Utah’s Tax Situation

Utah's Tax Situation By W . L. Wctnlass, Director School of Commerce and Business Admin- instration, Utah Agricultural College A year ago I prepared an article for the Improvement Era in which certain phases of the tax situation in Utah were dis- cussed. It was apparent then, as it is now, that what this State most needs is a more equitable distribution of the tax load on the shoulders of those who have to bear it. There are at least three things that must be done before the defects of out present tax system can be eliminated: First, our Constitution must be so amended as to permit a classification of the various forms of property for purposes of taxation; second, we must have a suitable state income tax law; and third, the administration of our tax laws, particularly the making of assessments, must be put upon an entirely different basis. The Constitution of Utah (Article 13, Section 3) specifi- cally provides that all taxable property within the State shall be assessed and taxed at a uniform rate, according to its value in money. This is merely a repetition of similar provisions found in most of the earlier state constitutions. At an earlier stage in our industrial development there was no need for any classification of property for purposes of taxation. Prop- erty and property rights existed in but few forms, and for the most part they were real and tangible and could riot be hidden from the eyes of the assessor. Even with a more com- plex economic life it would seem, at first thought, that equali- ty in values and rates is a desirable aim in taxation. A closer examination, however, will show that adherence to this princi- ple will defeat the very end toward which we are striving — a greater degree of justice in taxation. The experiences of all the states have proved this. Many of them have already amended their constitutions; others are preparing to do so. At the present time property and property rights exist in a multitude of forms. One very important class is called "in- tangible personal property." This class comprises mainly stocks, bonds, notes and other securities. With an ever in- creasing tax rate, the temptation to conceal these from the eyes of the assessor (a thing easily done) becomes too great for many people. The result has been wholesale perjury and

UTAH'S TAX SITUATION 223 tax evasion. This evil has been especially pronounced in the more populous states and cities and among the owners of large quantities of this class of property. These people have found a measure of justification for their acts in the fact that when- ever such property is found it is almost invariably assessed at a higher proportion of its market value than is the case with other forms of property. A premium has thus been placed on dishonesty. The state of Pennsylvania, after struggling for decades with this problem of taxation, finally reduced the rate of tax- ation on intangible property to a small fraction of what it had been, and received more revenue from this source than ever before. Other states have had the same experience. It would seem that the conscience of taxpayers varies inversely as the rate of taxation. And furthermore, as Dr. Bullock says, "evasion of taxation, when it becomes general, is not due en- tirely too dishonesty on the part of the average taxpayer, but to the sheer inability of the honest man to pay his taxes when other persons succeed in evading theirs." Aside from the matter just discussed there are many other reasons why property should be classified in order that justice in taxation might be more nearly attained. Realizing this, our legislature, at its last session, passed a resolution pro- posing to amend Sections 2 and 3 of the thirteenth article of our Constitution so that property might be properly classi- fied for purposes of taxation. When this proposal comes before the voters of Utah next November it will be the duty of every forward looking citizen to see that it is ratified. Another most important reason why we should be able to classify property for purposes of taxation is that we may thereby clear the way for a suitable state income tax law. Of course, ultimately all taxes must come from income. Assess- ing a citizen's property is merely one way of attempting to de- termine his income or his tax paying ability. But ownership of property is often a very poor index to one's income. This is clearly evidenced by the situation this year. It is not here proposed to abolish property taxes, particularly on tangible property, for there are many reasons why they should be re- tained. But it is contended that actual income is a better measure of ability to pay taxes than is the mere ownership of property. Another advantage of the income tax is that the more one has to pay in taxes the more one has remaining to meet other obligations. Furthermore, income taxes almost invari- ably rest where they are levied and cannot be shifted to the shoulders of others. We need an income tax law in Utah for at least two good reasons: First, it would make it possible

224 IMPROVEMENT ERA to lighten the load of taxation on those forms of property that are now over-burdened or are driven into hiding, and second, it would make possible the taxation of persons who are now evading taxation or who are not contributing to the support of government according to their ability. Undoubted- ly, our next legislature will consider income tax legislation. Here again it will be the duty and privilege of every citizen to see that a proper measure is enacted. Desirable as these reforms would be, we can never hope to have a satisfactory system of taxation until the methods of administering our tax laws are radically changed. In two important counties of this State, students under my direction have found by actual investigation that real property has been assessed during the last five years at rates varying all the way from twelve percent to ninety seven percent of its real or market valuation. There are numerous instances where year after year the county assessment rolls have merely been re- copied without any attempt to determine whether assessed valuations bore any relationship to real values. What is the cause of these and many other abuses that could be cited? The chief source of trouble is to be found in our antiquated method of selecting assessors. Men are chosen for this important work with full regard for their po- litical affiliation, but with little or no regard for their quali- fications or aptitude for the work they are to do. Our present method of selecting these officials is fundamentally wrong. How can we reasonably expect an ordinary human to treat all taxpayers equally when he knows that his election and con- tinuance in office depends much more upon some than upon others? Furthermore, most of the present incumbents of this office are not qualified for the task even if they are disposed to disregard political influence. With the usual short tenure of office they cannot acquire this ability. The remedy for these evils should be apparent. Besides the enactment of suitable laws, the authority and responsibil- ity for tax administration must be centered in a state board or commission, and assessors must be appointed and continued in office on the basis of their ability and fitness. In doing this we would be following the lead of the most progressive states of the Union. Then and then only will the defects of our present tax system be removed. Logan, Utah