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More Than Half of All Businesses in Utah are Exempt from the Personal Property Tax, Following Action Taken During the 2019 Session

The issue of Tangible Personal Property Taxes has generated a lot of discussion at the legislature in recent years. Many believe it imposes an unrealistic compliance burden on businesses and should be eliminated, at least for small businesses. Others feel it is an important revenue stream for government that needs to remain in place; that eliminating it would impose a tax shift to other property taxpayers. Most states tax personal property the same as real property, most have exempted certain types of personal property, while a few have exempted personal property entirely from property taxation.

The Utah Constitution has long provided an exemption from personal property taxes for household furnishings, furniture, and equipment used exclusively by the owner of that property in maintaining the owner’s home (Homeowners also get a 45% exemption on the value of their primary residence).  Consequently, the personal property tax in Utah applies only to businesses. However, the Constitution allows the legislature to exempt business tangible personal property that, if subject to property tax, would generate an inconsequential amount of revenue.

One specific area of that tax that is often the root of frustration for small businesses is the personal property audits conducted by the State Tax Commission or the county assessor in Weber County and Salt Lake County. Stories are often told of burdensome and extensive document requests by the auditors and audits that last several days and produce a result of no change to taxes owed or a miniscule amount of additional taxes owed. The question is often asked, is the personal property tax and the audits it requires worth the State or the taxpayer’s time and money?

More than Half of Personal Property Owners Are Now Exempt. 

The recent increase in the previous $10,000 exemption amount to $15,000 from House Bill 231 (Lisonbee and McCay) will provide a total exemption from personal property taxes for thousands more small businesses. Besides exempting these taxpayers entirely from personal property taxes, that law allows taxpayers who remain under that $15,000 threshold for five years to not file again until their property values rise to more than $15,000. Salt Lake County Assessor Kevin Jacobs says the $15,000 exemption will ensure about 50% of businesses in Salt Lake County will pay no personal property taxes at all. Weber County Assessor John Ulibarri said well over two-thirds of businesses owning personal property in his county will be exempt from the tax under the new law and in smaller counties with only small businesses, all of them could be entirely exempt from business personal property taxes.

Another feature of House Bill 231 is the exemption for items valued less than $150 which are not essential to the nature of the business.  For example, microwave and toaster ovens, coffee makers, and similar items are now excluded from reporting requirements. 

Personal Property Tax Audit Horror Stories Debunked

Recent Tax Commission analysis appears to dispel the horror stories repeated to legislators about the onerous nature of personal property audits and the unreasonable amount of time personal property audits lasted. In response to legislative concerns about these stories, Tax Commission auditors began recording audit times since January 2019. The tracking of 282 audits revealed that 83% of personal property audits lasted less than 45 minutes on site. This involves reviewing the owner’s listing of personal property and doing a quick walk-through of the property. All of the audits, except 3, lasted 90 minutes or less. Only 3 lasted 2 to 3 hours, and none of the audits lasted longer than 3 hours. This suggests that complaints about lengthy personal property audits are unfounded. 

It appears many taxpayers are confusing Personal Property Tax Audits with Sales Tax Audits since in most cases they involve a visit from the Utah State Tax Commission. According to State Tax Commission Executive Director Scott Smith, sales tax audits typically take three to five days at the place of business and require the business owner to produce significant amounts of records. What’s more, the findings on sales tax audits typically take sixty to ninety days to reach the business.

Additionally, the Personal Property Tax amounts to approximately 1.5% of the value of the property while the retail sales tax is typically 7% of the sales of the entity owning the personal property.  An audit deficiency of 7% for up to three years of sales dwarfs the 1.5% property tax on a much smaller value. Again, it appears the horror stories regarding Tax Commission audits relate to the sales tax audits, not personal property audits.

Data Reveal Personal Property Audits Necessary, Even for Exempt Businesses

Your Utah Taxpayers Association recently requested data to better understand the impact of personal property audits on small business owners.  We are grateful to Weber County Assessor John Ulibarri and the Property Tax Division of the Utah State Tax Commission for providing data that sheds some light on the impacts of personal property audits on business owners. The data reveal misconceptions about personal property audits. 

First, over a five year period, examining 15,475 personal property audits conducted by the State Tax Commission, approximately 54% resulted in a tax bill change of $375 or less. Considering the time the audits take, the resources spent on the audit, as well as the cost to the taxpayer, it is fair to ask if a $375 change is a worthwhile return.

Second, an analysis of 5,441 audits on accounts reporting taxable values of $15,000 or less was done. According to that analysis, 63% of those audits produced a tax bill change of $375 or less. As expected, this is an even higher percentage than the entire pool amount of 54% mentioned above. It should be noted that the proportion of audits yielding significant increases in taxes owed is NOT reflective of personal property taxpayers in general. As Weber County Assessor John Ulibarri says, the audits are not conducted randomly. Instead, algorithms are used to identify outliers within business types and these are those who tend to get audited. He also said most audit deficiencies appear to be unintentional, not deliberate; that most business operators try to be honest 

While the audits of nearly two-thirds of those claiming less than $15,000 in personal property assets yielded additional taxes of $375 or less, the analysis of audits also showed that 11% of the audits yielded a change in taxable value of $100,000 or more and those accounts added approximately $1.27 billion in value to the tax rolls of Utah. In other words, these taxpayers claimed personal property assets valued less than $15,000 but in fact had personal property valued more than $100,000.  Whether these businesses were intentionally hiding personal property from taxation or whether the mistakes were unintentional, your Taxpayers Association has long supported requiring all taxpayers to pay their legally owed tax obligations. Otherwise, law abiding taxpayers end up paying more to make up for scofflaws. It is therefore appropriate that HB 231 provides that majority of businesses which now will pay zero personal property taxes because they are under the $15,000 exemption threshold, and those who after five years are not required to even file annually, will still be subject to personal property audits.


One Response to “More Than Half of All Businesses in Utah are Exempt from the Personal Property Tax, Following Action Taken During the 2019 Session”

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