Committee OKs Senate sales tax bill

HELENA - With some Democratic support, the Senate Taxation Committee on Tuesday approved a sales tax plan that would provide up to $444 million in property and income tax relief by 2007.

The measure, passed 8-3, is expected to reach the Senate floor for debate Thursday. A similar sales tax bill also is headed to the House for debate this week.

The version of Senate Bill 470 approved Tuesday contains a 4 percent general sales tax that would take effect in mid-2004. It would raise an estimated $459 million the first year, with $230 million of that used for tax relief.

Another $137 million would be used to create a rainy day fund for use in emergencies or disasters. That leaves $93 million for use to help balance the new budget for the next two years.

Beginning the second year, an estimated $347 million would be available for tax relief. That amount gradually would grow as revenue from the sales tax climbs.

The rainy day account - dubbed a ''revenue and stabilization fund'' - is designed to deal with the kind of money shortage that plagues state government as it struggles to fill a $230 million deficit.

Once the fund reaches $171 million, the excess over $156 million would be returned to taxpayers in the form of rebates and deposited in the state general fund. Up to 20 percent of the excess could be put into the general fund each year.

Sen. Mike Taylor, who worked on rewriting the bill into the form approved by the committee, urged sales tax critics not to reject the proposal out of hand. A close look at the measure shows it provides some additional money for state government and helps poorer Montanans by providing a greater credit for sales taxes paid to those with lower income, said the Proctor Republican.

Rep. Dan Harrington, D-Butte, said he opposed the bill because it provides too much tax relief to major corporations and wealthy Montanans making money on their investments.

The result will shift the tax burden to lower-income taxpayers, he said.

Sen. Jon Ellingson of Missoula was the only one of four Democrats on the committee to support the bill. Over the years, Democrats have been less likely than Republicans to endorse sales tax proposals.

Ellingson said he disliked provisions in SB470 that give an additional capital gains tax credit to investors and allocate extra money from the sales tax.

On the other hand, he said, the bill is attractive because it returns to those with the lowest income the full amount of sales tax they pay and that makes the plan more progressive. Also, it provides tax relief to every homeowner and small business in the state, Ellingson said.

He also said the bill's $93 million infusion to the general fund is crucial for the budget being prepared.

The bill calls for a November 2006 vote on whether to continue the sales tax, after it's been in place for more than year.

Ellingson and other supporters said they hope voters are willing to test drive the plan and won't launch a petition drive to put the issue to a vote before then.

In the process of approving SB470, the committee killed three other sales tax measures. Chairman Bob DePratu, R-Whitefish, said that was an effort to avoid confusion over what the Senate proposal will be.