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Show New local option sales tax law problems During the coming weeks, cities and counties throughout the state will have to decide whether to increase their local option sales tax and agree to a new method of allocating such funds or to continue with the present 34 percent local tax. According to an analysis prepared by Utah Foundation, Founda-tion, the private tax research organization, this decision will have an important im-portant bearing on the future finances of these local units. The 1983 Utah Legislature enacted legislation which allows cities and counties to raise their local sales tax by 18 percent from 34 percent to 78 percent for the next four years and then to a total of one percent beginning begin-ning July 1, 1987. If a city or county increases its tax, however, it must accept a new method of allocating local sales taxes including a possible sharing of such revenues with other local units. At the present time, cities and counties can levy a local sales tax up to 34 percent and retain all of the revenue (minus a small administrative charge) which is collected within their boundaries. Under the new law, any unit which raises its taxes must agree to a gradual phasing in of a population popula-tion factor in the allocation of such funds according to the following schedule: Fiscal Basis of Allocation Year Population Point of Sale Present 0 percent 100 percent 1983- 84 25 75 1984- 85 30 70 1985- 86 35 65 1986- 87 40 60 1987- 88 45 55 1988 on 50 50 Foundation analysts point out that if all local units decide to raise their local sales tax rates by 18 percent and accept the new allocation formula, an additional S13.9 million in local sales taxes would be imposed next year. Because of the change in the method of distributing the revenue, the increase in-crease in the local tax would have a varying effect on the different local units of the state. A table included in the Foundation report shows that a 18 percent increase in-crease in the local sales tax would produce an estimated $400,663 in Vernal Ver-nal during 1984. The analysis also shows that Vernal would receive no added sales tax revenue if it raised the tax and agreed to the new method of allocation. alloca-tion. Thus, the city would realize an effective loss of approximately $400,663 under the plan next year. Other local governments that would lose from the 18 percent tax increase are Ballard S10.652, Altamont $3,114, Roosevelt $135,072. Those governments gaining by the new sales tax are Uintah County $119,677, Duchesne County Coun-ty $19,961, Daggett County, $4,764, Manila $1,310, Duchesne $4,938 and Myton S6.027. The study notes that the increased revenue received by some communities com-munities will be substantially more than the added tax imposed by that community. On the other hand, a number of cities (Price, Roosevelt, Green River, Brian Head, Alta, Murray, South Salt Lake, Park City, and Vernal) Ver-nal) would derive absolutely no additional revenue from the tax increase. In addition to the cities that would receive no added revenue from the tax increase, a number of others would realize substantially less revenue than the amount of the added tax imposed. For example, the 18 percent added tax would produce an estimated $2,978,000 in Salt Lake City during 1984. The city, however, would receive only about $160,000 in added revenue from the tax hike. Thus, the city would realize only about 5.4 percent of the amount of the tax increase, with the remaining 94.6 percent distributed to other communities in the state. It was emphasized in the report that the above figures are estimates for 1984 only. These relationships will change in subsequent years with the phasing phas-ing in of a larger population factor in the distribution formula. In 1985 and 1986, for example, Salt Lake City is expected to receive absolutely no added add-ed revenue from the sales tax increase. Another change will occur after July 1, 1987, when the local tax will increase from 78 percent to 1 percent. The study concludes by noting that if a large number of the cities that derive little or nothing from the sales tax increase choose not to raise their sales tax rates and accept the new method of distribution, it could substantially substan-tially reduce the amount of revenue that would be distributed to other communities. com-munities. This would tend to destroy one of the basic purposes of the new law which is to redistribute some of the revenue generated by communities with large commercial interests to the communities with large populations. |