A Utah federal court has agreed to place in escrow about $3.7 million that Union Pacific Railroad is disputing in 1997 property taxes, shorting 18 counties and the school districts and cities in those counties by that amount this year.
Withholding from local governments taxes under appeal is exactly what the Utah Legislature didn't want when it met in special session this July.To avoid a "tax shift" from big business to homeowners and small business owners, lawmakers specifically stopped the automatic escrow of property taxes disputed by many of Utah's largest businesses.
Attorneys for the state Tax Commission, the 18 counties and the railroad agreed before federal Judge Tena Campbell to the escrow. The counties believe a fair and complete trial can't be achieved before the taxes are due at the end of November.
"I'm not going to second-guess the counties' actions," said House Speaker Mel Brown. "But we (the Legislature) do not feel it is good public policy to be escrowing appealed property taxes."
The taxes should be paid, budgets spent as approved and then refunds made to the big businesses if their appeals are upheld, he said.
Bill Peters, attorney for the 18 counties affected by the federal court decision, said unless some county commissions can act immediately to increase property tax rates on homeowners and small business owners, 1997 tax bills won't be increased.
"The rates have already been set," he said.
Mike Reed of Salt Lake County says it's too late for county government to increase property tax rates this year. "We've set our rate; the notices have gone out."
So, if the $3.7 million won't flow to county, school district and other budgets this year, then in 1998 "some kind of adjustment" must be made, said Reed.
Depending on how hard the local governments and school districts are hit, homeowners and small-business owners may have to pay more next year and beyond.
Withholding the $3.7 million "basically makes us adjust our default tax" percentages, Reed said.
If a county was collecting 96 percent of the taxes owed, but because of the UP escrow will now collect only 94 percent of taxes owed, the tax rate on other taxpayers goes up to make up that difference, Reed explained.
How much each entity is affected depends on how much railroad property is in the entity. For Tooele and Morgan counties, which have small property tax bases but a number of railroad lines running through their lands, the impact is more serious than in Salt Lake County, which has large UP facilities but also a lot of other property value to tax.
Morgan County treasurer Gloria Anderson says that she has just written a check to UP for appealed taxes from 1990 to 1996. That refund check is for $95,000.
Because of that and other successful appeals by large, multicounty, centrally assessed businesses "we've had to place a judgment levy on our property taxpayers for the first time ever," she said. That levy ensures higher property taxes for all property owners in the county.
The new Union Pacific appeals may be larger, up to 2.8 percent of the county's tax base. "If they (escrow) a fourth of what the railroad owes us (in taxes), that will be a big impact on (the county)." It is one of our largest taxpayers up here, she said.
What kind of tax increases could be coming?
Although $3.7 million isn't small change, it's a fraction of all the appeals by centrally assessed taxpayers this year. In July, legislators repealed a new law that would have required the escrow of all centrally assessed, appealed taxes.
Centrally assessed firms are large companies whose property crosses county lines, like mines, railroads, utilities and telephone firms.
Denying counties, cities and school districts all money in centrally assessed appeals would have raised the tax on an average Salt Lake County home by $28 a year and the taxes of an average Morgan County homeowner by $138, the Tax Commission said.
Union Pacific is appealing its taxes because the large firm believes Utah's centrally assessed tax is grossly unfair.
Lawmakers were briefed on UP complaints during a trip to the Uinta Basin last month. At that time, UP officials showed a chart that has UP property nationwide valued by the Tax Commission at more than $16 billion, with Utah taxing a percentage of that amount based on how much of that property is in Utah.
The 15 other states where the railroad operates say the company's property is worth, on average, $8.5 billion, and so the railroad pays relatively less tax in those states.
Peters recently told the state's Tax Review Commission, however, that Union Pacific's figures of tax assessments in other states is less than straightforward. In each case, other state's assessments of the railroad were originally higher, nearer to Utah's. But either court action nor other appeals led to lower assessments.
And since 1986, both in federal court and Tax Commission rulings, Utah's original assessments of the railroad have either been upheld or only slightly reduced, said Peters. "The methodology of the state's property tax division" has been found correct, Peters said.