A report released by Garner Economics earlier this year found that if Missoula County had a quarter-cent sales tax in 2016, it would have generated $5.6 million in revenue, helping local government fund vital services while providing relief to property owners.

But as it stands, a panel of local elected officials said Tuesday, such taxes aren't permitted in Montana, barring a few exceptions. And that has forced local governments to rely almost exclusively on property taxes when paying for essential services.

It's time that scenario changed, members of the panel agreed.

“We have to figure out how to have a different conversation,” said Missoula County Commissioner Jean Curtiss. “We can't just continue to say we don't have a sales tax in Montana and pat ourselves on the back. The folks in Ekalaka, Lewistown and Libby have just as much problem funding local government as we do. We have to figure out what we'd tax and how we'd tie that to property tax relief and some income tax relief.”

In Tuesday's panel discussion, Curtiss, along with Commissioner Dave Strohmaier, Missoula Mayor John Engen and City Council member Heather Harp, were each asked to identify flaws in Montana's tax system and offer ways to address them.

The question was selected as a follow-up to this year's budgeting cycle, in which most elected officials in Missoula city and county government expressed frustration over the state's tax system, its inherent inequality, and the burden it has placed on property owners.

The event was sponsored by the Missoula Current and hosted by the Missoula Downtown Partnership.

“Almost everything we do is funded by property tax,” Curtiss said. “I'm sure when the legislators go door to door, they don't have anyone saying anything but property taxes are too high. Yet when they make cuts at the legislative level, which everyone takes credit for, it just means those cuts or obligations come back to local government.”

Missoula Mayor John Engen, left, and Missoula City Council member Heather Harp said local governments must find other sources of revenue, so they don't rely exclusively on property owners to pay for the cost of basic services. (Martin Kidston/Missoula Current)
Missoula Mayor John Engen, left, and Missoula City Council member Heather Harp said local governments must find other sources of revenue, so they don't rely exclusively on property owners to pay for the cost of basic services. (Martin Kidston/Missoula Current)
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Nonresident visitors spent $3.2 billion throughout Montana last year, according to a report released this week by the Institute for Tourism and Recreation Research at the University of Montana.

That included more than $294 million in Missoula County alone. But with the exception of a small bed tax and gas tax, most of that spending didn't go toward essential services, be it plowing and paving or police and fire.

Rather, Strohmaier said, that remains the responsibility of property owners.

“Are property taxes the best way for local government to raise revenue? I would say absolutely not,” said Strohmaier. “There's little correlation between the value of one's property and your ability to pay. I think we've heard from plenty of folks on fixed incomes during this last budget cycle. There's inherently some inequity on our over-reliance on property taxes in the state of Montana.”

For a city resident, roughly 37 percent of one's tax bill goes to Missoula County Public Schools, while 29 percent goes to the city of Missoula and 18 percent goes to Missoula County. Roughly 30 percent of the city's tax portion covers police and courts, while the second largest piece at 23 percent, funds the fire department.

Like the other panelists present at Tuesday's forum, Mayor John Engen believes a local option sales tax is worth considering. But that would require changes at the legislative level, a concerted effort by Montana's cities and counties, and finally, approval by voters, he said.

“That courage has to come from the Legislature, and that's to give communities like Missoula, Butte, Bozeman, Helena and Great Falls the opportunity to ask voters if they'd be willing to tax visitors,” Engen said. “I think local option is the way to go, but it's a difficult conversation to have. The whole system, frankly, in my opinion, needs reform. We only have small slices and small opportunities here to chip away, and the best place to chip is where there's a crack, and the crack is in the tourism tax.”

Under the current system, only a handful of small Montana communities, such as Whitefish, Big Sky and West Yellowstone, are permitted to carry a resort tax.

But larger municipalities cannot, and a growing number of elected officials across the state have come to question the balance of that equation, especially as services increase in cost and property owners grow more vocal about rising taxes.

“We're saddled in local government by being able to raise taxes at half the rate of inflation,” Strohmaier said. “We can make that work for a little while, and we've been fairly conservative in our spending over the years. But at some point in time, the need to divert maintenance and the need of providing for our citizenry catches up with that, and that's a structurally unsound way of doing business if you can't keep up with inflation. Just fixating on the expenditure side of the ledger is not adequate, either.”

State law allows communities with populations under 5,500 people to adopt the so-called tourism tax, which captures visitor spending on lodging, car rentals, liquor by the glass and meals, among other items.

Whitefish earmarks 65 percent if its resort tax for street improvements, and 25 percent for tax relief. The remaining 10 percent is divided between contributing businesses and local parks, according to the Montana Department of Revenue.

“Any number of communities, including Missoula, are a gateway to some of these iconic national parks,” Strohmaier said. “To fixate on Gallatin, Park or Flathead county as gateways to national parks is too myopic and too narrow. We're all gateways in some sense and we're currently seeing revenue literally flow through our communities untapped while people are using our services.”

A University of Montana survey released earlier this year found that nearly 65 percent of Missoula residents would support a 3 percent tourism tax, so long as the revenue resulted in a decrease in property taxes.

In each of the last few legislative sessions, municipalities have lobbied to place a local option tax on the ballot. But the Legislature has balked for a number of reasons, leaving cities to rely almost exclusively on property taxes to fund services.

City Council member Heather Harp said a local option tax should be considered as a solution.

“Overall, we're at a point in time where we're destined to have tax reform,” Harp said. “Go back to 1889 when we had the extraction industries, and that comprised our economy. But it has shrunk and it's been replaced by tourism. We don't capture any of that. It's time we had a concerted effort to change the playing field.”

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