Welcome to CPA at Law, helping individuals and small businesses plan for the future and keep what they have.

This is the personal blog of Sterling Olander, a Certified Public Accountant and Utah-licensed attorney. For over seven years, I have assisted clients with estate planning and administration, tax mitigation, tax controversies, small business planning, asset protection, and nonprofit law.

I write about any legal, tax, or technological information that I find interesting or useful in serving my clients. All ideas expressed herein are my own and don't constitute legal or tax advice.

Utah Property Taxes and Amendment B

Like all states, Utah imposes a tax on real property but provides certain exemptions from taxation. Real property in Utah is exempt from taxation if it is owned, for example, by a nonprofit organization or by the state or a local government. Utah Code § 59-2-1101(3)(a).

In last Tuesday's election, Utahns rejected Constitutional Amendment B, which would have created a new tax exemption for real property not owned by a state or a local government but rather leased by the state or a local government from a private owner. While this amendment was presented as a way to simplify government in a revenue neutral manner, the reality is that property owners could have reasonably expected to experience a small property tax increase if the amendment had passed.

As I opined for KUTV 2News, "When a piece of real property is exempt from real property taxes, the neighboring real property owners necessarily subsidize the taxes that would otherwise have been collected in respect to the exempt real property. Because Amendment B creates a new category of real property that is exempt from property taxes, all else being equal, I would expect real property owners to experience a property tax increase to offset the decrease in property tax revenue."

Amendment B was also presented as not being a giveaway to property owners who lease to a government entity because the exemption was only to be available where the state or local government was responsible for paying the property taxes directly due to a triple net lease. However, it would seem that property owners would be able to charge higher rent knowing their tenant had an exemption from taxation.

Leases by a private owner to a charity or government entity have long raised these kinds of issues; as one court held over a century ago:
"[I]f the private owner of the land allows his land to be used for [exempt] purposes and charges no rent and derives no personal benefit from the land, the land is exempt from taxation, because the land is then devoted exclusively to such a use... For in such cases the owner contributes the use of his land to public or quasi-public use... and derives no gain or profit for himself...

But on the contrary, when the owner leases his land to the public for a public use... and applies the rents derived from the land to his own personal advantage, he contributes nothing to the public or to charity, he loses nothing by the use, he is not a benefactor to any one, but he stands before the law in exactly the same light as any one else who leases his land for any other purpose, and... his property is not exempt. State ex rel. Hammer v. MacGurn, 187 Mo. 238, 86 S.W. 138, (1905)
I believe that Utahns were right to reject Constitutional Amendment B.