Last year marked an unprecedented tax year, landing Utah homeowners with unusually high 2022 property tax bills thanks in part to the state’s surging home values, plus a shift in tax burden to make up for property types that paced behind those dramatic gains.

This year, the problem isn’t going away. Rather, it’s even more complicated, especially as Utah home values dipped from their peak last spring as the housing market comes to terms with rising interest rates that now exceed 7%.

If you’re confused about why your property tax bill is higher this year — with or without a proposed tax increase — although your home value might have gone down slightly, you’re not alone. In some areas, Utah homeowners are even seeing their values rise, but their tax burden decrease.

What’s up with that?

It’s an issue state tax officials and local assessors are grappling with again this year, trying their best to explain to perplexed taxpayers that it’s largely thanks to “tax shift,” a phenomenon in Utah’s tax system that has had an outsized impact on residential Utah property owners in recent years as home values have risen exponentially faster than other properties such as commercial real estate. A big part of the problem is assessors have far more information available to them to accurately value residential properties than they do commercial property types.

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It’s something a Utah lawmaker, Sen. Dan McCay, R-Riverton, is hoping to fix to bring a more predictable and fair tax burden to Utah homeowners.

“You have this unpredictability for taxpayers. I wish taxpayers had the same tax predictability that our (taxing) entities have,” McCay told the Deseret News.

He noted that under Utah’s tax system, taxing entities like cities and school districts are guaranteed to take in the same amount of money unless they pass a tax increase, regardless of what happens in the market. Sometimes that can result in an additional tax burden on homeowners, especially if residential values outpace other property types.

“A city’s going to make the same amount of money one way or the other, and taxpayers have no predictability as to what their costs are going to be,” McCay said. “That’s what I’m driving at most ... Everyone wants a tax system that is fair, transparent and consistent. And when they see violations of any of those three principles, it’s very frustrating.”

This tax shift issue became more apparent for Utah homeowners who experienced sticker shock with their property tax bills last year — some seeing their yearly tax spike by hundreds of dollars, and not just because their home values went up.

This year, even though homeowners might not see such a drastic change in their property tax bills compared to 2022, the gap between commercial tax burden and residential tax burden continues to grow.

“It’s still growing at an alarming rate,” Tooele County Assessor Jake Parkinson said. “Those trend lines will likely continue. Maybe not at the rate of the last two years, but still drastically greater than they were, you know, 10 years ago.”

Justin Cox, 12, mows the lawn in front of his home in Lindon on Saturday, Aug. 26, 2023. | Megan Nielsen, Deseret News

Tax shift

Over the past two decades, the portion of property tax paid by real property owners, which includes residential, has shifted from 79% of the total in 2000 to 91% in 2023, Parkinson and Weber County Assessor John Ulibarri jointly wrote in a recent paper exploring how market forces have impacted residential property owners in Utah.

“While Utah’s system is great, it does have some disadvantages. It is prone to long-term valuation shifts between different property types. It’s also subject to sudden tax shifts through rapidly changing market conditions,” Ulibarri told lawmakers during the Revenue and Taxation Interim Committee’s Aug. 9 meeting.

“It really lacks predictability to the individual taxpayer, which I’m sure that you have received calls from your constituents saying, ‘Wow, what’s going on with my property tax?’” Ulibarri said.

Utah law guarantees taxing entities the same property tax revenue as the year prior, but that revenue does not come from the same source, Parkinson and Ulibarri wrote. Because property tax is proportionate to each property value, how much a property is taxed is based on market changes to the different types of taxable properties: centrally assessed, personal property and real property, which includes residential.

“This fluctuation is most notable in residential properties, which have tripled during the study period,” the assessors wrote. “Residential real property increased from 55% to 67% of total real property from 2013 to 2022.”

Home prices have risen to unprecedented levels, especially when they skyrocketed from 2019 through July 2023 at the height of the pandemic housing rush. Along the Wasatch Front, the median sale price went from $147,500 in 2003 to $515,000 in 2022 — A 145% increase, according to the assessors. Between 2020 and 2022 alone, the median home price rose 46%. Then, amid rising interest rates, the median price corrected down to $490,000 in 2023.

