Truth in Taxation

Utah's "Truth In Taxation" laws were passed in 1985 as a compromise to direct tax limitation. Prior to 1985, property tax revenues were limited to 106 percent of taxes collected in the previous year. The limit was activated only when an entity's tax base was increased as a result of factoring or reappraisal ordered by the Tax Commission. The limit could only be exceeded with voter approval. "Truth in Taxation" laws replaced the 106 percent limit.

The "Truth in Taxation" law imposed specific public notice and public hearing requirements that are triggered when a taxing entity proposes to increase its property tax revenues (not rates) above those collected in the previous year (tax revenues generated by "new growth" in an entity's tax base are exempt from the disclosure requirements).  The public hearings are required to to allow elected officials to explain the reasons for the proposed increase and allow citizens to comment on any proposed increase. 

A Revenue-Driven System

Utah's "Truth in Taxation" laws are revenue-driven, not rate-driven. That means the requirement to hold a "Truth in Taxation" hearing is based upon the collections of a taxing entity, not the rate charged. Utah law requires "Truth in Taxation" hearings to be held when a taxing entity elects to collect more revenue than was collected the previous year, although the entities are permitted to keep revenues generated by "new growth" -- such as value added to the tax rolls from a new subdivision or a new business.

Because "Truth in Taxation" is revenue-based, a hearing may still be required if an entity's tax rate remains unchanged or even declines. For example, if property values increase 10 percent as the result of reappraisal, but a taxing entity does not lower its rate proportionately, it must advertise and hold a "Truth in Taxation" hearing. The hearing is required because the increase in value is not considered new growth

The reverse is also true. If an entity's rate increases, but its revenues remain unchanged, no advertisement is required. This most often occurs with a tax shift. For example, if the value of commercial property is decreased, the tax rate must be increased to maintain the same revenues. Since budgeted property tax revenues do not exceed those collected last year, no increase is advertised. However, homeowners see an increase in taxes on the "Notice of Valuation and Tax Change".

Many taxing entities continue to be confused by this concept and attempt to compare the previous year's tax rate with the current year's proposed rate to determine if a tax increase will occur. Under a revenue-driven system, changes in rates are irrelevant.

For this and other reasons, some critics of the current laws argue that the revenue-driven system does not result in "Truth in Taxation" to the individual property owner and that a rate-driven system is preferable. They suggest that the newspaper advertisement be eliminated because property-specific information is contained on the individual "Notice of Valuation and Tax Change".

Certified Tax Rate

The determination that a property tax increase is being proposed is made by the Tax Commission's Property Tax Division. The certified tax rate -- established by the Property Tax Division, is that rate which will yield the taxing entity the same property tax revenue that it collected in the previous year (and includes an allowance for revenue generated from real new growth in its tax base). That determination is based on a comparison of an entity's proposed tax rate with its certified tax rate.

Example: City A collects $5 million in taxes during Year #1. A new subdivision and a new shopping center were constructed during the year. In Year #2, a certified rate will be set to permit City A to collect $5 million, plus generate revenues from the new growth. Revenues collected in Year #2 totaled $5.75 million. In Year #3, City A will be given a certified rate permitting it to collect $5.75 million. But in Year #3, it only collects $5.5 million because of an economic downturn and some individuals and businesses do not pay their property taxes. In Year #4, City A is given a certified rate that permits it to collect $5.5 million, plus any new growth.

A certified tax rate is computed for each separate fund or levy. For example, a city may have levies for general operation, library and recreation. If the aggregate proposed tax rate exceeds the aggregate certified tax rate, a tax (revenue) increase is proposed.

Public Hearing & Notice Requirements

Two forms of public notice are required when an entity proposes a tax increase. First, the county auditor must send a "Notice of Property Valuation & Tax Change" to every property owner. The notice discloses the property's current year's and the previous year's market values, the potential tax impact of the proposed revenue increase, instructions for appealing the property market value, and the date, time, and place of any public hearings where proposed increases will be discussed. In addition, a taxing entity must advertise any proposed increase. The form and content of the advertisement are specified in the law. The advertisement must:

• Be no less than 1/4 page.
• Have type size of at least 18 point.
• Include a 1/4" border.
• May not be placed in the classified ad or legal notice sections of the newspaper.
• Be a newspaper of general circulation and of general interest and readership.
• Published once in each of the two weeks preceding the public hearing.
• The hearing must be held not less than seven days after the day the first advertisement is published.

