Committee adopts third substitute to change tax-increment rules for HTRZ and downtown convention districts

The House Revenue and Taxation Committee on Feb. 26 adopted the third substitute to Senate Bill 26 and voted to recommend the bill favorably out of committee after sponsor and agency changes clarified how sales-tax increments and property-tax revenue may be used in redevelopment zones.

Senator Harper, the bill sponsor, told the committee the latest substitute incorporated technical fixes requested by the Tax Commission, bond counsel, Salt Lake City and Salt Lake County, and clarified uses and effective dates for both sales-tax and property-tax increments.

The bill narrows use of state sales-tax increment in convention-center reinvestment zones: only 50% of the state portion of sales tax generated in the downtown convention-center CCRZ may be used for the district, while 100% of local-option sales tax remains available for that zone. The bill also removes use of state sales-tax increment for future HTRZs (Housing/Transit Reinvestment Zones); property tax can still be used in CCRZs and HTRZs under the bill’s prospective operations.

Why it matters: the changes redistribute which taxing increments can be used to finance projects in special reinvestment zones and alter the revenue available to bond against development. The Tax Commission told the committee the second substitute was not administrable because of effective-date timing and that the commission needs computer-system upgrades to allocate sales-tax increments correctly.

Commissioner John Ballantyne, chair of the Utah State Tax Commission, told the committee the second substitute’s mid-month effective date made distribution impossible with current systems. “We cannot administer the second substitute,” he said, and asked the Legislature to consider funding programming work to add “ledgering” capability to the commission’s systems so sales-tax increment distributions can be capped and tracked without manual intervention. He said the commission could administer the third substitute with an effective date of Jan. 1, 2026, if funding and a small internal consistency fix are addressed.

Public comments focused on one local application of the law. Hillary Jessop of Park City said traffic and local opposition to a developer’s proposal were driving a citizens’ referendum; she said the provision in the bill that applies to Summit County was negotiated by the county and the developer and was reflected in the substitute. Senator Harper and committee members repeatedly said the HTRZ provision for Summit County would not bypass the HTRZ committee: a project still must go back to the HTRZ review committee for approval under the revised parameters.

Committee action: Representative Walter moved to adopt the third substitute; the committee adopted it by voice vote. Walter then moved the committee recommend Senate Bill 26 (third substitute) favorably; the committee voted to recommend the bill favorably by voice vote.

What remains: the Tax Commission identified a remaining internal inconsistency (lines referenced by the commission) that may require a floor amendment. The commission also urged funding for system programming if the Legislature intends to rely on sales-tax increment financing in these zones.

Ending note: committee members described the third substitute as the result of extended negotiations with Salt Lake City, Salt Lake County, the tax commission and bond counsel, and the committee advanced the bill to the next stage with a unanimous voice vote.