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At the same time, other real property types remained fairly steady, while value in centrally assessed properties has decreased. “Consequently, the loss in value from centrally assessed, coupled with the increase in residential property, creates a tax shift to residential property owners,” the assessors wrote.

But also consider what happened to commercial real estate, with sectors such as office real estate taking a hit in value amid the pandemic. Commercial real estate has since begun to rebound, but not anywhere close to the pace of residential values — meaning tax burden shifts to residential owners and away from commercial.

While residential property grew to 67% of the whole in 2022, commercial and industrial taxable value went from 22% of the whole in 2021 down to 19% in 2022.

Under Utah’s tax system, a property’s tax liability fluctuates in part with the change in taxable value. If a property sees a value percent change greater than the average within a tax area, that property will see a tax increase. But if its value percent change is less than the average, it will see a decrease.

For example, Ulibarri compared three properties all located within the same tax area. From 2014 to 2023, a commercial property increased in value by 77% and a vacant lot increased by 53%, while the residential property increased 198%. But due to tax shift, the commercial property and vacant land’s property tax increased by 35% and 17% respectively, while the residential plot’s tax increased by 127%.

Statewide, the tax shift to residential property owners is 12% from 2013 to 2022. However, in three counties (Box Elder, Iron and Tooele), the proportion of residential values increased by more than 20% (22%, 21% and 27% respectively), the assessors wrote.

“These different fluctuations in turn create shifts in the property tax burden for individual property owners,” the assessors wrote.

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By the numbers

Parkinson provided the Deseret News data on one Tooele County property that’s seen almost half of its growth in property taxes from 2018 to 2022 due to tax shift. The property’s bill went from $1,833 in 2018 to $3,076 in 2022, a $1,243 difference in four years. About $652 of that increase was due to tax increases, while $590 of it was due to tax shift, Parkinson said.

In 2023, that Tooele County property’s value went down from $443,640 in 2023 to $422,456 in 2023, and even with a tax hike of $287, the bill went from $3,076 in 2023 to $2,482 in 2023. That’s an example of tax shift working in a homeowner’s favor, but Parkinson said Tooele County was an “anomaly” when it came to commercial shift away from homeowners this year because it saw a higher number of commercial sales in 2023.

“The good news is the system continues to work as designed. The bad news is the rapid appreciation of residential property, and the resulting tax shift, has started to outstrip the ability to pay for many of our owners,” Parkinson and Ulibarri wrote.

‘Insane’ property tax increases

Last year, Seth Cox was shocked by the jump to his Lindon home’s property tax bill. Its value went from $624,900 in 2021 to $939,700 in 2022. Even without a 24% property tax increase by the Central Utah Water Conservancy District, his property went from $3,240 in 2021 to almost $3,868 in 2022 — a $628 difference. With the tax hike, which passed, his bill went to over $4,040.

This year, Cox’s home value went up to $953,000 on his bill (some areas in Utah are seeing prices increase while others have decreased, all dependent on market demand. “The strange thing,” he said, is even if his value increased, his taxes would be $3,741 this year, but Alpine School District is seeking an over-19% increase, which would increase his tax bill to $4,115.

In Cox’s case, it appears tax shift might have worked in his favor this year — but after last year’s dramatic hike and expecting this year’s tax hike to pass, he’s anticipating his tax burden to remain higher than ever.

“Last year was so insane, how it jumped,” Cox said. Employed as a web developer, it’s an expense he expects his family budget will be able to absorb, but he worries about other Utahns with tighter budgets.

“It’s like everything else, we figure out a way to pay for everything. But I’m not on a fixed income like some people. This is really going to be a hard time for them.”

Ruth Cox, 10, plays basketball in front of her home in Lindon on Saturday, Aug. 26, 2023. | Megan Nielsen, Deseret News

Considering Utah’s ongoing housing affordability problems, McCay said he believes tackling the tax shift issue could be one step toward helping alleviate housing cost burdens for Utahns.

“When you talk about housing affordability, and when you talk about impacts to everyday Utahns and everyday families, property tax is an important component of their contribution,” the senator said. “I feel at the end of the day it should be fair, consistent and transparent.”

