New law taxing for cities
10 face crisis because of sales tax changes
The 2006 Legislature passed SB35 and changed how sales tax is distributed to Utah's 242 municipalities. The bill phased out a 1983 provision that allowed local governments to receive 0.75 percent of the 6.6 percent sales tax collected by the state in their cities. Instead, the bill created a new method of distributing sales tax through a formula that gives cities half the money if goods or services were bought in their municipalities and the other half based on population. The bill will become law on July 1.
The bill applies to a limited number of cities, all of which have a heavy sales tax base, including Alta, Brian Head, Murray, Naples, Park City, Riverdale, Springdale, South Salt Lake, Vernal and Woods Cross. Five cities — Murray, Park City, Riverdale, South Salt Lake and Vernal — will all lose more than $450,000 a year because of the new law.
Local officials say the changes come just as local municipalities were expecting increased sales with hopes that the economy had turned for the better.
The cities will be forced to operate on their 2004-05 budgets until they can phase out of their dependence on the old formula for collecting sales tax. They have seven to 10 years to do so.
Officials in the five hardest-hit cities say they must either raise residents' property taxes or cut city services to offset the loss of hundreds of thousands and, in some cases, millions of dollars in sales-tax revenues.
• South Salt Lake will have a massive revenue loss of nearly $2 million annually. City officials say a 150 percent increase in property taxes over the next decade would be needed to make up for the loss. Over the past couple years, the city has cut 23 positions to help balance the budget. But council chairman Bill Anderson said the city may try to survive the first year without a tax increase, keeping city revenues static.
The city has been trying to build a strong commercial base, said Anderson, "but now that strategy has been turned on its head, and we're saying this sales tax is going to the rest of the state. A third of our sales tax disappears."
South Salt Lake has one of the lowest property taxes in the valley, but the city also has one of the poorest populations. Adding to concerns, 35 percent of the city's properties are tax-exempt, like bus yards and the county communication center. On May 3, the city will further hash out its budget in a council work session.
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