Manufacturers, especially those whose in-house work moves from scratch materials to end products, will likely see the most benefit from the proposal, Mahlum said.
“We believe that reducing, and maybe eventually eliminating, the business tax will encourage manufacturers in Montana to keep that entire supply chain process and manufacturing process in Montana,” he added.
To “keep local communities whole,” the bill uses general fund dollars to backfill the loss for local governments, school districts and tax increment financing districts that would otherwise see less money from raising the exemptions.
“All of these reforms, we are shifting the tax burden, but we’re not going to disadvantage local communities,” Gianforte said.
The bill does not yet have a fiscal note, which is prepared by the governor’s budget office, to estimate how it might hit the general fund. Projections show the change will affect about 4,000 businesses who would no longer have to pay the tax; about 1,500 of those are small farms, Gianforte said.
Tim Burton, executive director for the Montana League of Cities and Towns, said the backfill is encouraging. The state’s mill levy is frozen at half the rate of inflation and can’t be lifted to cover that cost, he said, so without the general fund shift local jurisdictions would be left to jack up taxes to continue services like police, fire departments, administrations, parks and recreation.