the use of the unitary method, reporting requirements, and apportionment methods and
requirements.
50-State Property Tax Comparison Study: The Minnesota Taxpayers Association prepared this study in 1996 for the 1995 payable year. Addressing the issue of relative property
tax burdens across the United States, this survey compares the states' effective property tax rates
in urban, suburban, and non-urban areas for: (1) residential property; (2) homesteads; (3)
commercial property; (4) industrial property; (5) apartments; and (6) non-homestead cabins in
rural locations. The survey contains data for higher and lower valued properties. Ms. Rockwell
noted that according to this study, Utah ranks 37th in commercial and industrial property for largest urban areas, with the exception of higher value commercial property where Utah ranks
39th.
Property Taxes: The Exemption for Intangibles: Providing 50-state data for 1997, this survey prepared by consultants to Tax Management Inc., addresses: (1) the taxation of real
property; (2) the taxation of personal property; (3) intangibles exemptions; and (4) whether states
impose a tax on intangibles.
State Examples: The Office of Legislative Research and General Counsel contacted each of the states affiliated with the Western States Association of Tax Administrators, asking the
state to provide: (1) information on its assessment practices; and (2) for each class of property,
property values and property taxes paid. The packet includes the responses that have been
received to date and some additional valuation and tax data provided by the Multistate Tax
Commission.
Ms. Rockwell stated that her research found little uniformity among the states. She noted
that to properly evaluate the findings, it is also necessary to understand each state's
administrative process Mr. Asplund added that while Utah may value property at a higher rate
than other states, Utah does not tax property at a high rate.
Mr. Wood requested that staff research statutes from other states regarding their
definitions of intangible property versus intangibles. Mr. Asplund said that Kansas has a local
option intangibles tax. Mr. Buchi said that the WilTel decision provided a list of intangibles that are exempt from taxation.
b. Consultants report
Lawrence C. Walters, Ph.D.; J. Michael Pinegar, Ph.D.; and James S. Schallheim, Ph.D.
distributed copies of their presentation titled "A Review of Centrally Assessed Property Issues in
Utah." (A copy of the presentation is included in the history at the Office of Legislative
Research and General Counsel.) The consultants reported on the following charges from the
TRC: (1) review the procedures and methods of the Property Tax Division (the "Division"); (2)
compare methods used by taxpayers; (3) compare Utah values to other states; (4) consider
alternative methods of taxation; (5) consider possible Constitutional amendments; and (6)
propose a definition of intangibles.
Mr. Walters concluded the presentation with the following findings and
recommendations of the consultants:
Findings: Property Tax Division
*
Methods and judgements employed by the Property Tax Division are within the limits established by finance theory and best appraisal practice.
*
The judgements rendered result in unit values which are higher than in most other states.
*
The resulting tax burdens placed on centrally assessed taxpayers are relatively high compared to other states, but are consistent with effective rates in several states.
*
The methods employed by the Property Tax Division
do capture intangible property value, if it exists.
Findings: Intangibles
*
There is no generally agreed upon method for identifying and isolating intangible value from the enterprise unit value.
*
Adjustment methods which start from unit value generally have a substantial ad hoc component.
*
The only certain way to avoid taxing intangible property is to abandon the market value standard and use reproduction cost.
Recommendation: Market Value
*
Market value provides a basis for taxation which is consistent with
appraisal theory and the practice of most states.
*
Local assessment methods are tied closely to market value.
*
Market value provides a link to economic growth.
*
The State has market value expertise.
Findings: Gross Receipts Tax
*
A gross receipts tax would either treat taxpayers differently and therefore unfairly, or
*
It would result in important shifts in tax incidence for taxpayers and tax revenues for local governments.
*
A gross receipt tax would make the state tax system less stable and less resilient in the event of an economic downturn.
Recommendation
*
Tax all assets, except a specific list of exemptions.
*
If this option proves infeasible, tax only the reproduction cost of Utah tangible assets.
c. Discussion
Mr. Wood asked about the changes that would be necessary to tax all assets. Mr.
Walters explained that because there is no practical process to distinguish between tangible and
intangible property, the best solution is to amend the Utah Constitution to allow taxation of all
assets. Commissioner Oveson commented that changing the Constitution would have a
significant impact on locally assessed commercial property, especially regarding enterprise
values. Mr. Walters responded that the Legislature would have the flexibility to address those
issues through the list of exemptions. Mr. Wood asked the consultants to explain the reasons for
amending the Constitution in 1931 to not tax intangibles, and what has changed since then to
require another amendment. Mr. Walters said the motivation to amend the Constitution in 1931
was the concern regarding double taxation and the ability to identify intangibles in the property
tax. He stated that because the economy has changed, and theory and practice have advanced
considerably since 1931, it is time to update the Constitution.
