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The State Tax Commission, responding to demands by a watchdog group, has ordered a recalculation of tax rates in 27 counties, sparing property owners in those counties a hidden $8.5 million tax hike this year.

Commission number crunchers will be scrambling the next few days to recompute tax rates for hundreds of taxing entities, such as school and special service districts, within the affected counties. Tax rates are scheduled to be approved and notices mailed to property owners by Nov. 1."It will be additional work, but not overwhelming," said David Vanier, deputy director of the state's Property Tax Division, which certifies property tax rates for tax entities throughout the state.

The problem was actually of the division's own making, when earlier this year it allowed counties to build in an annual rate hike. The increase would have covered future tax refunds to large businesses that successfully protest their tax bill. The looming refunds can total millions of dollars and take years to resolve, making it difficult for counties and other taxing entities that rely heavily on property taxes to plan for future spending.

All counties but Salt Lake and Emery adopted the increase. It was done under the same law that allows counties to boost rates to cover adjustments granted to homeowners who contest their tax bills. And because the rate increase was built into the state's certified rate it calculates for each county, it would not have to be subject to a public hearing.

Commissioners said in a letter Tuesday to the Utah Taxpayers Association that the tax increase was a legal, good-faith attempt to solve a longstanding budgeting problem plaguing counties and school districts, which rely heavily on property tax revenue for financial survival.

But the commission did agree with the tax watchdog group that the potential for abuse by counties and other taxing districts was significant.

"The most troublesome was the lack of a guarantee that these additional funds would not be spent on current-year expenses," the commission wrote to association president Howard Stephenson.

The association, which complained to the commission last week, contended that counties already can impose a "judgment levy" on property owners to cover large refunds paid to businesses that successfully appeal their taxes. And if counties are allowed to collect in anticipation of losing a tax fight with a big business, "taxpayers end up paying for the refund twice," said association spokesman Howard Headlee.

That problem could be eliminated by requiring counties and other taxing districts to put the money in escrow accounts, all parties agreed. But the commission said that would have to be enforced by the Legislature.

Stephenson, a Republican state senator from Draper, said he would work on such a solution in the upcoming session. "We will do whatever we can to find a solution that will protect local taxing entities where a large appeal will affect its budget. We realize budgets have to be met," he said.

For example, Millard County has more than $50 million of its property tax revenue under appeal by airlines and several large utilities, including the Intermountain Power Agency, which owns the huge coal-fired Intermountain Power Project generating plant near Delta. Under the adjustment previously granted by the state, the county would have increased property taxes 11 percent to cover possible refunds.

And Millard isn't the only county with appeals totaling more than its annual budget, said Brent Gardner, executive director of the Utah Association of Counties.

He said the rate adjustment granted to counties came out of meetings with state officials as an interim solution to a "serious budgeting problem."

"Now it looks like the commission has reacted rather quickly to some pressure. We are not very pleased with that," he said.

Gardner said his group will ask the four-member commission to reconsider.

"But I don't know if they will be amenable to our request," he said.