Introduction

The state constitution allows the legislature to exempt a certain percent of primary residential property from taxation as prescribed in statute (XIII §3). The maximum allowed is 45% and current statute sets the exemption at that value (59-2-103). In practice, this means that primary residential property owners are taxed on 55% of the market value of their homes. For example, if one owned a home worth $500,000, then the taxable value of that home is $275,000. With a hypothetical total tax rate of .01%, this implies a total annual tax liability of $2,750. Naturally, the actual values and liabilities will differ by location as values and tax rates vary.

If one wished to reduce the tax burden on homeowners, increasing the primary residential exemption is among the options available. However, this change would not just affect homeowners but instead would flow through the system and change the liability for all types of taxable property. This is because the residential exemption directly changes the tax base. And since Truth in Taxation balances entity revenue in total, altering the tax base of one type of property rebalances the share of liability faced by all types of property. This analysis aims at estimating how this rebalancing would affect both taxing entities and taxpayers for a residential exemption of 55%. The sandbox below recreates the analysis described on this page and allows one to examine any arbitrary subset of taxing entity types, counties, and taxable property types. Additionally, one can select alternative values for the residential exemption.

Analysis

The first step in estimating the impact of changing the residential exemption from 45% to 55% is understanding how such a change would flow through the system. The first thing a change in the exemption would affect is the taxable value of primary residential property. In effect, raising the exemption would remove a chunk of property from the tax base. The chart below shows this effect for Morgan, Carbon, and Grand counties.

The dark green bar shows the total value of primary residential taxable property in the 2024 tax year. These values are the result of taking the 45% exemption out of the total fair market value of the underlying property. By contrast, the light green bars show the value of the same property if the residential exemption were instead set to 55%. Notice that in each county, the taxable value is strictly smaller under the 55% exemption. For example, in Carbon county, primary residential property had a total taxable value of $1.01 B for the 45% exemption whereas that same value goes down to $0.83 B under a 55% exemption, yielding a difference of $180 M. This makes sense given that the higher exemption excludes a larger share of the property value from being taxable. Notice further that the difference between the bars is larger for Morgan county than it is for Grand county. This is because increasing the exemption causes the taxable property to shrink by a fixed percentage. This means that the larger the fair market value, the larger will be the reduction (in nominal terms) when the exemption changes. In other words, the shrinking effect is larger for larger tax bases.

Since changing the residential exemption directly changes the value of residential taxable property, it does not impact the taxable value of the other types of taxable property. This is demonstrated in the chart below which expands on the first chart.

Here each colored section represents a different type of taxable property. As shown in the lighter bars, every type of taxable property except primary residential property has the same value in both the 45% and 55% scenarios. This can been seen in both the tooltip and in the fact that each colored section is the same size in both bars. Despite this, the overall value of the tax base is smaller in the 55% scenario. This is because of the reduction in the taxable value of primary residential property.

One characteristic behavior of the Utah property tax system is that, due to Truth in Taxation, rates respond to changes in the value of the tax base to keep revenue constant year-over-year. Usually, this means reducing the rate as the base increases in value. However, the certified rate calculation works both ways. As a result, reducing the value of the total tax base by increasing the residential exemption triggers an increase in the tax rate to maintain revenues for taxing entities. The pair of charts below show the impact to the tax rate and total revenue.

On net, the change in the tax rate needed to maintain revenues taken with the smaller total value of residential property rebalances the total liability away from residential property and onto all other types of taxable property. As a result, homeowners would receive a tax break whose size depends on the underlying mix of property in the tax base, the value of their property, and the specific entities which levy property taxes on it, among other factors. Conversely, all other property taxpayers would see their liability increase since the only change they experience is a higher tax rate. Effectively, the tax burden shifts to some degree off of homeowners and onto other types of property owners. And while the exact degree of shift will vary widely across the state, we can measure it in two ways: aggregate shares, and individual liability. The aggregate shares approach compares the composition of the tax base before and after the change in the residential exemption. See the chart below.

The rebalancing between tax types can be seen here in the size difference of the colored segments between the darker and lighter bars. For example, in Morgan county primary residential property makes up 61% of the total tax base. However, after the exemption is increased, that share goes down to 56%. In this way, there is a shift of 5 percentage points off of residential and onto other types of property. By contrast, that same comparison in Grand county is a 4 percentage point shift. The degree of the shift measured this way depends on the starting share of primary residential property. The larger the starting share, the larger the shift. This provides a broad measure of how aggregate tax liability would shift by tax entity in response to a change in the residential exemption.

The individual liability approach by contrast, measures how a hypothetical individual's tax liability might change. To estimate this, take a piece of property with a fair market value of $500,000. The tax liability on this piece of property will depend on what type of property it is and the tax rate. The chart below shows how the liability on this property would vary by these factors.

The green bars show the tax liability on a primary residential property with the 45% exemption in the darker bar, and the 55% exemption in the lighter bar. The purple bars show the same relationship for all other types of taxable property. The residential property is approximately half the value of the other types of property in each of the example counties shown here because these values are calculated from a hypothetical starting value of $500,000 regardless of property type. Consequently, the residential exemption cuts the value nearly in half before the tax rate is applied but only for the residential property.

The measure of interest for all types of property is the difference between the dark and light bars. That difference is the estimate of how tax liability changes in response to the residential exemption increasing. These differences account for both the change in the tax base as well as the tax rate and so represent the net impact of the policy change. In Grand county for example, a $500,000 home would receive a tax break of about $86, while a $500,000 piece of other property would see their liability increase by $48. It should be noted that these values only account for the taxes levied by the county itself and do not include other entities such as school districts or municipalities. To find the total change in liability experienced by a given taxpayer, one would need to sum the differences in liability for each taxing entity collecting revenue from the taxpayer.

In sum, both the aggregate shares and the individual liability approaches give insight into the extent to which a change in the residential exemption would be felt by taxpayers and how the impact of that change varies among taxing entities. Since the experience of an individual taxpayer is highly dependent on the specific contours of their circumstances, it is difficult to predict in a generalized way the precise extent to which any given individual will benefit or lose out from a change in the residential exemption. However, it is certainly the case that homeowners would experience a tax break if the residential exemption were increased. By the same token, all other property owners would experience a tax increase. As a result, the optimum value for the residential exemption is fundamentally a trade-off. The sandbox above aims to provide as much insight as possible into the statewide implications of changing the exemption.