The TRC then discussed Sen. Hillyard's suggestions that the language in the statutory
definition of "property" be changed by replacing 'or other tangibles' with 'copyrights or patents'
and that the 5 mil cap on intangible property
be removed from the Constitution. Mr. Buchi stated that the impact of any changes on locally assessed properties needs to be considered. Judge
Memmott said that because of the inequities in the gross receipts tax, that option should not be
considered. He also recommended that the TRC first
assist the Legislature by preparing a list of intangibles that should not be taxed and then review the appraisal methods.
MOTION: Judge Memmott moved that the TRC recommend that at this time the Legislature not consider a gross receipts tax. Sen. Hillyard spoke against the motion.
Mr. Buchi declared a conflict of interest.
The motion failed with Sen. Hillyard, Sen. Mantes, Ms. McCormick, Ms. Miller, and
Commissioner Oveson voting in opposition and Chair Cornia, Mr. Buchi, Judge Memmott, and
Ms. Owen voting in favor. Rep. Valentine was absent for the vote. Chair Lee abstained from
voting.
The TRC next discussed the following options: (1) amending the Constitution; (2)
amending the definition of intangibles; and (3) statutorily outlawing the stock and debt and direct
capitalization methods. TAPE 3 SIDE A @ ABOUT 20-55 MIN IF MORE INFO IS NEEDED
MOTION: Mr. Buchi moved that the TRC recommend to the Legislature that they support a joint resolution directing the Tax Commission to give little or no weight to the stock
and debt and direct capitalization methods.
Chair Lee and Commissioner Oveson each declared a conflict of interest.
The motion passed with Sen. Hillyard, Sen. Mantes, Ms. Miller, and Ms. Owen voting in
opposition. Rep. Valentine was absent for the vote. Chair Lee abstained from voting.
The TRC then discussed issues related to fair market value, reproduction versus
replacement costs, double taxation, and a list of exempt intangible assets. Mr. Wood distributed
pages 55- 56 from the article "Extracting the Value of Intangible Assets from the Unit
Assessment Method" which contains a list of common categories of intangible assets.
The committee reviewed the list and discussed several options as to which intangibles to include as
exemptions. Rep. Valentine explained the results of his research for the bill he sponsored during
the special session.
MOTION: Sen. Hillyard moved that the consultants come up with no more than three classifications of standard deductions in value for intangibles. Chair Cornia requested that some
of the TRC members with expertise in that area be involved with the consultants.
SUBSTITUTE MOTION: Mr. Buchi moved that an additional analysis of what goes in the classes be added to the study, including centrally assessed and locally assessed properties.
Mr. Walters said that information was not in the scope of the current analysis.
Sen. Hillyard divided the motion. The TRC voted on the original motion. The motion
passed unanimously. Judge Memmott was absent for the vote and Chair Lee abstained from
voting.
The TRC next voted on the second motion. The motion passed with Sen. Hillyard, Sen.
Mantes, and Rep. Valentine voting in opposition. Judge Memmott was absent for the vote and
Chair Lee abstained from voting.
MOTION: Chair Cornia moved that staff from the Office of Legislative Research and General Counsel develop a list of intangibles for the TRC. Sen. Hillyard amended the motion to
list intangible property
rather than intangible attributes of property and that staff catagorize the intangibles along a continuum. Mr. Buchi suggested that members review list in the Arthur
Anderson study. The motion passed unanimously. Judge Memmott was absent for the vote and
Chair Lee abstained from voting.
Chair Lee thanked Lawrence C. Walters, J. Michael Pinegar, and James S. Schallheim
for their research and report to the TRC.
*
Individual Income Tax Issues
Bill Asplund reported that the changes in federal income tax will result in a $15 million increase in revenue for Utah in 1998. Bryant Howe distributed the handout "Summary of Selected Major Provisions of the Taxpayer Relief Act of 1997 and Effect on Utah Income Tax
System." He reviewed the provisions of the bill and the impact on state income tax revenue including: (1) the child credit; (2) HOPE education credit; (3) lifetime learning credit; (4)
qualified state tuition programs; (5) deduction for student loan interest; (6) education IRA; (7)
individual retirement arrangements; (8) capital gains; (9) capital gains-sale of principal residence;
(10) corporate alternative minimum tax for small business; (11) estate tax exclusion for family
owned businesses; (12) welfare to work tax credit; and (13) self employed health deduction. Mr.
Asplund noted that state withholding will no longer track well with the federal forms.
Commissioner Oveson stated that the Tax Commission has decided to adjust the state
withholding schedule for this year rather than create a W4 for Utah because the full impact of the
changes are not known.
4. Other Business
a. Information item _ Tax bills filed for the 1998 General Session
5. Adjournment--
MOTION: Sen. Hillyard moved to adjourn the meeting at 5:00 p.m. The motion passed unanimously. Judge Memmott was absent for the
vote.
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