Missoula to Legislature: State’s reliance on property taxes a growing problem

Martin Kidston

(Missoula Current) While the Legislature remains in session, the City of Missoula will continue its call for tax reform in an effort to reduce the state's reliance on property taxes by spreading it to other sources, including Montana's growing tourism industry.

The city created a new graph using data from a number of sources, including the Legislature and the Montana Budget and Policy Center, that depicts its argument in a visual format.

It also notes that Montana's current property-tax system was created years ago based upon an economy that no longer exists.

“Twenty years ago, 43% of our state taxes came from residential taxes and now it's over 60%,” said Jessica Miller, the city's digital engagement administrator. “It demonstrates the shift in the property-tax base from a more diverse base to a largely residential one."

According to the data, residential property taxes in 1999 accounted for 42.9% of local government revenue, though by 2018 that had grown to 60.1%.

At the same time, commercial, business equipment and centrally assessed properties have all seen their contribution of tax revenue to local government decrease. It has resulted in the increased reliance on property taxes.

“We're almost exclusively reliant on property taxes as local governments in Montana,” Mayor Jordan Hess said recently. "We would support any local-option tax that provides meaningful property tax relief.”

The city noted that so-called “resort” communities in Montana have been permitted to implement a local-option tax. They have used the revenue to fund local needs and provide property tax rebates to residents.

But larger cities in Montana have no such option. According to the city, out-of-state tourists spend nearly $130 million annually in Missoula. If the city were permitted to implement a 3% local option tax, it would generate nearly $4 million in revenue.

As it stands, Miller said the state's tax system is regressive.

“It shows how regressive our property tax system is,” Miller said. “Because we don't have many sales taxes in Montana, our most regressive form of tax is our property-tax system.”

Such information isn't new to the Legislature. The Interim Revenue Committee did its own study by looking at the tax composition nationally.

When all U.S. local governments are averaged, their share of property taxes stand at 72%. But for Montana local governments, property taxes represent more than 96% of revenue.

Local governments nationally also see 18% of their revenue come from sales and excise taxes but in Montana, it represents just 1.1% of local revenue.

“That's a pretty dramatic number,” Miller said.

Both city and county leaders in Montana have called for tax reform, as have other cities in the state. Montana's heavy reliance on property taxes is a problem, they said, and it's only growing worse.

Bozeman currently generates the most of Montana's six largest cities with $866 in revenue per capita followed by Helena at $737 and Kalispell at $729. Missoula is fourth at $709 while Great Falls is last at $549.

“We're in line with our peer cities across the state, so it's a not just a Missoula problem,” Miller said. “It's a problem that other communities in Montana share.”