The Revenue Interim Committee and their subcommittee studying Montana’s state and local tax system (HJ 35) met this week, showing some positive momentum. The HJ 35 tax study subcommittee voted to pass four bills onto the Revenue Interim Committee that would strengthen local governments’ ability to raise revenue and improve the fairness of our tax system.
The first bill passed out of the committee, HJ 35-01, would allow local governments to keep up with inflation when making their budgets. In current law, local governments can only increase their budgets by one-half of the average inflation rate for the prior three years. This bill would enable local governments to increase their budgets by the full rate of inflation, so that we can support the level of infrastructure and public services our growing communities need.
The second bill passed out of committee, HJ 35-02, proposes a tax credit for families whose property taxes exceed an unsustainable percentage of their income. Currently, property taxes are completely disconnected from household income, and households living on lower and middle incomes pay a larger portion of their income in property taxes than the wealthy. This tax credit is most generous for homeowners living at the lowest income levels and would improve the fairness of Montana’s tax system.
The third bill, HJ 35-03, would increase the corporate minimum tax. Our current $50 corporate minimum tax has not been increased since it was passed in 1969. This proposed bill increases the corporate minimum tax to $200— almost half of what it would be if it had been increased with inflation— and would bring much-needed revenue to Montana at a small cost to some C-corporations.
The final bill the committee passed was HJ 35-04. This bill revises the calculation of the capital gains tax credit so that the credit amount is based on the lesser of the taxpayer’s net capital gains or taxable income. This bill would correct a drafting error which currently allows a taxpayer to take the capital gains tax credit on 2% of their capital gains, regardless of their taxable income. For example, currently, if a taxpayer has $1 million in taxable income and $2 million in capital gains, the taxpayer can take the capital gains tax credit against the entire $2 million in capital gains, which is twice their taxable income. This bill would limit the capital gains tax credit to be taken against, at most, taxable income.
The 2021 legislative session is only six months away. With such positive bills making progress, we have hope that this will be a time for thoughtful decisions and proactive planning about our state’s need for new and fair sources of revenue as we rebuild to a better Montana.
MBPC is a nonprofit organization focused on providing credible and timely research and analysis on budget, tax, and economic issues that impact low- and moderate-income Montana families.