HELENA — By session's end, lawmakers say the taxman will most likely have new marching orders in Montana: Take less from businesses and, at the very least, no more from private citizens.
Two competing bills promise to cut the state’s property tax on business, and legislators are also considering an income-tax credit for homeowners.
The session’s tax bills also include a handful trying to address the problem of property values skyrocketing past Montanans’ incomes. One by Republicans would seek to use lesser appraisal values; Democrats want to ensure that property taxes do not exceed a certain percentage of the owner's income.
Neither party has plans to raise taxes.
But the bottom line in the tax-cut game is that the money has to come from somewhere. A break for one group can mean increases for others — or fewer services for somebody who may need them.
The tax is assessed on the value of property and equipment used for business, from farm trucks to all-in-one copy machines. Reducing it has been touted by both parties as a way to help grow jobs in Montana.
The equipment tax
The difference in these bills is in the parties’ approaches. Democrats want to gradually eliminate the tax for all but Montana’s larger businesses. Republicans want to give all businesses a tax break up to a certain dollar amount of property value.
Currently, businesses with less than $20,000 of equipment pay nothing. The Democratic proposal would raise that threshold next year to $200,000. A year later, the threshold would climb to $500,000, and then to $1 million in the third. By then only 450 of Montana largest businesses would be paying the tax.
Gov. Brian Schweitzer included that plan in his proposed budget, and Sen. Kim Gillan, D-Billings, is carrying his bill. She said Senate Bill 392 aims to help small businesses and startups while costing the state and local governments less in lost revenue.
Republicans see it differently. Sen. Bruce Tutvedt, the Kalispell Republican who chairs the Senate Tax Committee, said thresholds penalize larger businesses for buying the equipment they need to expand and create jobs.
“Republicans don't like thresholds,” he said. “They think it's bad tax policy.”
Tutvedt's Senate Bill 372 would cut the tax rate by a third for the first $2 million worth of equipment that any business owns. They would pay the full 3 percent tax on the value of equipment over that.
That gives relief to all companies, even the larger ones that are more likely to create good jobs, he said.
But Democrats see that as giveaway to large businesses that don't need the tax cut and wouldn't necessarily spend the savings in Montana.
Republicans say the Democrats’ approach offers no relief to small businesses like logging outfits, which typically need more than $1 million in equipment to operate.
Tutvedt’s bill has another feature businesses like: The tax would disappear entirely if the state’s revenues surpass the Legislature’s projections over the next two years.
Democrats and the governor's top economic adviser lampooned that idea when the bill was first discussed. They said Republican legislators could rig the game by intentionally underestimating revenues to make the tax disappear.
Since then Tutvedt has reworked that provision, tying the tax breaks to actual growth in state revenues. Now, if revenue exceeds the past year's by 4 percent, the tax rate would drop to 1.5 percent. The exemption would rise to $3 million the first year and $5 million the next.
It’s not just businesses that have a stake in this. Tax cuts mean less money for local schools and for cities and counties, who pay for police, fire fighters, streets and other needs.
Tutvedt’s plan for softening that blow is a bill to eliminate about $19 million in tax breaks for such things as alternative energy systems and recycling.
Gillan would cover the revenues lost in her bill by increasing appropriations from the state’s general fund for the next two years. She’s banking on a growing tax base to fill in the blanks after that.
Montana’s cities and counties opposed that idea in the bill's hearing last Thursday, fearing it would merely shift the tax burden toward homeowners.
Also in the mix is a bill to repeal the business equipment tax entirely, but GOP leaders said that idea would cost local governments too much money and won't likely get out of the House.
Sen. Kendall Van Dyk, D-Billings, is carrying a proposed income-tax credit that would amount to $150 dollars for homeowners in the next two years.
It too, was figured into Schweitzer's budget, at a cost of about $36 million.
Van Dyk said it would give direct relief to Montanans who need it most: those who live, work and raise their families in the state, including those who lost jobs in the recent recession.
But Republicans say the credit is too small to do much good. Nor do they like the fact that it would go to some Montanans who pay no income taxes.
(Reporter Cody Bloomsburg can be reached at (208) 816-0809 or by e-mail at email@example.com.)