Utah voters will be voting on two constitutional amendments on the November 2012 ballot. Both have to do with taxes. Constitutional Amendment A requires that severance tax revenue be placed in the permanent Trust Fund, according to a formula.

Constitutional Amendment B exempts property taxes on the primary residence of those serving the military ordered out of state for duty 200 days in a calendar year.

Amendment A requires that a set portion of the severance tax shall be deposited annually in the Permanent State Trust Fund as follows: 25% of the first $50 million dollars, 50% of the next $50 million and 75% of remaining annual revenue exceeding $100 million, and it provides that severance tax to be included in the list of funds deposited in the Permanent State Fund.

A 2008 Constitutional Amendment allowed the Legislature to add severance tax revenue to the Permanent Trust Fund monies. According to that law, the Legislature would decide annually (by majority vote) how much of the total severance tax money to place in the General Fund and how much to place in the Permanent Trust Fund.

Severance taxes are those taxes that are levied on non-renewable resources which are removed from the land. The rationale for severance taxes is that these are taxable resources which can never be replaced. As such, some policy makers have argued that they merit special consideration as a revenue source and that at least a portion should go for the needs of future citizens when the resources are no longer there. By placing some of these revenues in a special fund, the interest on which could be used for current budgetary needs, both current and future needs could benefit.

The Permanent Trust Fund was established to take advantage of the funds that Utah received under the Tobacco Settlement in 1998 as a result of lawsuit that Utah and 46 other states filed against the leading tobacco companies. The fund is invested by the State Treasurer and the interest is deposited in the General Fund. Under the law, the legislature may, with a vote of three-fourths of each House and concurrence of the governor, appropriate money from the Permanent Trust Fund.

In 2008, Utah voters amended the Utah Constitution to require severance taxes above a certain amount be placed in the Permanent Fund. However, the legislature, by majority vote, could, by separate enactment, change the amount that would be placed in the General Fund, before depositing the remainder in the Permanent Trust Fund. In the 2011 session the Legislature raised the limit of what automatically went straight into the General Fund to $77 million, leaving a small amount to be deposited in the Permanent Trust Fund. To some policymakers interested in creating a fund for the future, the process of overriding severance funds was perhaps too easy. Thus Constitutional Amendment A requires a designated proportion of the severance tax to be placed in the Permanent Fund, with a larger vote by the Legislature required to take severance tax revenues for the General Fund.

Permanent Trust Fund or General Fund?

Policy makers who advocate placing severance tax revenues in a trust fund note that placing the tax in a fund and using the interest only is a way of providing for the future. They point out as examples the states of New Mexico and Wyoming whose Mineral Trust Funds were established over 40 years ago. Both states have in excess of four billion dollars in their endowment funds today. They point out that frequently the amount of severance tax collected varies on the commodity price of the mineral, and that the state may face difficulties in the future if it depends on these funds for ongoing programs. The final vote in the Utah Senate to put Constitutional Amendment A on the Ballot was unanimous, an indication of support of this concept of providing for future generations.

Some legislators and other interested parties have argued that requiring severance tax funds to be deposited in the Permanent Trust Fund is not good policy because it limits flexibility and is unnecessary. They are concerned that "earmarking" the money limits the Legislature's ability to meet current needs such as education, health care, public safety and environmental protection. They argue that the global economy can bring changes quickly and limiting the amount of available revenues hampers the Legislature's ability to adapt to change.

Those opposing the Amendment say that it is unnecessary because Utah legislators understand the need to save for the future, and they have a good record of doing so. They point out that the Rainy Day Fund has alleviated the severity of budget reductions in recession years and was large enough that it was not drained completely in the recent recession. They have noted that another way to prepare for future years is to make investments in public and higher education and infrastructure to provide for future prosperity.

The Adequacy of Severance Tax Funds

Another part of the discussion about severance tax revenues, which will not be part of the ballot amendment, is the adequacy of Utah's severance tax rates. Utah's severance taxes are among the lowest levied in the states. They have been kept low to encourage the production of minerals. As a March 7, 2012, a Salt Lake Tribune editorial noted, "But a better idea than squirreling away many millions of severance tax dollars, out of the stream that funds education and other functions, would be to raise the state's puny severance tax rate." Currently, Utah's tax rate on oil and gas production ranges from three to five percent, depending on market price. When adding in sales and property taxes, the extractors pay about 3.3 % of the value of the resources extracted. In contrast, Wyoming has a complicated severance tax rate, that, when coupled with sales and property tax, produces an effective tax rate of 11.4%. (Figures from Montana Headwaters Institute.)

Constitutional Amendment B: Exemption of Property Tax For Military Personnel

This amendment would provide for a property tax exemption for property used as a primary residence by a person in the military or the person's spouse if the person is called for active duty for 200 days in a calendar year.

The Utah Constitution already provides for four general classes of property that the Legislature can, by statute, exempt from property tax. This amendment does not provide another exemption; it merely gives the legislature the power to provide this option for military personnel by statute.