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Gianforte-backed tax bills set for first hearing in Montana Legislature

Montana State Capitol
Posted at 5:40 PM, Jan 16, 2023

HELENA — Gov. Greg Gianforte has made tax relief a central part of his budget plan, touting proposals for $1 billion in property and income tax reductions. Now, some of the key ideas in that plan are set for their first hearings in the Montana Legislature.

Earlier this month, Gianforte held a news conference where he called on lawmakers to take quick action on tax relief proposals.

“Ultimately, this isn’t the government’s money, it’s the money of hard-working Montanans who earn it,” he said. “We’re committed to putting money back in Montanans’ pockets through permanent, long-term tax relief and rebates.”

Three of the governor’s priorities will have committee hearings on Tuesday. The Senate Taxation Committee will hear testimony on Senate Bill 121, sponsored by Sen. Becky Beard, R-Elliston. It would make two large changes: dropping the top income tax rate from 6.5% to 5.9%, starting in 2024; and more than tripling the state earned income tax credit for lower-income families.

During the 2021 legislative session, lawmakers passed a bill that will reduce the number of state income tax brackets from seven to two as of 2024. The two rates were set to be 4.7% and 6.5%.

According to an analysis from the Governor’s Office of Budget and Program Planning, lowering the top rate – which leaders say most Montanans pay – would reduce state income tax collections by $127.8 million the first year and $150.6 million a year by 2027.

The state earned income tax credit is based on a federal program for low- and moderate-income families. Currently, Montana allows people eligible for the federal credit to claim 3% of that amount from the state. SB 121 would increase that to 10%. The governor’s budget office estimated the change would raise the claimed credits from $4.7 million a year to $15.8 million a year.

“Montanans are struggling to make ends meet and have been paying more income taxes than the state needs to fund essential services,” Beard said Monday in a statement from Senate Republican leadership. “This is a common sense conservative approach, giving Montanans a raise by permanently cutting the taxes they pay.”

The House Taxation Committee will hold hearings Tuesday on two other proposals. House Bill 222, sponsored by Rep. Tom Welch, R-Dillon, would provide a property tax rebate of up to $1,000 each of the next two years on a Montana property owner’s primary residence within the state. Gianforte said that would return about $500 million to taxpayers.

House Bill 212, from Rep. Josh Kassmier, R-Fort Benton, would greatly increase the exemption for Montana’s business equipment tax. Currently, businesses must pay a tax on a wide variety of equipment, from farm implements to mining and oil and gas machinery to commercial furniture and fixtures. Smaller businesses are exempted if their total equipment values less than $300,000. HB 212 would raise that limit to $1 million.

The Legislature already increased the exemption from $100,000 to $300,000 in the 2021 session, and Gianforte said these increases would keep more than 5,000 businesses, farms and ranches from paying any business equipment tax.

Gianforte has also proposed other tax changes, including a child tax credit and a credit for adoptions. However, his proposals aren’t the only ideas for tax reductions.

Last week, the House Appropriations Committee held a hearing on House Bill 192, from Rep. Bill Mercer, R-Billings. It would set aside $250 million for property tax rebates – a single $1,000 payment compared to HB 222’s two payments – but another $650 million for individual income tax rebates. Individuals would receive up to $1,250, and married couples would get up to $2,500.

Mercer told MTN it made sense to dedicate some of the surplus to paying back individual income taxpayers, since that is largely where the surplus came from. He said using $900 million for rebates would still leave well over $1 billion available for lawmakers to use for other needs. He said because his bill was using one-time-only funds, he doesn't believe it would interfere with a long-term cut in the income tax rate.

Additionally, Senate GOP leaders are highlighting another bill, from Sen. Greg Hertz, R-Polson, that would simplify the state’s corporate income tax calculations to use a single factor based on sales.

With more tax proposals coming, it’s clear figuring out just how much state revenue to give back to taxpayers – and how to do it – will be a big debate right through the end of the session.