PRESS RELEASE
September 1, 2006

Contact: Stephen Kroes, Executive Director
(801) 355-1400, ext. 5
(801) 573-8824 (mobile)
steve@utahfoundation.org

Printable Version

UTAH FOUNDATION RELEASES ANALYSIS OF SALES TAX VERSUS PROPERTY TAX FOR TRANSIT FUNDING

Utah Foundation today released its August research report, analyzing the effects of proposed property or sales tax increases for transit improvements in Salt Lake County. The report was commissioned by the Salt Lake Chamber to help it understand the impacts each tax would have on household and business taxpayers with additional analysis on the policy and political implications of each tax option. The report, entitled "Property Tax or Sales Tax? Funding Transit Investments in Salt Lake County" is attached to this release.

• A 1/4-cent sales tax increase in Salt Lake County would generate significantly more revenue than the property tax-funded bond proposal approved for this November’s ballot. The additional revenue could allow for earlier retirement of bonds or could be used for additional projects or services.
• Businesses would pay about 31% of the 1/4-cent sales tax increase, or about $20 million in the year 2012.
• Businesses would pay about 43% of the property tax increase, or nearly $24 million in 2012 (the year when the entire $900 million in bonds would be fully phased in).
• Households would pay 69% of the sales tax increase, or nearly $45 million in 2012.
• Households would pay 57% of the property tax increase, or about $30 million in 2012.
• The higher burdens on households result because household taxable consumption is much larger than business consumption and homeowners own much more property than businesses.
• The property tax proposal would increase total property taxes by six to eight percent.
• The sales tax proposal would increase total sales taxes paid by 3.8%, but because the sales tax is larger than the property tax, this lower percent increase produces more revenue.
• A sales tax increase would grow with the economy, while the property tax rate would decline each year as property values rise. Either option has advantages - the property tax imposes a lower overall tax burden that declines over time, providing taxpayer benefits; while the sales tax growth would allow faster bond payoff, more projects, or additional transit services to be funded.

In addition, the report examines policy and political aspects of levying each tax. For example, one concern about sales taxes is Utah’s high national ranking in sales tax burden. But looking at actual tax rates, Salt Lake City ranks among the lowest of large western cities in sales tax rates. One concern about property taxes is that voters often express animosity about the tax, since its burden is so transparent when paid in an annual lump sum. On the other hand, Utah’s property tax burden is one of the lowest in the nation, implying that capacity exists for raising this tax.

Regarding which tax is best, Executive Director Stephen Kroes said, "Both taxes have unique advantages and disadvantages, but either option would get the job done. Which tax is best depends on what you want from this proposal. If you want a limited revenue source for specific rail-building projects with a definite sunset date, then the property tax is for you. If you want a tax that can fund these rail projects plus other improvements in transit service, then the sales tax fits the bill."

Legislative caucuses will be meeting next week to discuss the prospects for a special session, including whether authorization should be provided for new sales taxes for transit and other transportation projects. Utah Foundation hopes that this information is useful in those deliberations.

Utah Foundation is a public policy research group that promotes a thriving economy, a well-prepared workforce, and a high quality of life for Utahns through research and practical, well-reasoned recommendations for policy change.