Are Utah homeowners paying more than their fair share?

There’s another layer to what could be feeding a heavier property tax burden on Utah homeowners, and it could be because assessors don’t have as much information available to them to value commercial properties as they do residential properties.

Utah is a non-disclosure state, which means deeds transferring ownership do not include the property sale price. As a result, county assessors must rely on other sources of information such as the multiple listing service and transfer surveys. For Wasatch Front counties, captures a “high portion” of residential sales, the assessors wrote. However, the multiple listing service does not report nearly as many commercial or vacant land sales.

For example, in 2021 and 2022, Utah Real reported over 8,000 single-family residential sales compared to an inventory of 72,000 residences (about 11%), the assessors wrote. “Weber County received fewer than 90 sales of commercial properties over the same period compared to an inventory of 4,800 commercial parcels (approximately 2%).”

“In practice, this results in lower proportional assessments for commercial properties than residential properties,” the assessors wrote. “This in turn creates a disproportionately high property tax liability for residential property owners.”

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In 2023, state tax officials verified 32,450 residential sales compared to only 399 commercial transactions, according to data from the Utah State Tax Commission. In 2022, there were 40,486 verified residential sales compared to 522 commercial.

It’s difficult to say how many more commercial transactions actually happened — meaning assessors could be missing out on information to help them accurately value commercial properties. But assessors expect the number is likely much higher than what has been verified.

“It’s like asking how much air there is in the room,” said Utah State Tax Commission Chairman John Valentine. “You don’t know what you don’t know.”

Therefore, the tax shift issue is compounding for homeowners not just because their property values have been rising faster than commercial real estate, but also assessors might not have the full picture to be able to accurately assess commercial properties.

“It’s not that commercial values aren’t going up, it’s that we don’t have the data to reflect that they’re going up,” Parkinson said. “So they get out of paying their fair share of property taxes, and it gets shifted to homeowners.”

The Cox family smiles for a portrait on the front porch of their home in Lindon on Saturday, Aug. 26, 2023. | Megan Nielsen, Deseret News

Will the Utah Legislature step in?

Parkinson and Ulibarri have outlined several “potential solutions” to the tax shift issue — but they also acknowledged lawmakers need to decide if this is an issue at all, or if they’re OK with the way Utah’s tax system is functioning.

To McCay, “it’s definitely an issue,” and one the Utah Legislature should step in to change. “The question becomes how do you deal with it?”

McCay points to the gap of information for commercial properties compared to residential as a possible first approach. He proposed a bill during the 2022 session, SB228, which would have created more transparency on commercial property transactions, but commercial property owners expressed concerns. The bill cleared the Senate and a House committee, but never advanced to a vote on the House floor.

“It might be one of the fixes,” he said. It’s still a work in progress, but McCay is exploring ways to revive the bill while also working with commercial property owners to address their concerns.

“Everybody wants to keep their taxes low,” McCay said. “I can’t necessarily blame the commercial guys for liking what they have because there’s proprietary commercial information involved in each of those transactions and they don’t want their trade secrets or business model exposed to public record. I understand that.”

McCay is exploring a “limited disclosure” approach, which would allow county assessors to have access to more data but still protect proprietary information.

Lawmakers could also increase the maximum residential exemption, from the current 45% — but that would be more of a bandage than a long-term fix. While it would relieve the tax burden for some homeowners, “it does not address the underlying causes of the historical shift toward residential real property,” Parkinson and Ulibarri wrote.

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The Legislature could also implement a floating residential exemption or individual tax rates per category, but it remains to be seen whether lawmakers will have the appetite to tackle the issue at all. McCay said he’s still working through the details of what his bill will include.

Parkinson believes the Legislature should do something — but “make big changes to a system very, very slowly, especially to a system that has served us so well,” he said.

“But I do think the prudent thing to do at this point is to do a limited commercial disclosure, study it for five years, and see if it helps shift the taxes back to the same proportions they were 20, 30 years ago, before we do anything more drastic like raise the primary residential exemption or any of the other options on the table,” Parkinson said.

“I think that is the most prudent and equitable solution.”

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