Utah lawmakers are beginning to explore changes in the handling of property tax disputes with some of the state’s biggest corporations in a way that opponents fear could lead to higher taxes for homeowners and local businesses.
Companies at the center of the issue — businesses like PacifiCorp., Kennecott, Questar, Union Pacific and others whose valuations are set by the state because their holdings cross county lines — see it as a matter of efficiency and fairness.
The so-called centrally assessed taxpayers say the ability of counties to challenge the state assessments — and the increasing frequency and aggressiveness of these challenges — is costing millions of dollars, dragging out disputes for years and creating uncertainty for companies. They are asking for legislative action.
But, as unlikely as it may seem, counties portray themselves as defenders of the little guy — homeowners and local businesses — who counties warn will have the tax burden shifted to them if the big companies succeed in lowering their taxes by tamping down challenges.
That’s because government entities are guaranteed, under Utah law, a certain amount of revenues, and if a high-value property owner wins a reduced valuation, the tax difference must be made up by other property owners.
Members of the Legislature’s Revenue and Taxation Interim Committee seemed largely sympathetic to concerns of the centrally assessed businesses during a recent hearing and, at times, openly skeptical of counties’ claims that they are attempting to ensure everyone pays their fair share of taxes.
“The [centrally assessed] taxpayer really appears to be the aggrieved party and should be the only one — in my opinion, unless I can be educated differently — that they would be the one that would have the standing to bring the challenge” to valuation, said Rep. Dan McCay, R-Riverton and House chairman of the Revenue and Taxation Interim Committee. “I don’t necessarily view this as the counties’ money; I look at this as the taxpayer’s dollar.”
But, as Rep. Joel Briscoe, D-Salt Lake City, noted, when taxes are lowered for these large businesses, “it has a negative impact on homeowners and small-business owners who don’t have access to resources that centrally assessed property owners have to make appeals of their valuations.”
This shift from the so-called centrally assessed properties has been happening for years, according to Doug Macdonald, an economic consultant who used to be the chief economist for the Utah State Tax Commission.
Tax shift • A study he conducted in 2010 for the Utah Education Association-affiliated Utahns for Public Schools said property taxes paid by utilities, mining companies and other centrally assessed corporations have not kept up with growth in the value of the companies’ property, inflation and population growth.
For example, in the decade from 1996 to 2006, Macdonald discovered a significant “tax gap” for utilities, finding a 62 percent increase in inflation and customer base at the same time property taxes paid fell by 16 percent (a decline of $22 million). Natural-resource companies, meanwhile, saw production values jump by 158 percent while their property taxes rose by 58 percent, according to the study.
The research said the total share of the property taxes paid by natural-resource companies and utilities during that same decade shrank by half (from 17 percent to 8.7). Part of that change was driven by a spurt in the number and value of new homes and businesses, but that wasn’t enough to account for the whole shift.
“The bottom line is they have tended to appeal a whole lot and get their values down to the point they are not paying their fair share of taxes and everyone else is paying more,” Macdonald said in an interview. “The fox has been in the henhouse, maybe starting 20 years ago. There are more foxes and more foxes, and there aren’t going to be any chickens soon.”
Like small property taxpayers, these large corporations have the right to appeal their assessments. And right now, counties have the ability to appeal, too — at first administratively to the state and, if no resolution is reached there, to court.
Kelly Wright, head of the tax and revenue unit at the Salt Lake County district attorney’s office, said if counties are cut out of the equation, the centrally assessed businesses will have a far easier time prevailing in their quest to lower valuations and taxes.
The Utah Tax Commission “does not have a budget to go after and litigate these issues,” Wright said. “They really don’t have the ability to go up [to court] and defend” their valuations.
“We are the defenders,” he said. “We are defending because of the structural and resource deficiencies we see with the Tax Commission.”
Problems, costs and delays • But Salt Lake City attorney David Crapo, who represents centrally assessed property owners, is asking the Legislature to rethink the current system.
He says counties in recent years have been challenging Tax Commission assessments of these businesses regularly and aggressively. He said the disputes are racking up enormous legal bills, delaying decisions for years at a time and creating tremendous uncertainty for businesses and government.
Crapo compared it to a homeowner who decides not to appeal the tax assessment on his house, but then the valuation is challenged by other government entities, from school districts to cities.
“You wouldn’t be very happy about that. Well, that’s the same type of problem we have right now being addressed in the centrally assessed area,” he said.
“It appears to be happening more often during the last number of years. Why? I’m not sure,” Crapo told the legislative committee. “It could be because there’s increased demand, if you will, or pressure for revenue at counties and localities so everyone needs to make sure they’re able to fund their budgets.”
But, as Sen. Howard Stephenson, R-Draper, a committee member and head of the Utah Taxpayers Association, pointed out, property tax revenues for counties, school districts and cities don’t take the hit from lowered valuations for multi-county businesses. The burden simply shifts to the larger pool of property owners.
Stephenson — whose association is funded by primarily by businesses, including some of the big centrally assessed companies — asked for more data on how often the appeals are being filed, the success rate and other information.
But he indicated he is sympathetic to the idea of limiting appeals.
“The notion that there’s somebody other than the county assessor — or the Tax Commission in the case of centrally assessed properties — valuing my property really is a troubling thought.”
Sen. Curt Bramble, a committee member and CPA who asked to put the issue on the committee agenda, believes some fixes are in order.
“When a taxpayer settles with [the Tax Commission], that’s where it should be resolved. If someone brings litigation, that litigation ought to be between the entity that has the assessing authority and the taxpayer,” the Provo Republican said. “Any other party, if they have standing for an amicus brief or friend of the court or whatever, could let their opinions be brought forward that way rather than initiating litigation and having this repetitive cycle — just this ongoing litigation.”
Another committee member, Sen. John Valentine, R-Orem, an attorney with expertise in tax matters, also seemed open to the concerns of centrally assessed taxpayers. He appeared particularly troubled that counties often turn over the decision of tax appeals to a committee of the Utah Association of Counties outside of the public view and sometimes without consultation with county executives.
“I find that incredible,” he said.