Utah operates under a revenue-neutral property structure.
This means as property values go up, certified tax rates drop, said Kem C. Gardner Policy Institute director of public finance research Maddy Oritt.
“Taxing entities are only allowed to collect the same amount of revenue in a given year that they collected in the previous year in property tax, with a couple of exceptions,” Oritt said on KPCW’s “Local News Hour” Aug. 14.
According to Oritt, the two ways property taxes typically increase are either through a Truth in Taxation hearing or when a county gains revenue from new growth.
Data centers count as new growth, she said. But what is housed inside of the center doesn’t.
“Anything that’s inside the structure, that’s personal property,” she said. “When you think about a data center, sometimes the personal property, which is the chips, GPUs (Graphics Processing Units), server racks, that can be three to four times higher in value than the value of the actual structure.”
While property taxes might initially increase with the new growth in a rural county, the value of the “personal property” stored inside the data center is a significant portion of the tax structure. But because tax dollars are raised at a constant rate, the real rate for taxpayers will decrease.
Until the technology inside the center loses value. This happens relatively quickly, Oritt said. As the hardware depreciates, a homeowner’s tax rate increases to maintain the system’s balance.
“They may see a big drop in the first year, but then years two, three, four, five, that rate is going to start creeping up,” she said. “I want to clarify it doesn't mean that the rate is going to go above what they were paying before, but it’s just going to create this volatility. And then, if you think about year six, the data center replaces all their high-value equipment, the rate drops again.”
This can cause whiplash for residents, Oritt said. Any changes in the property tax system need to come from the state legislature, but there are steps the data center can take to mitigate instability.
“If data centers were to phase in their equipment purchases, that would create a smoothing effect,” she said. “If, for example, a new data center were built, but only a third of it were outfitted in the first year, and then another third in the second year, that could help smooth it out.”
Local policymakers would be limited in their ability to manage tax instability, she said.
