With Montana property taxes climbing, drumbeat for a tourist tax grows
(Missoula Current) Later this month, Missoula homeowners and others around the state will receive what they may dread the most – the state's latest appraised value of their property.
With market values on the rise, the mills levied by the city and county will increase in value, meaning the number of mills they can levy will decrease, as they risk hitting the state mandated mill cap. It's a bizarre function of the state's current tax system and it's one that a growing number of city and county leaders from across the state contend no longer works.
“It feels a little unsatisfying to say you're going to get an alarming notice this month from the state in the mail that's not grounded in reality, and say a few months later you'll get a tax bill you may not like,” said Missoula Mayor Jordan Hess. “But our property tax system overall is very unsatisfactory.”
Missoula's three taxing jurisdictions gathered on Tuesday to discuss the state's appraisal process and voice frustration over what some see as an antiquated tax system, one that's placing an increasingly heavy burden on homeowners while letting other revenue streams, such as a tourist tax, slip by.
Local officials said the problem has become so grave that it threatens to dismantle the services local governments provide.
“Local governments are heavily reliant on property taxes and are struggling to make ends meet. They're struggling to keep the lights on. They're struggling to provide essential services. That's a direct result of the rules we're playing by now,” Hess said.
The state every two years calculates the value of residential properties across the state. Residents this month will receive a notice from the state informing them of their property's new market value.
Also this summer, as they do every summer, the city and county will hammer out their new fiscal year budget and do so at a time when the cost of goods, services and labor are on the rise. And as market values rise, the mills that local schools and governments rely upon also increase in value.
In Missoula, market values have increased roughly 37% in two years. Using one Missoula property as an example, a home valued by the state at $213,000 in 2020 had a taxable value of $2,875. But in 2022, the state placed the same home's market value at $275,000, pushing the taxable value to $3,707.
“The underlying theme is that our property tax system is complicated, antiquated and fundamentally broken,” Hess said. “The Legislature sets the rules and mandates the notices you'll be receiving, and those don't tell the full story. Our tax system is based on an economy that fundamentally doesn't exist anymore.”
Montana's New Economy Needs a New Tax System
Twenty years ago, Missoula had a number of large industries including lumber mills and a paper mill that provided roughly 60% of the tax revenue received by local government. At the time, property owners funded the remaining 40%.
But now the equation has turned around and property owners are providing local governments with the bulk of their revenue. With rising market values, the current trajectory is quickly becoming unsustainable, local officials said.
“We're providing amenities, essential services and quality of life. The problem is the revenue streams have become more and more limited over the years, and it has been more and more of a squeeze on residential property taxes,” Hess said.
Missoula County Commissioner Josh Slotnick and other county leaders from across the state have begun to discuss ways to make the state's tax system less reliant on property taxes.
Through the Montana Chamber of Commerce and the Montana Association of Counties, a recent poll found that 70% of property owners would support moving to a tax system that looks to tourism, so long as it met several criteria, including assurance that any items taxed would not include the daily items needed by Montana residents.
It also would require that any revenue generated through a tourist tax would need to reduce property taxes by a similar amount. Also, counties that have a stronger tourist economy would need to share a portion of their revenue with counties that don't enjoy such an economy.
“We'd build these into a proposal to have a local voter-approved sales tax on specific tourist-related items that would generate money for property tax relief,” Slotnick said. “We'd take a slice of that and send it off to the state to be shared with other counties that don't enjoy tourism.”
Slotnick said other county leaders have begun to embrace the idea, though the Legislature has not. But with property taxes reaching unsustainable levels, historic resistance to a tourist tax could begin to crumble.
Last year, according to the Institute for Tourism, Recreation and Research, Missoula County welcomed 3.5 million tourists who stayed 6.5 days on average. Other counties such as Flathead and Gallatin saw even higher numbers. But under the state's current tax system, they were unable to tap into their tourist economy.
Missoula voters supported the concept in 2021 when they adopted a local option gas tax. The tax was authorized by the Legislature in the 1970s as a tool to ensure tourists paid a share of a local government's cost of maintaining roads.
But the 2021 Legislature revoked the measure, and if a tourist tax was ever authorized, it would have to pass through the same legislative body.
“I get the skepticism. But this isn't new money for government. It's making sure tourists pay their fair share and we let our locals experience some property tax relief,” Slotnick said.