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Apr 22, 2021

Seeley Swan Pathfinder

Montana Legislature Considers Major Revisions to State Income Tax

Montana state lawmakers are pushing forward bills posing major and minor revisions to state income tax policies, with some of the larger proposals drawing concern from Democrats that legislators won’t have time to fully consider their implications.

Sen. Greg Hertz, R-Polson, has been leading the charge with major tax reform bills, many of them backed by Gov. Greg Gianforte as part of his “Montana Comeback Plan.” The governor’s primary declared fiscal reform goal since taking office has been to cut back on taxes, including the personal income and business equipment taxes.

One newer measure sponsored by Hertz is a bill to “simplify” Montana’s personal income tax structure, eliminating numerous tax credits and reducing liability for thousands of Montanans. After clearing the Senate on a largely party-line, 30-20 vote on April 7, Senate Bill 399 debuted in the House Taxation Committee on April 13 to a hearing packed with proponents and opponents who debated the effectiveness of the proposal.

Hertz told the committee the goal of the bill is to bring Montana’s income tax filings more in line with federal income tax forms, reducing administrative costs and making it easier for Montanans to file their returns. He said he’s had constituents reach out to him with complaints about the state’s “ridiculous” income tax filing system and added he hopes the bill will broaden the state’s base of taxpayers.

Several accountants testified in support of the bill, echoing Hertz in his belief that the bill would simplify income tax filing and increase compliance with Montanans. Bob Story spoke in support of the bill on behalf of the Montana Taxpayers Association.

“The great thing about this bill, we believe, is it gets rid of a lot of the additions and subtractions we believe are in there for political reasons,” Story said.

Among the subtractions the bill makes is a list of income tax credits, including those for adoptions, elderly care, geothermal systems and alternative energy. Hertz said the credits were used by a small number of Montanans, and a note attached to the bill explaining its fiscal impact states the change could generate nearly $5.5 million in annual revenue by 2025.

However, as it is currently written, the bill’s proposed cuts to income tax could reduce state revenue by nearly $42 million annually by 2025, which some opponents pointed to as a reason for concern, as a reduction in state funds could potentially lead to cuts in state-sponsored programs.

Opponents also cited inconsistencies in whose taxes are raised and lowered under the bill. Rose Bender, representing the Montana Budget and Policy Center, said her organization was particularly concerned about a Department of Revenue memo that said 36,000 Montanans making less than $50,000 annually could still see their income taxes increase under SB 399.

Other opponents said they were against cutting certain tax credits, including one couple who said they were looking forward to using the $1000 adoption tax credit after welcoming a daughter later this year.

Democrats say the Legislature hasn’t had enough time to consider the 98-page proposal, which was introduced in late March, even though they generally support broadening the tax base.

“This kind of tax simplification should have started at the very beginning of the session and should have gotten significantly more vetting,” said House Minority Leader Kim Abbott, D-Helena, in a press call.

Another major Hertz tax bill backed by Gov. Gianforte is Senate Bill 159, the “Personal Income Tax Relief Act.” It originally proposed cutting the top income tax rate from 6.9% to 6.75%, and passed the Senate on a 33-17 vote before coming to a halt in the House Taxation Committee. Earlier in the session, the committee amended the bill to further cut the rate to 6.5%, but in a unanimous vote on April 13, the panel tabled the bill. Unless lawmakers vote to reconsider, the bill won’t move any farther.

In an interview, committee chair Rep. Becky Beard, R-Elliston, said they needed to take a step back and consider the “big picture” of income tax revisions bills. Beard said the cuts in SB 159 could be added back to SB 399.

One bill sponsored by Hertz seeks to recover some revenue set to be lost through tax cuts. Senate Bill 376 would revise the multi-state corporate income tax policy, putting more weight on the tax on income a company generates from sales in Montana, and less weight on payroll and property tax. The change would generate an estimated $3.4 million in annual tax revenue by 2025.

SB 376 cleared the Senate on a 36-14 vote. During a hearing in the House Taxation Committee, Hertz said the bill came at the request of Gov. Gianforte, and that it would bring more businesses to Montana by incentivizing companies to operate in the state, rather than just selling there.

“If we want to grow Montana’s economy, we want to attract these other businesses,” Hertz said. “We don’t want to penalize them for just coming to Montana.”

Montana Budget & Policy Center

Shaping policy for a stronger 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.