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Gianforte Tells Task Force That Statewide Sales Tax Off The Table

Addressing his property tax task force at the group’s first formal meeting Wednesday, Gov. Greg Gianforte had two big messages: Figure out how to bring some permanent tax relief to Montana homeowners — and don’t do it by recommending a statewide sales tax. “As we and all Montanans know too well, property taxes are too high. That’s why we’re here — Montana homeowners need relief,” Gianforte said, detailing a list of goals that includes slowing how fast property taxes are growing and making it easier for the public to understand how they’re calculated.

“And we must do all of this without imposing a statewide sales tax. Period,” the governor added.

The 23-member group of lawmakers, local government officials and fiscal policy experts was named by the Republican governor last month, a response to widespread concern about rising property taxes following last year’s reappraisal cycle, which reflected the dramatic increase in home prices that Montana saw through the COVID-19 pandemic. An analysis by Montana Free Press found property taxes rose on median by 21% on residential properties this year, driven partly by historic home value growth that has transferred tax burden onto residences from other types of properties. That analysis also found that tax bills decreased this year for many industrial properties owned by large businesses.

The governor’s formal charge for the task force, spelled out in an executive order, asks the group to compile recommendations that could translate into legislation when the Montana Legislature meets next year. That’s the same approach his administration took with a 2022 housing task force, which built bipartisan political support for a suite of bills passed last year to promote long-term housing affordability by reining in local government development restrictions in an effort to make it easier and cheaper to build new homes. Wednesday’s property tax task force meeting, the first held in public following training sessions intended to get members on the same page about the intricate workings of the state’s tax system, was focused primarily on agreeing on a list of challenges the group would like to address.

Once the governor bowed out of the meeting following his initial remarks, that brainstorming effort produced a wide-ranging discussion, touching on everything from the tax implications of large industrial taxpayers shutting down operations to the difficulty non-tax-expert homeowners often have trying to understand how their property tax bills square with local government budgets.

Several task force members also expressed an interest in exploring ways to ensure the tax system differentiates between residential properties used as full-time homes, as opposed to those used as second homes or Airbnb-style short-term rentals.

Higher property tax bills are hitting homeowners across Montana this year as the state’s tax system shudders into a new alignment following the first reappraisal cycle using tax appraisals reflecting the explosive growth in Montana home values during and after the COVID-19 pandemic. Those higher bills for residential properties appear to be the result of higher local and state-level tax collections, as well as how the Montana Department of Revenue’s valuations for residential properties have spiked while its valuations for some industrial and utility properties have declined, a dynamic that pushes more tax burden onto homeowners.

“We traditionally think of residential as those things we wish to encourage, which is home ownership and longterm rental affordability,” said Rep. Llew Jones, R-Conrad. “How do we sort through the residential mix so we target the actual relief to those folks we hope to target?”

Also among their key considerations, several members said, was what Department of Revenue Director Brendan Beatty termed “squeezing the balloon” — that is, the reality that cutting taxes for homeowners will push taxes onto other payers like farms, stores or industrial properties if that reduction isn’t offset by new revenue from someplace else.

Gianforte and legislative Republicans have argued in recent years that higher property taxes are fundamentally driven by rising local government spending — an assertion that typically draws vigorous pushback from city and county officials. Several task force members suggested Wednesday that they’re interested in revisiting the existing state law that in theory caps how fast local government tax collections can grow to half the average rate of inflation. That cap, task force members noted, puts city and county governments in a bind when the cost of buying equipment and paying wages rises at the full rate of inflation. In some cases, they said, local governments have resorted to circumventing the cap by funding programs with technically- non-tax property assessments — a state of affairs that further muddies what’s happening with public collections.

Despite the governor’s pronouncement that a sales tax is off the table, the initial task force conversation did veer into sales tax territory. Member Sandra Vasecka, who also serves on the Missoula City Council, wondered aloud at one point in the meeting whether it would be possible for the state to replace property taxes with sales taxes.

A sales tax could lighten the tax load on permanent residents by collecting more taxes from tourists. It also would theoretically diversify the state’s tax base so it’s less likely that an unexpected turn of events — say, a sudden economic downturn that devastates income tax collections — could blow a hole in public budgets. Montana is also one of only five states nationally that doesn’t have a statewide sales tax. As such, the sales tax option is routinely discussed as a reasonable possibility by budget-minded analysts and lawmakers. The conventional wisdom in the State Capitol, however, is that the idea is unpopular enough with the Montana public to make it a political non-starter.

Additionally, as Jones noted in response to Vasecka, the Montana Constitution was amended in the 1990s to cap any future statewide sales tax adopted by the Legislature at 4%. Jones said models run by the Legislature have indicated that cap limits how much a Montana-wide sales tax could collect to the point that the Legislature couldn’t replace all the money currently raised by property taxes.

The task force will meet monthly, in addition to dividing some of its work into subcommittees focused on education funding, local government finance and tax equity. It has a deadline of Aug. 15 to submit a report to the governor. More information about the task force, including a meeting calendar and briefing materials, is available at propertytaxreform.mt.gov.

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