory or de facto classification system, primary residences receive the most preferential treatment because home owners outnumber business owners.

Utah’s ETR ratio is 17th highest overall and is slightly above the national average. If the ETR ratio were calculated using a $300,000 primary residence instead of a $150,000 residence, Utah’s ranking would increase to 13th highest. In this example, states with an ETR ratio of less than 1.00 tend to exempt industrial personal property or assess industrial personal property at a low rate.

The ratio of industrial taxes to residential taxes in Massachusetts, New York, and WashingtonD.C. is extremely high while the ratio in New Hampshire, Pennsylvania, and Delaware is extremely low.

For copies of the complete report, email your request to taxwatch@utahtaxpayers.org or phone 801 972-8814

Text Box: Utah Property Tax Ranking for Various Property Types  Type of Property	Urban 55 cities	Rural 50 cities  Primary Residence  $150,000	47	40  $300,000	47	42  Commercial  $100,000 land/buildings, $20,000 fixtures	36	30  $1 million land/buildings, $200,000 fixtures	37	30  $25 million land/building, $5 million fixtures	37	30  Industrial – 50% personal property  $100,000 land/buildings, $50,000 machinery/equipment, $40,000 inventories, $10,000 fixtures	36	27  $1 million land/buildings, $500,000 machinery/equipment, $400,000 inventories, $100,000 fixtures	37	27  $25 million land/buildings, $12.5 million machinery/equipment, $10 million inventories, $2.5 million fixtures	37	27  Industrial – 60% personal property  $100,000 land/buildings, $75,000 machinery/equipment, $60,000 inventories, $15,000 fixtures	37	22  $1 million land/buildings, $750,000 machinery/equipment, $600,000 inventories, $150,000 fixtures	37	23  $25 million land/buildings, $18.75 million machinery/equipment, $15 million inventories, $3.75 million fixtures	37	23  Source: Utah Taxpayers Association