Truth-In-Taxation 101

A couple of weeks ago, the annual Property Valuation Notices arrived in the mail.  Some Utahns, particularly those of us that live in Alpine and Highland, received some shocking news.  With the explosive housing market our property valuations have shot up tens and even hundreds of percentage points (I'm up 40% in 1 year and that's below the city average.  I have a friend with a vacant lot that's up 500%.).  With these sudden increases in valuations, most of these citizens are seeing large tax increases, even in the column labeled "No Change".  The natural assumption is that cities, counties, school districts, and special service districts are seeing huge windfalls in new revenue due to the revaluation.  Although that is the case in many other state, it's not true here in Utah.

Utah has a process affectionately called "Truth-In-Taxation" (see 59-2-918 through 59-2-924) which requires several steps to protect people's property and to limit property taxation:

1. Truth-In-Taxation limits a local taxing entity (such as a city) to a dollar constant property tax revenue, except for new growth.  What this means is that as valuations rise, property tax rates (certified tax rates) drop commensurately to provide the same amount of property tax revenue.  These entities do get extra revenue as new home and business are built ("new growth"), but they do not receive additional revenue as a result of increasing property valuations.
2. If a taxing entity wants to grow property tax revenues by increasing the certified tax rate it must publicly notify the citizens within that taxing district (you typically see this in the newspaper).  The legislature wants to make sure the public is aware of this desired tax increase.
3. A taxing entity must also hold a public hearing to discuss the justification for the tax increase.  The public is notified of the time and location of this hearing by newspaper, the Property Valuation Notices, and sometimes in the city newsletter.  Often these hearing have the largest public turnout of any public hearing.

Many local official may complain about the difficulty of the Truth-In-Taxation process, but protecting people's property is of such importance the legislature requires this highly visible process and these stringent limitations.

So, once citizens understand that local governments don't receive any windfall proceeds, the next question naturally is "well if there was no change in the budget, why am I seeing a tax increase."  This is an excellent question.  Since we are talking about a fixed size pie, as valuations rise (or fall), the distribution of how the tax burden is shared gets distributed differently based on rates of valuation increases (or decreases).  For example, if the property valuations of all homes and business rose at the same rate, for a given taxing entity, the "No Change" tax amount would be the same, year-to-year.  But, if some properties rise at a faster rate than others, those properties rising faster than average would bear a greater share of the property tax burden (a tax increase), while those rising slower than average would shoulder a lesser share (a tax decrease).  One of the weaknesses of even the truth-in-taxation process is that some property owners can still see large property tax increases when their valuations are skyrocketing compared to others in the taxing entity.  Much of this could be mitigated by having smaller taxing entities and limiting the reliance of the property tax to fund government services.

Citizens who are aware of Prop 13 in California also ask "Why can't we just cap property taxes like they do in California?"  These citizens assume that the legislature could just make this "simple" change.  It's not that easy.  Currently our state constitution requires that all (nonexempt) tangible property in the State be:

1. assessed at a uniform and equal rate in proportion to its fair market value, to be ascertained as provided by law; and
2. taxed at a uniform and equal rate

(See Utah Constitution Article XIII, Section 2)

So, the citizens of the state have placed limits on the legislature that prohibit capping rates and assessments.  The constitution allows the legislature to provide some property tax relief for the poor as well as for disabled veterans, but the constitution has some strict requirements regarding property and property taxes.  The legislature can only operate within the bounds of what is permitted by the constitution.  (Note:  The constitution can be changed.  It requires an affirmative 2/3rd majority vote in both the house and the senate and then a majority vote by the citizens of the state.)

So, what can you do?

1. If you think your property tax valuation is incorrect, appeal it to your county board of equalization.  This can be a simple as submitting a property appraisal.
2. Attend your public budget hearings.
3. Help your taxing entities determine ways to find improved efficiency and/or cut unnecessary government programs.
4. Seriously consider whether a property tax increase should fund additional services (such as the property tax initiative in SL Co. for transit) or whether there is a better way to fund those service (such as a user fee at the fare box).
5. Identify for your elected officials what services should and shouldn't be funded with the property tax.
6. Let you legislator and fellow citizens know whether additional property tax reforms are necessary and what you recommend.  (I'm starting to hear rumblings that the actions of SL Co. may lead to a  renewed call for a Prop 13-like change to our constitution.)

I hope this basic tutorial helps.  I've tried to hit the key points without losing you in the finer details (exempt properties, residential homeowner exemptions, etc.).

Update (Sunday Aug 20th):  See the Salt Lake Tribune report: Nasty surprise in the mailbox?.