Thursday, June 12, 2008

More on Utah's Property Tax

As mentioned in my previous post, Utah’s truth in taxation ensures that increases in the value of real estate will not result in a windfall to the county or other entities funded by the property tax. However, that does not mean that someone’s taxes can’t go up. Property taxes can go up for a variety of reasons. I will list the most common.

1- Your house was part of a reappraisal process that only affected a percentage of the residential properties in your county. Since the tax rates are calculated by dividing the total budgets by the total taxable value. Say a county has a budget of 200K and total taxable value of property in the county of 20 mill, the tax rate would be 200,000/20,000,000 or .0100. Let’s say that reappraisal of 10% of the properties resulted in a 20% increase in taxable value for that 10% of the county that was reappraised. Your 100,000 property is now reappraised at 120,000. Overall, the total taxable value of the county increases by 10% of 20 million multiplied by 20%. This equation results in a total increase in county taxable value of 400,000 to 20,400,000. This would reduce the tax rate (200,000/20,400,000) to .009804. However, your property increased from 100,000 to 120,000 so your tax bill would have gone from $1,000 (.01x100,000) to (.009804*120,000) at $1,176.50. This is a simplified example not taking into account increases in other property values such as personal property, but I hope it illustrates the point.

2- Another way your property tax can increase is by increasing the budget figure. If a local entity holds a public hearing, and goes through certain steps, they can increase their budget. It is a politically unpopular thing to do, but some counties face certain budget crises for a variety of reasons. In the above example, let’s say that the county approves a 20,000 budget increase. On top of that the reappraisal talked about in example one goes through. You now have a budget of 220k being funded by a taxable value of 20.4 mill. The new tax rate would be 220,000/20,400,000 at .010784. That reappraised property of yours now faces a tax bill of 120,000 x .010784= $1,294, a nearly $300 difference from last year.

3- Another way that your property taxes may go up is through losing a major business or your county (or Tax Commission for that matter) reducing the value of a major business property by a large amount in an appeal. Let’s say that Energy Solutions, which may represent 20% of Tooele County’s tax base decides to pull out and close their operation. In the case above, 20% of the original $20 mill is off the books meaning that the new taxable value is 20.4 mill less 20%x20 mill=4 mill. The new tax rate in this scenario is 20.4 million less 4 million at 16.4 million. The new tax rate is now 220K/16.4 million or .013415 resulting in a property tax on your property of (120K x .013415) of 1,610.

When all of these major factors come to bear at the same time, property taxes can increase considerably, even under truth in taxation. On average however, Utah’s property tax is small comparatively to other states. The Senate Site has a good post regarding this. As mentioned in my previous post, because there is no indexing of the budgets under truth in taxation for inflation, counties and cities are constantly trying to provide the same services with a funding source that declines in real terms. As a result, Utahns tend to get fee’d rather heavily. Utahns tend to get nickled and dimed out of $120 rather than see a $100 increase in their property tax. Though making our tax burden more invisible makes some political sense, we should keep in mind that transparent disclosure of citizen’s true tax burden keeps governments, both state and local, in check.

1 comment:

Jeremy said...

Ok...I've finally added you to my aggregator. I just read a good 2 to 3 months of history on your site and can't figure out why I didn't get you added a long time ago.

Thanks for this post. It will be printed up and copies will be sitting at my desk in the Davis County Assessor Office for taxpayer perusal!

Do you happen to have the Senate Site link that you mentioned at the end of the post?