How will the 2017 Montana Legislature affect your taxes?
By Michael Siebert/UM Legislative News Service
HELENA – When it comes to balancing the state budget, there are two schools of thought — raise taxes and generate revenue, or cut spending and save money.
With the state facing a budget shortfall, that ideological difference has become all the more prominent throughout Montana’s 65th legislative session. Often, it defines party lines.
In Gov. Steve Bullock’s original budget proposal, he suggested a wide variety of tax increases on everything from cigarettes to medical marijuana. Perhaps most significantly, he also proposed a tax increase on Montana’s top earners.
But with Republicans holding majorities in both the House and Senate, not many of these ideas are likely to become public policy.
“Our existing governor and the candidate for governor both campaigned on no tax increases,” said Speaker Pro Tempore Rep. Greg Hertz, R-Polson. “Yet as soon as he’s off the election, our existing governor comes to us and proposes several tax increases.”
Hertz said the idea of tax increases generally does not sit well with Montana Republicans.
“We have a short-term revenue problem, and you don’t fix short-term revenue problems with tax increases,” Hertz said. “That’s generally the Republican philosophy going forward here.”
“No new taxes is such a seductive, easy way to avoid a conversation about the real needs in our communities,” said Rep. Kim Abbott, D-Helena.
Abbott said Montanans recognize the need for “smart investments” in their communities, and that taxes are a big part of meeting their needs.
With the session in its final weeks, dozens of tax bills are still alive and being debated by lawmakers. With so many proposals, it can be difficult to understand how exactly the Legislature might affect Montanans’ taxes. Here, then, is a guide to all the ways taxes could change over the next two years because of the 2017 Legislature.
Most of the this session’s surviving taxes fall under the category of consumptive taxes, or use taxes. These apply to goods and services. Think gas taxes, bed taxes and cigarette taxes, for instance. These are some of the most controversial proposals of the entire legislative session.
“We don’t think it’s fair on the citizens of Montana,” Hertz said. “We need to look at efficiency in government before we need to raise any taxes.”
Abbott, however, said many of the proposed taxes could help reduce harmful behaviors. A proposed tax on tobacco would have raised the price of a pack of cigarettes by $1.50, which supporters argued would help prevent young Montanans from smoking in the first place. That bill was effectively killed in the House Taxation Committee last week.
Surviving “consumptive” taxes include:
- House Bill 473, introduced by Rep. Frank Garner, R-Kalispell, would increase the state fuel tax by $0.08 per gallon. The bill is perhaps the most notable consumptive tax of the session, and would provide roughly $58.5 million in state special revenue for highway construction projects in 2018. The bill passed the House on a vote of 54-26, and will now move to the Senate for more debate.
- Senate Bill 333, introduced by Sen. Mary Caferro, D-Helena, which would tax medical marijuana sales and providers at a rate of 4 percent until June 2018, and 2 percent thereafter. The bill was roundly criticized by Republicans. Hertz called it a “tax on the sick and disabled.” It passed the Senate 32-18 and is now in the House.
- Senate Bill 251, introduced by Sen. Tom Facey, D-Missoula, would revise the lodging tax to include “short term rentals” like Airbnbs, which are operated by property owners and rented for less than thirty days to visitors. It passed the Senate 31-19.
- Senate Bill 376, introduced by Sen. Jill Cohenour, D-Helena, would increase the tax on lodging to 3.5 percent from its original 3 percent. The funds from this increase would fund the construction of the Montana Heritage Center, a museum of Montana history originally requested as part of a broad infrastructure package proposed by Gov. Bullock. House Bill 660, introduced by Rep. Jenny Eck, D-Helena, essentially makes the same change for the same purpose. SB 376 passed the Senate 28-22, while HB 660 passed the House 54-46.
- House Bill 205, introduced by Rep. Alan Redfield, R-Livingston, would institute a tax on electric vehicles, as they don’t pay gas taxes like drivers of traditional vehicles. The funds generated from this fee, collected annually, would go toward funding Montana highway projects. It passed the House 58-42.
Income and property taxes
The most recent significant change to Montana’s income taxes was in 2003, when the legislature reduced the number of tax brackets. Abbott said lawmakers at the time reduced the top tax rate from 11.9 percent to 6.9 percent, effectively putting Montanans who earn roughly $17,000 per year in the same bracket as those who earn $500,000.
Several bills proposed this session would have increased the tax rate for top earners. All of those failed.
“It made sense to have the folks that benefitted most from that last change to the income tax system pay a little bit more,” Abbott said.
Top Republicans have repeatedly disagreed with that throughout the session. In January, House Appropriations Chair Nancy Ballance, R-Hamilton, said she opposed the idea that high-income Montanans should have to pay higher taxes.
“If we start taxing the job creators … how will we get the high-wage jobs that we need to get to bring people up from a wage level they are now, to where we think they need to be?” Ballance said.
Several bills dealt with Bullock’s proposal to increase the tax rate for higher-income Montanans. The most significant increase would have been House Bill 330, introduced by Abbott. HB 330 missed the deadline for transmittal after having been tabled by the House Taxation Committee. It would have increased the income tax rate to 8.9 percent for Montanans who earn $400,000 or more each year.
While property taxes were a significant talking point in the 2015 session, this time around, the discussion of that subject has been relatively quiet. One remaining bill, however, would exempt some properties from certain property taxes. Senate Bill 94, introduced by Sen. Keith Regier, R-Kalispell, would allow properties whose value is significantly lower than the land they sit on to avoid paying property taxes. In order to be eligible, the land must be valued at 150 percent of the property’s value. The bill passed the Senate 33-17, and was approved by the House Taxation Committee last week.
Tax credits are essentially tax reimbursements. They are often given to individuals or businesses who engage in a certain kind of behavior, like investing in an industry or hiring a certain kind of employee. Like all things taxation, lawmakers have differing opinions on their effectiveness.
“Tax credits are meant to change behavior, and incentivize certain behavior,” Abbott said. “I think it has been hard to prove the effectiveness of that kind of tax policy, generally.”
“A lot of these credits that are still alive are targeted credits, where they’re encouraging expansion of business,” Hertz said. “As business expands, the credit will offset, and we won’t see a loss in reduction to revenue at the state level.”
Surviving tax credit bills include:
- House Bill 187, introduced by Rep. Jim Hamilton, D-Bozeman, provides a tax credit for those who invest in small businesses. The credit reimburses up to 30 percent of the total investment, as long as the amount invested exceeds $50,000. The credit caps at $75,000 per year of investment, and can not exceed $750,000 for all years of investment combined. HB 187 passed the House on a vote of 63-37, and will soon be debated on the Senate floor.
- House Bill 308, introduced by Rep. Casey Schreiner, D-Great Falls, would give tax credits to employers who hire apprentices. This policy was initially proposed by Gov. Bullock, who said “employers that have had apprenticeship programs find that they have a committed, talented and trained workforce.” The bill gives employers a credit of $1,000 for each apprentice they take on, and $2,000 if that apprentice is a military veteran.
- House Bill 391, introduced by Rep. Tom Jacobson, D-Great Falls, provides for an earned income tax credit. The federal government already provides for such a credit, but HB 391 gives an additional credit to low-income workers of 3 percent of their federal credit. The money would be issued through a tax refund. Abbott said in general, this is the only tax credit she feels is effective, calling it “the most successful federal anti-poverty program.”
Michael Siebert is a reporter with the UM Community News Service, a partnership of the University of Montana School of Journalism and the Montana Newspaper Association.