Montana would impose sunset dates on numerous corporate and personal income tax credits, including the earned income tax credit, under a bill recently advanced by a House of Representatives committee.
H.B. 723, which unanimously cleared the House Taxation Committee on Tuesday, would impose varying sunset dates for 29 tax credit programs, with the dates ranging from 2022 to 2030, and eliminate tax credit programs that have already expired. The bill would go into effect immediately if enacted.
The bill was introduced Friday by Rep. Dave Fern, D-Whitefish, who said at the committee meeting on Tuesday that the idea is to have a systematic review of all state tax credits for both individuals and corporations by an interim tax committee.
“I think this bill really represents good governance, the way we should be looking at tax credits,” Fern said.
Programs that would receive sunset dates include the elderly homeowners and renters credit, the credit for taxes paid to other states, the earned income tax credit, mineral and coal exploration credits, as well as credits for hiring veterans and for using alternative energy systems.
In addition to resetting the end dates for existing tax credit programs, the bill encourages new, expanded or renewed credit programs to not last longer than 10 years. Credits that were enacted the earliest would see the earliest sunset dates, except those with built-in termination dates, according to Megan Moore, a research analyst with the Legislature.
The bill lays out six criteria for legislators to consider while reviewing tax credits to decide whether they’ve been effective. The criteria include a credit’s impact on the larger economy, a cost-benefit analysis, whether the credit changes behavior and if those changes would have been made regardless of the credit and if the credit benefits those from outside of Montana, according to the bill.
Credits given new sunset dates would be reviewed by an interim committee, and its recommendations would be made to the tax committee and then to the Legislature, Fern said.
The bill would also reset the sunset date of a tax credit proposed in S.B. 111, which passed the Senate in February and is currently in the House's taxation committee. That bill floats a tax credit worth up to 20 percent for corporations that give charitable gifts to qualified endowments that would be capped at $10,000 a year.
A fiscal note filed for the House bill on Wednesday estimates that if the credits start to phase out in the 2022 fiscal year, $55 million would go back into the state’s coffers beginning in 2023.
Heather O’Loughlin, co-director of research and development at the Montana Budget and Policy Center, said Tuesday at the committee meeting that the group supported the legislation and that expenditures such as tax credits should be considered a major part of the government’s involvement in policy.
O’Loughlin pointed to similar legislation passed in Oregon in 2009 that sunset various tax credits, saying that Oregon’s Legislature reviewed 18 of those credits in 2011, chose to renew four without change, redesigned five and allowed nine to expire.
“These sunsets and systematic reviews work,” O’Loughlin said.
But the bill also has opponents. Brian Fadie, clean energy program director of the Montana Environmental Information Center, said the bill doesn’t include a sunset date for an oil and gas tax holiday, raising questions about what other incentives might be missing. He also defended an energy efficiency tax credit that his organization supports.
“This bill just presumes credits are guilty before being tried by putting them on the chopping block,” Fadie said.
Committee member Rep. Mary Ann Dunwell, D-Helena, voiced concerns during the hearing over whether the legislation was good policy if it only considers tax credits and not other types of tax incentives. She asked if there was a way to expand the bill further to encompass other types of tax expenditures, although she voted to move the bill forward.
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.