It is not surprising that bad legislation - changing Utah's vehicle property tax system to one of flat fees - has unpleasant residual effects, including the elimination of legitimate state and federal tax deductions. Utah law allows for deduction of taxes but not fees. The result will be a $5 million windfall for the state unless the Legislature corrects its oversight and comes clean with taxpayers.
That should happen for the sake of fairness. Or other taxes such as that on food should be lowered or eliminated to compensate.The new fee schedule benefits those with newer, more expensive cars and penalizes some with older vehicles. It was a bad idea from inception. People best positioned to pay more get a significant break; those least able to afford it may pay the same or more. Everyone loses the deduction.
In addition, lawmakers now question whether the transition violates the state constitutional provision of taxing property according to value. A motion to draft such an amendment passed the Revenue and Taxation Interim Committee in April. One legislator noted the entire process is backward - hastily changing the law and then passing a constitutional amendment to validate it.
It continues a recent practice of the state benefiting from increased tax revenue because of changes in tax laws - de facto increases that should be refunded to taxpayers, according to some.
During the recent legislative session, legislators and Gov. Mike Leavitt decided not to change Utah's income-tax law to compensate for increased revenue generated because of federal income-tax cuts. The state is collecting an additional $11 million because of that inaction.
Now comes another $5 million bonus. In addition, local governments and school districts would collect an extra $5.5 million in fiscal 2000 because of the change. Vehicle fees go to cities, counties and schools and not to the state. In fiscal 1999, local governments must lower their tax rates to remain revenue-neutral from the transition. But after that, they do not have to lower rates if they take in more money due to the new vehicle fee system.
Again, the new program smacks of unfairness and lawmakers ought to reconsider it.