Exceptions are allowed where there is no newspaper of general circulation or "the cost of the advertisement would cause undue hardship." In such cases the entity may use a Tax Commission-approved direct mail notice or combine its notice with another taxing entity's notice.  If the cost of public notice required is greater than one percent of the property tax revenues to be received, an entity may combine its advertisement with other entities, or use a Tax Commission-approved direct mail notice.  Also, the newspaper advertisement requirements do not apply to a taxing entity that collected less than $15,000 in property tax revenue, or in the case of a new taxing entity, that proposes to collect less than $15,000 in property tax revenue for the current year.

A proposed increase must be advertised in each of the two weeks preceding the public hearing, with the first publication being at least seven days in advance of the hearing. The advertisement must contain information about the impact of the proposed increase on an average home and business, the amount and percentage change in the entity's property tax revenues and the date, time and place of the public hearing.  The form and content of the advertisement is set forth in Sections 59-2-918 and 59-2-919.

If an entity fails to comply with the form and content requirements of the advertisement, the Tax Commission may require readvertisement and another public hearing.

The public hearing must be held at least 10 days after the county auditor mails the "Notice of Valuation and Tax Change" and at least seven days after the initial advertisement. Public hearings of overlapping taxing entities may not be scheduled at conflicting times. Taxing entities are required to notify the county auditor of their proposed hearing dates well in advance of the mailing of the notice so that conflicts may be resolved.  For taxing entities in which the power to set levies is vested in the same governing body, hearings may be consolidated.

Legislative Changes

2000 Legislative Changes

The 2000 Utah Legislature:

• Modified the calculation of new growth by excluding an increase in taxable value resulting from a change in the method of apportioning taxable value prescribed by the legislature, a court, or the Tax Commission in an administrative rule or order. These changes in value will be treated in the same manner as changes in value due to factoring or reappraisal.
• Repealed the requirement that a judgment must be unpaid to qualify for imposition of a judgment levy. An eligible judgment must be a final and unappealable judgment or order that was issued no more than 14 months prior to the day on which the "Notice of Valuation" (July22), is to be mailed. Therefore, any judgment issued after May 22, of the previous year could qualify for a judgment levy if all other eligibility requirements are satisfied.  Unless otherwise agreed to by a taxing entity and a taxpayer, all refunds and interest are to be paid by the taxing entities to taxpayers within 60 days of the date the refund is ordered. If a judgment is imposed by the taxing entity for the purpose of paying the refund, the refund is to be paid no later than December 31 of the year in which the judgment levy is imposed.

1999 Legislative Changes

The 1999 Utah Legislature:

• Requires (effective 5/3/99) additional information be included on the Truth in Taxation's "Notice of Proposed Tax Increase" advertisement to indicate:
  1. the percentage of increase as well as the increase in dollar amount per year and per month on an average residence, and,
  2. the dollar amount of increase per year on a business having the same value as the average value of a residence in the taxing entity.
• Effective 1/1/99, judgment levies are subject to "Truth-in-Taxation" and prohibits a taxing entity from imposing a judgment levy if the amount of the judgment is lesser than the smaller of $1,000 or 1% of the total ad valorem property taxes collected by the taxing entity in the previous fiscal year. A judgment levy is an additional tax rate imposed to offset a shortfall stemming from a Tax Commission or court decision that significantly reduces an entity's tax base.

1998 Legislative Changes

The 1998 Utah Legislature:

• For the year beginning January 1, 1998 and ending December 31, 1998, taxing entities must obtain voter approval before imposing a tax rate that exceeds the certified tax rate. Lawmakers made several exemptions from this requirement:
  1. school districts, except in the case of a voted leeway election; and
  2. municipalities and/or counties and special service districts  if voters already had previously approved a taxation increase.
• Required taxing entities, before imposing a tax rate that exceeds the certified tax rate to advertise and hold "Truth in Taxation" hearings on the fourth Tuesday in June, on or after 6 p.m.
• Exempted taxing entities with less than $15,000 in ad valorem tax revenues from the advertisement requirements of "Truth in Taxation", effective for the 1998 property tax year.

1997 Legislative Changes

The 1997 Utah Legislature:

• Eliminated the election requirement for a property tax increase.
• Exempted the judgment levy from "Truth in Taxation" for tax years beginning January 1, 1997. (Counties impose a judgment levy to pay for large refunds that result from property tax appeal decisions.)
• Revised the "Truth in Taxation" advertisement to show the effect of a tax increase on an average home and on an average business.
• Authorized the Tax Commission to adjust a taxing entity's certified rate without a "Truth in Taxation" hearing if a mistake was made on the previous year's assessment roll.

