tax

The creation of a general sales tax for Montana will be discussed next week when the Montana Revenue Interim Committee and the HJ 35 Tax Study Committee review a draft of that and two other tax-related bills they may recommend for consideration by the 2021 Legislature.

In a memo to the HJ 35 Subcommittee, Finn McMichael of the state Department of Revenue described the sales tax proposal, which is modeled on South Dakota’s statewide sales tax of 4 percent.

“South Dakota has a broad tax base with the sales tax applying to almost all final goods and services (no business to business sales),” the memo states. “The few exceptions are motor vehicle sales, farm equipment and construction services because South Dakota has separate excise taxes on those goods and services.”

Other “small exemptions” in South Dakota includes taxes on goods and services related to agriculture, health care, finance and education.

Non-resident visitors who purchase goods and services in Montana also would pay the tax, which in turn would reduce the amount of taxes paid by state residents, the memo asserts. It cites a 2019 estimate by the Institute for Tourism and Recreation Research at the University of Montana that concluded spending by visitors amounted to about 3.7 percent of total sales in Montana.

“Assuming the proportion of spending remains consistent, non-resident travelers could pay approximately $44-$55 million in sales taxes for FY 2021 and FY 2022,” the memo states.

Resulting revenue for fiscal year 2022 would be $1.283 million with auto sales and building construction exempted; if auto sales and all construction were subject to the tax, estimated revenue would be $1.534 million in FY 2022, according to the memo.

Documents prepared by Office of Research and Policy Analysis outline a number of ways the bill might be structured. Possibilities therein include lowering the state income tax burden on Montana residents through such means as doubling income ranges in the rate schedule, increasing the Earned Income Tax Credit, and issuing a sales tax fairness refundable credit to taxpayers.

Other options include repealing taxes on some business property, repealing resort tax authority, reducing sales taxes on lodging, and considerably modifying the tax structure for schools.

The two other proposals to be discussed next week are a bill to tax second homes at a higher tax rate and a bill that would amend the way business operating losses are deducted.

The second home tax would apply to residences occupied by their owners for fewer than seven months of the year. It would exclude those properties that are rented for stretches of 30 days or more at a time to one party, but would not exclude those rented for shorter terms, such as vacation rentals.

The bill would tax second homes at a commercial rate rather than a residential rate. The commercial rate is 1.4 times higher than the residential rate.

The third bill would revise the state’s net operating loss deduction for businesses so it is consistent with an Internal Revenue Code provision enacted under the coronavirus CARES act. It allows business operators to obtain a refund for losses rather than carry them forward to future years.

The HJ 35 Tax Study Committee meeting will begin at 8 a.m. on Aug. 25, and be streamed over Zoom. The committee will take public comment on the bill drafts and options under consideration.

Comments may be made in-person 

via Zoom or in writing to memoore@mt.gov. Written comments received by 5 p.m. on Aug. 24 will be provided to the committee in advance of the meeting.

Members of the public who wish to participate may join the meeting by e-mailing memoore@mt.gov by 5 p.m. on Aug. 24 with their names and a request. They will be sent instructions for joining and participating in the meeting.

Opportunity for oral public comment on the agenda will be provided. Members of the public who have joined may “raise their hand” and participate after being recognized by the presiding officer or the meeting host. Comments will be taken in order.

Written public comment via email may be submitted in advance of the meeting to memoore@mt.gov and will be provided to committee members.

More information about the bills being considered is available at https://www.leg.mt.gov/committees/interim/2019rvic/.

Committee members are Rep. Alan Redfield, R-Livingston, chair; Sen. Dick Barrett, D-Missoula, vice chair; Sen. Duane Ankney, R-Colstrip; Rep. Becky Beard, R-Elliston; Sen. Mark Blasdel, R-Kalispell; Rep. Zach Brown, D-Bozeman; Sen Jill Cohenour,

D-East Helena; Rep. John Fuller, R-Kalispell; Rep. Jim Hamilton, D-Bozeman; Sen Brian Horen, R-Great Falls; Rep. Marilyn Marler, D-Missoula; Sen. Susan Webber, D-Browning.