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Utahns to decide 2 constitutional amendments dealing with property tax exemptions

Critics say one will result in an unfair tax increase, but tax officials say any shift will be minor

FILE - Citizens cast their ballots at the Salt Lake County Government Center on Election Day Tuesday, June 26, 2018.
FILE - Citizens cast their ballots at the Salt Lake County Government Center on Election Day Tuesday, June 26, 2018.
Steve Griffin, Deseret News

SALT LAKE CITY — During an election year jampacked with several major ballot initiatives and congressional races, it may be easy for Utahns to overlook some of the less-publicized issues, such as two constitutional amendments dealing with property tax exemptions.

Amendment C, which would give the Utah Legislature the power to call special sessions instead of just the governor, has garnered the most attention among constitutional proposals. Less discussed are Amendments A and B, which while technical, could have an impact on taxpayers.

State leaders and tax experts say if the amendments pass, the overall effect on the average Utah taxpayer will be small and likely unnoticeable.

Amendment A, which would adjust requirements allowing a property tax exemption for a person serving in the military, would likely result in a small tax shift to other taxpayers, but the Utah State Tax Commission had difficulty estimating that impact because it would depend on how many people claim the exemption.

Amendment B, which could create a new tax exemption for certain government-leased buildings, could result in a potential tax shift to other taxpayers of an estimated $1.8 million — though state leaders warn that estimate is likely high.

Amendment A

The proposal would change the period of time that a military person must serve out of state on federal active duty in order to qualify for a property tax exemption, allowing the exemption for someone on at least 200 days in a continuous 365-day period, rather than requiring the 200 days to occur in one calendar year.

For example, Amendment A would prevent a military person from missing out on the exemption if the person served 199 days at the end of one calendar year and then had a break in service before serving another 199 days at the beginning of the calendar year, according to the amendment's impartial analysis on the state's election website.

If Amendment A passes, HB258 — passed by lawmakers in 2017 — will take effect Jan. 1 and implement the new military time requirements for the exemption.

The amendment would allow a member of the military with a residence valued at $250,000 with a 1.35 percent property tax rate to save $1,856 for each year the person qualified for the tax exemption, according to state estimates.

Depending on how many people claim the exemption, other taxpayers within the taxing jurisdiction may experience a slight property tax increase due to truth-in-taxation laws that guarantee governments collect at least the same amount of revenue as the previous year, resulting in an adjusted tax rate when there's a shortfall.

But Utah State Tax Commission Chairman John Valentine said any tax shift from Amendment A will likely be "negligible."

"This one is statistically impossible to isolate," Valentine said. "This is such a narrow category and such a small base (of people), it's almost impossible to statistically measure the few people that would qualify for it."

However, the new exemption could make a big difference for military members who qualify, Valentine noted.

Rep. Val Peterson, R-Orem, and Sen. Curt Bramble, R-Provo, submitted a supporting argument in favor of the amendment, saying it would "increase fairness to all active duty members."

No rebuttal or argument against the amendment was submitted to the state, according to the state's voter information posting.

Amendment B

Under the current Utah Constitution, all tangible property is subject to being taxed, except for property the Constitution explicitly exempts, such as property owned by the state or local governments.

But those entities do not necessarily own all the property they occupy, noted Sen. Dan Hemmert, R-Orem, who sponsored legislation for Amendment B. As a result, sometimes governments must pay property tax when the private owner passes the cost on to the lessee.

What results, Hemmert said, is silly.

"It doesn't make sense to use tax to pay tax," the senator said. "That makes zero sense to me."

"Why in the world does it make sense for that expense to exist just because they're leasing instead of owning?" Hemmert said.

So Hemmert sponsored SB76, which will go into effect if voters pass Amendment B.

The exemption would only be for properties that the government leases in a "triple net lease," or an agreement where the lessee agrees to pay all real estate taxes. It would also only allow an exemption from buildings that are entirely leased by government entities, not partially.

Compared to Amendment A, Amendment B would have a "greater impact on more taxpayers statewide," said Utah State Tax Commission Chairman John Valentine.

But Valentine noted that the estimated $1.8 million tax shift, taken in "isolation" and compared to tax shifts that happen every year for various reasons, will likely be an insignificant change to taxpayers.

Presuming the entire $1.8 million results in a shift in tax liability, an owner of a $250,000 residential home may see a tax hike of 82 cents, while the owner of a $1 million business may see an increase of $5.98, according to SB76's fiscal note.

That $1.8 million estimate could lower to the extent some property owners don't pass along the property tax to government entities, the fiscal note states.

However, Amendment B has its critics.

Salt Lake City Democrats Sen. Gene Davis and Rep. Sandra Hollins wrote arguments against the amendment, arguing it will "result in a tax increase for every other taxpayer in the state."

They questioned why the state should "provide a special handout to those who already benefit from leasing property to the government?"

"Amendment B rewards a few at the expense of all others," the legislators wrote. "Amendment B is a government giveaway to certain property owners who voluntarily lease their property to the government. This is a tax exemption that every other property owner would be expected to pay."

But supporters argue it would not result in a handout because it would only provide an exemption if the government entity is leasing 100 percent of the tax parcel and paying taxes through a triple net lease.

"This is an effort which I think is a continual effort of the Legislature to be good stewards of tax dollars," Hemmert said.