Other Legislative Action

The 1995 Utah Legislature took action to offset potential property tax increases due to the Tax Commission factor and/or reappraisal orders for the 1995 tax year. The Legislature required taxing entities (counties, cities, schools and special districts) to place any proposed increase in property taxes to a vote of the people for 1995 and 1996 tax years. This included newly incorporated entities. The Legislature also subjected the basic school levy and the statewide levy for assessing and collecting to truth-in-taxation requirements effective July 1, 1996.

The previous major legislation involving "Truth in Taxation" was passed in 1992. Prior to 1992, there were two major criticisms of "Truth in Taxation", both coming from taxing entities. First, entities complained that the advertisement was misleading because it included increases resulting from new growth in the advertised percentage increase. The 1992 Legislature amended the law and expanded the advertisement to include the nature and cause of the increase as well as the impact to an average home. The calculation of the percentage increase was not changed. Proponents of a revenue-driven system argued that once a tax increase disclosure is triggered, an entity should be required to disclose the entire percentage increase, including that attributable to new growth, because taxpayers may want to lower the current tax rate and not to increase expenditures.

Second, entities claimed that they were not being given full credit for new growth. This occurred when actual growth in the tax base as determined by year-end values was substantially greater than that projected at the beginning of the year. No adjustment was made in the next year to account for underestimations of growth. The 1992 legislation addressed this concern by changing taxes levied to taxes collected in the formula for calculating the certified tax rate. This change adjusts for any over - or underestimation of value when rates are set in June.

An Effective Tool

Utah's "Truth in Taxation" laws have proved to be an effective tool in limiting the rate of increase in property taxes. Prior to the implementation of "Truth in Taxation", property taxes levied had increased at an average rate of 12 percent per year since 1981. Since 1986 the rate of increase has averaged 3.6 percent. Of the 550 plus taxing entities in Utah, an average of 40 entities have proposed increases each year.

In 1989, these facts were instrumental in defeating a 1 percent property tax limitation initiative. At the time, the initiative had gained enough signatures to be placed on the ballot, polls showed a 70 percent to 30 percent rating in favor of the initiative. After an intensive public information campaign which included emphasis of Utah's "Truth in Taxation" laws, the initiative was defeated 70 percent to 30 percent.

Supporters of the current laws point to additional benefits in the form of greater turnout and participation at local government budget hearings and at county board of equalization hearings.

Tax Shifting and Windfall Revenue

The tax burden of a taxing entity may be shifted from one class of properties to another when the value of one or more large groups -- or classes -- of properties changes dramatically. One example would be a county whose tax base is dominated by oil and gas properties. When oil prices decline, the assessed value of those properties decline as well. In order to raise the same amount of revenues as the previous year, taxing entities have to raise their rates on all properties (residential, locally assessed commercial and other state-assessed properties) to recoup the tax dollars lost in that decline of values.

Tax-shifting is most noticeable when one large taxpayer, such as the Intermountain Power Project, has a change in value. When the IPP was built, the burden of financing local governments was largely shifted from local homeowners and businesses to the immense power plant. But if there is a downward fluctuation in the plant's assessed value -- through a successful tax appeal, for instance -- then the tax rates in the various taxing districts may be increased to generate that lost revenue.

Tax-shifting can also occur when residential property values escalate as they have been in this market, while the value of other classes of property (such as commercial and centrally assessed) remain fairly flat. When residential values shoot up -- and assessed values follow -- in order to bring in the same amount of money, taxing entities are required to bring rates down. However, those residential properties still will see a tax increase. Because residential property only represents a portion of a taxing entity's total tax base, it is not possible to bring rates down low enough to make residential taxes a "wash," without the taxing entity losing overall revenue, compared to the previous year. Another situation that can create a tax shift is when one area is reappraised and the other areas of the county are not.

Generally, government has an overall cost of doing business and certain levels of service must be maintained, particularly in the schools. So, when values plummet, rates generally rise. Again, the "Truth in Taxation" law is revenue-driven, not rate-driven. So, in this case, if County A's property values declined 30 percent, the county could raise rates to recoup the same amount of revenue, but would not have to advertise a "Truth in Taxation" hearing. Even though rates would be increasing substantially (and property tax bills with them), under the "Truth in Taxation" definition that does not constitute a "tax increase."

In an escalating real estate market, one reason local taxing entities cannot reduce rates enough to completely forestall a property tax increase is that the state Uniform School Fund levy remains largely constant. So the Uniform School Fund may benefit from windfalls (or suffer losses) from swings in assessed values statewide.

Back to Top