Property Taxes, Part 1: How Truth-in-Taxation Works
Truth-in-Taxation is Utah’s most taxpayer-friendly law. It’s even better than California’s Prop 13 (more about that in a later post).
How does Truth-in-Taxation (TNT) work?
TNT is a revenue-driven system, not a rate-driven system. Generally, as valuations of existing property increase, property tax rates decrease. This automatic reduction in property tax rates prevents local governments from getting a windfall simply because valuations have increased.
For example, if valuations of existing property increase by 20%, the property tax rate decreases by 16.7% to maintain revenue neutrality as demonstrated by the following equation:
(100% + 20%) * (100% - 16.7%) = 100% of original tax = no change
The reduced property tax rate is known as the certified tax rate (CTR). This rate is then applied to all property, including “new growth”. While local governments receive increased revenues due to new growth, TNT includes no automatic adjustment for inflation.
If local governments want to adjust for inflation (or more, or less), they go through TNT notification and hearing process. This is a good opportunity to for local government officials to explain the proposed budget to their constituents.
For the record, the Utah Taxpayers Association does not oppose every proposed increase over the certified tax rate. In many cases, local governments are recouping inflationary losses. Certainly, that is not always the case. In Part 7, we’ll talk more about that.
Other notes
- Automobile Fee-in-Lieu and semiconductor personal property revenues are excluded from CTR calculation
- RDA increments are excluded from CTR calculations (as increment becomes taxable, it is treated as new growth)
Tomorrow, we’ll discuss some of the other factors that impact the certified tax rate and why your property taxes may have increased in spite of Truth-in-Taxation.
