Tuesday, June 14, 2016

Utah Property Taxes: What Is A Certified Tax Rate?

property-taxEach year each county in Utah calculates a new certified tax rate for all taxing entities (i.e. cities, school districts, and service districts) within their jurisdiction by taking the property tax revenue collected the previous year and dividing it by the current assessed property value within the taxing entities (exclusive of new growth). This is the tax rate is then applied to all assessed property (including growth) and the new total becomes the base for next year. Another way to say this is if our home value doubles then our tax rate will be reduced by half. Confusing? I know! Let’s try walking through an example to clarify.

Fictitious Example

Let’s suppose in 2014 Highland City Property Taxes generated $1.5M and value of all property in Highland was $300M.This would represent property tax rate of 0.5%.

  Assessed
Property Value
Tax
Rate
Tax
Collections
2014 – all property $300,000,000 0.005000 $1,500,000
2015 – existing property $330,000,000 0.004545 $1,500,000
2015 – new property $70,000,000 0.004545 $318,182
2015 – total (new base) $400,000,000 0.004545 $1,818,182

Now for the 2015 tax year the appraised value for property taxed in 2014 has increased to $330M (a 10% increase). The 2015 tax rate will be 0.4545%. Because new residential homes and commercial buildings (e.g. Skye Estates and CVS Pharmacy) were built in 2014 another $70M in property value was added to Highland. Therefore in 2015 the total property tax revenue to Highland was increased from $1.5M to $1,82.

End Fictitious Example

What does this mean for the city of Highland and its residents?
  • While your property may increase or decrease in value, the actual dollar amount you pay from one year to the next should be roughly the same unless a tax increase or decrease is passed by any taxing entity (e.g. Alpine School District, Utah County, Highland …). Note, if your property appreciates more or less than the average home in Highland then your city property tax bill will go up or down based on the difference from the average property value change.

  • The city’s revenue from property tax only increases when there is growth. Note, growth not only brings revenue but it also adds to costs (more cars on the road, more service requirements …).

  • There is no adjustment for inflation so over time the buying power of property tax revenue declines. Can the city operate more efficiently? I believe that is the case. However, at some point in the future we will need to raise taxes or cut services.

  • No politician can or should take credit for a property tax rate decrease unless the taxing entity has reduced its property tax (which rarely happens). A corollary is that no politician should be blamed for a tax rate increase unless a tax increase was passed. A tax rate decrease is normally caused by a property value increase and an increase is often caused by a property value decrease. Note, Highland City’s last property tax change was in 2010/11 when it was reduced by a small amount. I have not been able to find the last time the property tax was increased.

The legal cap on the certified tax rate for cities is 0.007 and for libraries 0.001. The Highland 2015 tax rates are 0.001362 and 0.000206 (total: 0.001568) which are about 20% of their respective limits. The anticipated property tax revenues for the city are: $1,501,373 general operations and $227,080 library.

For more detailed information please refer to the following:

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