Photo: Michael Tuszynski

Tax ‘shift’ from commercial properties is resulting in higher property tax burden on Utah homeowners. Auditors also recommend lawmakers consider more oversight, transparency in tax system

Utah homeowners are carrying a disproportionate share of the state’s property tax burden because assessors find it more difficult to correctly determine the value of commercial property, resulting in a “tax shift” from one sector to another.

That’s one of the key findings legislative auditors released Wednesday in a report that identified several issues with Utah’s property tax system and made a slate of suggestions to Utah lawmakers.

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“Utah’s property taxes have increased significantly over the last few years. While there are market forces at play, property owners are receiving valuation notices that are inconsistent and reflect significant increases in property values which may lead to higher taxes,” auditors concluded. “This issue is compounded by discrepancies in the amount of information available for residential and commercial property sales. County assessors listed limited commercial sales as one of the reasons for their hesitancy to increase assessment values for these property types.”

As a result, “this contributes to a tax shift which may cause other property types, such as residential, to pay more in taxes while commercial properties pay less,” auditors wrote.

The audit found:

More access to property tax sales data could help property values be assessed more consistently, since county assessors currently lack sales data access and as a result are “hesitant” to update commercial property values. That inconsistency and hesitancy to assess commercial property then results in “tax shift” and a higher property tax burden on homeowners.
Utah’s property tax division could exercise more “oversight” and “enforcement” of assessors to ensure counties comply with state law.
Property owners in some counties do not get enough information to understand their property assessments, so auditors recommended lawmakers require clarifying information that must be included on tax valuation notices and tax bills.
Property tax appeals processes vary from county to county, which results in “inconsistencies in transparencies, methodology and approval of appeals during the board of equalization process.”

The audit report, titled “A Case for Increased Accountability and Transparency,” was presented to the state’s Legislative Audit Subcommittee on Wednesday afternoon. The Office of the Legislative Auditor General conducted the audit at the request of the legislative subcommittee, which asked the office to review the state’s property tax system “to understand whether it is consistent, transparent and fair.”

Officials with the Utah State Tax Commission and the Utah Association of Counties told the Legislative Audit Subcommittee on Wednesday that they generally agree with the audit’s findings and look forward to working with lawmakers on any solutions.

“Consistent, transparent and fair” is a mantra that Sen. Dan McCay, R-Riverton, has repeatedly said he wants Utah’s tax system to strive for. The audit also touches on at least one issue that McCay has previously raised concerns about — the “tax shift” from commercial properties to residential properties, resulting in a higher tax burden on Utah homeowners.

Property tax shift

The problem was especially on display last year, detailed in a Deseret News article titled “How the housing market is exposing a ‘unpredictable’ tax problem for Utah homeowners.”

At the time, many Utah homeowners saw unusually high 2022 property tax bills thanks in part to the state’s skyrocketing home prices, but also the shift in tax burden as home values have risen exponentially faster than other property types like commercial real estate.

But it wasn’t just market forces aggravating the issue — county assessors said they have a harder time accurately assessing commercial properties because residential sales data is more readily available than commercial sales data. That aggravates the “tax shift” in burden to homeowners.

Legislative auditors recommended the Legislature to consider a policy that “weighs the benefits of more complete and accurate property tax assessments through a disclosure requirement with a citizen’s right to privacy.”

Utah is currently a “non-disclosure state,” which means property sales are not required to be disclosed to the government. However, sales are one of the main metrics assessors use to assess values of properties. Additionally, residential property sales are typically more readily available to county assessors than commercial properties. For Wasatch Front counties, the multiple listing service UtahRealEstate.com captures most residential sales, while it doesn’t report nearly as many commercial property sales.

Auditors told lawmakers on the Legislative Audit Subcommittee that more than half of the state’s 29 counties regularly do not have access to commercial sales data, making assessors “hesitant” to update commercial values.

If auditors had more access to sales data, they could more accurately “capture changes in the market for all property types; thus, making the tax process more accurate and changes in property taxes less volatile,” auditors wrote.

After auditors briefed the Legislative Audit Subcommittee on the audit report, both House Speaker Mike Schultz, R-Hooper, and Senate President Stuart Adams, R-Layton, said they’re concerned about the rise in tax burden on Utah homeowners over recent years.

“I think everyone’s property taxes have floated up,” Adams said.

Tax increases imposed by local taxing entities are a factor — but the “tax shift” from commercial to residential property is also a big reason, said Weber County Assessor John Ulibarri.

“That tax shift through the increase in residential valuation accounts for approximately half of the total tax increase for residential property owners,” Ulibarri said.

However, Schultz also said he has concerns about “mandatory reporting requirements,” and Adams questioned why data from existing commercial sales brokers like CoStar isn’t enough for assessors to use.

Josh Nielsen, director of Utah’s property tax division, said those services do provide assessors “some data, but the amount of sales on there are still limited and (assessors) don’t have a lot of access.” He also said broker data on commercial sales is generally more available for Wasatch Front counties, but is more limited for smaller, rural counties.

Schultz and Adams thanked auditors for their work. The Legislative Audit Subcommittee voted unanimously to refer the audit to the Revenue and Taxation Interim Committee and the Business and Labor Interim Committee for further consideration.

Property tax division should exercise more ‘oversight’ of assessors

Legislative auditors acknowledged there is a “natural tension” between the Utah State Tax Commission and local governments, “necessitating a careful equilibrium.” While the Tax Commission’s property tax division is responsible for advising and helping county assessors perform their duties, the division is also responsible “for taking corrective action and enforcing tax code,” they wrote.

“However, the division has swung the pendulum too far toward providing assistance to counties versus providing enforcement,” auditors concluded, urging the state’s property tax division to strike a better balance.

Auditors reported the state’s property tax division “prioritized its role to educate and build relationships” with counties in response to threats of lawsuits in the ’80s and ’90s, according to property tax division management.

This has caused the property tax division to overly prioritize “productive working relationships” and has become “hesitant to hold counties accountable for not complying” with state law, auditors wrote, “resulting in inconsistent treatment of counties.”

“We recognize the importance of building strong relationships with counties,” auditors wrote, “however, relationship building, and oversight functions cannot be mutually exclusive.”

After the Utah State Auditor looked into the issue and issued a report in 2023, state tax officials issued three corrective actions for the first time since 2009. Two counties were dinged for noncompliance with conducting five-year detailed reviews for property valuations, according to the legislative audit.

“Since 2012, there were at least 56 instances in which a county had 10% or more of its properties out of compliance with the requirement for a five-year detailed review but never received corrective action,” auditors wrote. “In addition, there were 34 instances where counties did not submit data to the division during this period.”

Auditors said state tax officials should strive for more consistency in corrective action. “Consistency and making options clear could help prevent a return of the threat of lawsuits experienced in the 1980s and 1990s,” they wrote.

Auditors recommended lawmakers consider allowing the Utah State Tax Commission to adopt a new “multi-tiered enforcement mechanism” that the property tax division could use to ensure counties adhere to state law.

They also recommended lawmakers require the Utah State Tax Commission to adopt a “more robust auditing program” for assessment processes and data integrity, as well as require the property tax division to issue corrective actions against “assessors not using approved mass appraisal valuation methods.” Currently 18 out of Utah’s 29 counties use the mass appraisal assessment tool PUMA.

Read the full audit report here.