House passes HB55 clarifying when state auditor may review nonprofits; bill narrows scope for many water entities

SALT LAKE CITY — The Utah House passed second substitute House Bill 55 on Feb. 24, establishing a three‑part test for when the state auditor may treat a nonprofit as a governmental entity and therefore subject it to governmental audit rules. The measure passed on a roll call of 38 Yeas to 26 Nays and was referred to the Senate.

Representative Coleman, the bill sponsor, told the chamber the legislation responds to confusion encountered by the State Auditor when entities look governmental but are legally nonprofit. Coleman said the measure aims to ‘‘define the lines’’ so the auditor ‘‘is not going to do more than his duty’’ and so entities and auditors have a clearer standard.

Under the bill’s language presented to the House, a nonprofit becomes subject to the auditor’s governmental‑entity audit standard if: one or more governmental entities collectively exercise a controlling interest (defined as a majority of the board’s voting power); the entity exercises taxing authority or mandates fees; or the nonprofit receives a majority of its operating funds from one or more governmental entities under its governing documents. Representative Coleman also explained that, for water companies, the test draws the line at entities that are wholly owned or wholly controlled by governmental units — anything less than 100 percent public ownership would generally be treated as a nonprofit and be exempt from the governmental audit standard.

Members questioned how the definitions would apply in practice. Representative Sandahl and others pressed whether the bill would exempt many of the roughly 1,500 water‑related entities in Utah; the sponsor confirmed the 100 percent ownership threshold means entities with any private ownership stake would not be treated as governmental for audit purposes. Coleman said the step test was developed with input from affected stakeholders, including water entities and auditors, to resolve the ‘‘gray area’’ in current law.

Amendments were adopted on the floor. The House first approved the second substitute and then accepted a housekeeping numbering amendment. A key amendment (amendment 3 in the record) clarified that a nonprofit that is wholly owned or wholly controlled by governmental entities is not treated as governmental if it receives no operating funding or other financial support from a governmental entity — an exception the sponsor cited as intended to address rare entities such as some university‑affiliated corporations. That amendment was adopted without recorded opposition.

Rep. Coleman framed the bill as narrowing, not expanding, auditor authority in places where the law had been ambiguous. Supporters said the change will give the auditor clearer guidance to perform oversight while avoiding unintended intrusions into entities that are legally private. Opponents argued the measure could put some publicly reliant organizations beyond routine governmental audits.

The bill now moves to the Utah Senate for further consideration.