Utah Foundation analyzes state’s tax policies

By Sun Advocate

Utah’s tax system is fairly typical in relying on a balance of property, income and sales assessments.
But the state has several unique tax policies, according to the latest research report released by the Utah Foundation.
First, the state earmarks 100 percent of income tax revenues for education funding.
Second, Utah’s truth in taxation law has resulted in residents shouldering a lower property assessment burden.
Property, personal income and sales taxes produce 82 percent of Utah’s total state and local tax revenue, notes the research study.
In 2002, sales, property and personal income taxes generated about $5 billion.
Utah’s overall state and local tax burden is high, ranking 11th in the United States.
However, Utah’s property tax burden – a major source of local government revenues – is relatively low, ranking 40th in the nation.
Utah’s average family size is the largest in the U.S., points out the foundation report.
The situation results in a 20 percent larger student population and heavier demands to fund the public education system.
Utah’s state and local tax-fee burden is about 11 percent higher than the national average.
However, Utah has a relatively low federal tax burden, probably due to reduced incomes, high charitable contributions and tax deductions for children living at home.
When federal tax is added to the state and local figures, Utah’s overall burden is about average, ranking 28th in the nation, continues the independent organiza-tion’s report.
In recent years, Utah has not directly levied a property tax. But the state requires local school districts impose a uniform local levy.
At .001825 cents per dollar of taxable value, the levy is the largest component of the property assessments in many counties.
Utah law also allows a local tax levy for capital outlay and debt service for school building equalization purposes.
In 2002, property generated 29 percent of the taxes raised by state and local governments.
In the mid-1980s, the Utah Legislature enacted truth in taxation laws changing property assessment levels, revising the way rates are expressed and requiring public notice as well as hearings when taxing entities intend to implement hikes.
Last year, sales and use generated $1.441 billion or 26 percent of Utah’s overall state and local taxes.
Local sales and use assessments generated an additional $318 million in tax revenues, according to the foundation report.
Beginning in 1959, Utah’s counties and municipalities were authorized by the Legislature to charge sales and use tax.
Local governments can set the level up to 1 percent, subject to voter approval and tax levying requirements, explained the Utah Foundation report.
The state administers the collection and distribution , retaining up to 2.5 percent of the revenues to cover expenses.
Utah is one of 14 states charging sales taxes on food and only four counties do not levy a 1 percent restaurant tax – Emery, Millard, Piute and San Juan.
In 2002, taxes on food sold for off-premise consumption generated $218.42 million or 4 percent of state and local taxes.
Approximately 74 percent of the revenue went to the state general fund, 16 percent went to cities or counties and 10 percent was divided among public transit, highways, counties, zoo, resort and rural hospital taxing districts.
The Utah Legislature adopted the individual income tax in 1931. In 1996, voters approved a constitutional amendment to allow higher education to be funded by income tax revenues. The uniform school fund currently supports public and higher education.
In 2002, individual income assessments accounted for about 30 percent of all state and local tax revenue.
Nationally, 13 states have provisions to automatically adjust income tax brackets, personal exemptions or standard deductions for inflation.
But Utah does not have a provision in place that automatically adjusts the brackets and, therefore, the state has an essentially flat income tax.
In fact, more than 80 percent of all single Utahns and 95 percent of all married joint income tax filers fall into the highest bracket.
In 2001, the Utah Legislature raised the existing threshold for all individual income tax brackets by 15 percent.
The highest single bracket is $4,313. The bracket represents a 13 percent lower threshold than the income taxpayers faced in 1935.
The highest married filing joint bracket is $8,626 – a 72 percent higher threshold than in 1935.
By comparison, the consumer price index of inflation increased 1192 percent between 1935 and 2001. A $5,000 taxable income in 1935 was equivalent to $64,635 in 2001, concludes the Utah Foundation study.