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Battle looms over taxation

Senate panel OKs bill that would tax public entities

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A state senator wants to let the public decide whether to tax municipal power systems and other government-owned entities that compete with private enterprise.

A bill calling for a constitutional amendment that would allow such a tax advanced to the Senate on Tuesday despite warnings to the Senate Revenue and Taxation Standing Committee that it could result in higher costs for the users of public utilities.

"If the hit with the increases . . . is going to cost you 'x' percentage more, you have to turn around to your very same patrons and up their costs sufficiently to cover that cost," said Fred Finlinson, an attorney representing four government entities.

"It's just chasing the tax dollar round and round. . . . The people are the ones who are going to have to pay."

SJR6, sponsored by Sen. Michael Waddoups, R-Taylorsville, would place on November's ballot a constitutional amendment to levy taxes on property used by counties, cities, towns, special districts or other political subdivisions "in an undertaking that is in competition with the private sector."

The Legislature considered the measure last year when Waddoups said it was a way to bolster education funding but decided to have it studied in the interim. The Constitutional Revision Commission took no stance on the matter.

"I'm not saying we are taxing them," Waddoups said. "That isn't what we're doing. We are opening up a debate on those issues."

While the resolution has the support of the Utah Taxpayers Association, the Utah Retail Merchants Association and the Utah Food Industry Association on a tax fairness front, others said it is fraught with "competition" definition problems that would lead to numerous and costly lawsuits.

Reed Searle, general manager of the Intermountain Power Agency, which owns the Intermountain Power Project, said the agency would be willing to go to court to prove that it competes with no other agency.

Searle also said paying property taxes instead of the current fees in lieu of taxes would have a net increase in the agency's tax costs of about 10 percent. That would have to be passed on to municipal utilities that buy the project's power.

Also, the higher costs possibly could affect entities' ability to pay off bonds, hurting their bond ratings and resulting in further higher power costs to utilities, he said.

"There's something inherently wrong about one taxing entity taxing another for the sole purpose of raising revenue," said Leon Pexton, power resource manager for the Utah Municipal Power Agency. "It's a dangerous and slippery path."

Other speakers stressed the "competition" definition troubles, saying the consequences of the taxation could stretch to cover golf courses, recreation centers, swimming pools, summer camps, ballparks, cemeteries and companies involve in water service or snow removal.

"You can go down the list of government services and there are private counterparts," Finlinson said.

Still, the committee opted to have a full Senate debate. Majority Whip John Valentine, R-Orem, favored that, although he said the resolution "is very troublesome to me."

Sen. Howard Stephenson, R-Draper, said the lawmakers should "consider this as one of the alternatives for helping to solve our education funding crisis."

Minority Whip Ron Allen, D-Stansbury Park, was among those worrying about unintended consequences if the measure were approved by voters.

"I'm very concerned that is is a very small domino in a big chain of dominoes and has a great deal of opportunity for other comments and questions," Allen said.

"I see an expensive and divisive election, I see lawsuits and I see areas this could take us that weren't intended originally."

E-MAIL: bwallace@desnews.com