Water firm wins big tax appeal
September 15, 2009
In what both sides have called a "significant" ruling a judge in 2nd District Court has sided with Summit Water Distribution Company in a tax appeal the private water provider filed against Summit County.
At issue was whether Summit Water, a mutual water company, should be taxed for personal property for some infrastructure the company develops on the West Side of Summit County.
Items like storage tanks, pump houses and pipes not placed in roads, streets or alleys constitute improvements to real property, contends Scott Lilja, an attorney for Summit Water Distribution Company.
"The argument that we put forward was that the personal property tax was inappropriate," Lilja said in a telephone interview. "The property that they were taxing was an improvement to real property and as such couldn’t be taxed as personal property, and the judge ruled in our favor on that."
But the decision is unfortunate for customers of Summit Water who might see their property taxes increase as a result, Summit County Attorney David Brickey said.
The homeowners could now be responsible for paying taxes on utility infrastructure that crosses their land.
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"Basically, what [the ruling says] is that Summit Water Distribution Company is no longer responsible for those improvements, the property owners are now," Brickey said in a telephone interview Tuesday. "There are going to be some consequences to property owners. The tax burden has traditionally been the responsibility of Summit Water. It will now fall, I suppose, upon the property owners."
Judge John R. Morris also agreed with Summit Water that 51 percent of the value of the facilities is exempt from taxation because the equipment is used for irrigation purposes, Lilja said.
"There is a constitutional exemption for any infrastructure used for irrigation in the state," he said.
But in his 31-page ruling, Morris rejected a claim from Summit Water that taxing the improvements as personal property was unconstitutional double taxation.
"The court concludes that Summit Water has not carried its burden of proof in establishing that, if the water distribution facilities were separately taxed as personal property, there would be an impermissible variation in the manner in which the facilities are taxed compared to other personal property, or that the water distribution facilities would be taxed twice to its shareholders," the Sept. 2 ruling states.
Lilja disagreed with the judge on that point.
"Not only do [Summit Water shareholders] get taxed for adding value to their homes because they have water, they would also be taxed on the additional value of that infrastructure," Lilja said. "Which we believe is already being assessed a tax by the taxation of all of these homes, which absent the water would have significantly less value."
Despite losing that argument, Summit Water Distribution Company founder Hy Saunders praised the ruling when reached Tuesday.
"I always just stick with what the judge says because I think that speaks loud and clear just by itself," Saunders said in a telephone interview.
The dispute dates back to 2000 when an audit by the Utah State Tax Commission, which was requested by Summit County, placed the value of Summit Water’s distribution facilities at about $5.1 million.
"Based on results of the audit, Summit Water’s personal property taxes increased in 2000 by $56,200," the ruling states. "Summit County also assessed back taxes for the years 1996-1999 in the amount of $146,905.75, resulting in a total personal property tax bill for Summit Water in 2000 of $204,020.40."