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One bill to reduce property taxes on homeowners could have “earth shattering” consequences for others who pay those taxes.
One resembles the way Montana has kept residential property taxes from spiking for decades — with a “simple” rate reduction — but in a time the state has lost big business and relies more on homeowners.
Yet another is designed to be a “backstop” to be sure people aren’t priced out of their homes. It’s either the best of the bunch for people who aren’t rich — or opens the door to higher levies, according to a range of public testimony and questions.
Property taxes have jumped for Montana homeowners, and this week, legislators took up several bills that aim to reduce the amount for residential payers.
One is a pitch from the Governor’s Office, a couple are key bills from Democrats, and one aims to reduce the tax rate, the last an idea proponents said has kept residential rates from skyrocketing for decades.
Rep. Llew Jones, R-Conrad, said it’s tricky to create a fix that works on both sides of the state, but it’s important. He said the right policy must apply equitably across counties too — on the east and west sides of Montana.
Jones, among the lawmakers who presented ideas this week, outlined on Wednesday the way House Bill 231 would work, a proposal supported by Gov. Greg Gianforte and his property tax task force.
“We’re trying to do this in a manner that ensures equity across the entire state,” Jones said.
Of course, it drew opponents anyway, including some who liked parts of the bill, but not all, such as the Montana Chamber of Commerce.
Jones joked that legislators would hear from one proverbial constituent — “Grandma shows up a lot in these conversations” — but he encouraged fellow lawmakers to keep in mind the regular citizens and owners of small flower shops that might not show up at all.
“Those folks are not able to be here often, right?” Jones said.
Leveling the tax rate, House Bill 213
Rep. Ed Byrne, R-Bigfork, said he wanted to take a simple approach to help residential payers by setting the tax rate at a level the Department of Revenue calculated would keep bills even for homeowners.
High increases in market values, he said, meant lowering the rate for residential payers from 1.35% to 0.76% to keep bills consistent, an idea one proponent said has been standard for decades.
The bill would help small businesses too.
Sen. Mary Ann Dunwell, D-Helena, is sponsoring a similar bill in the Senate, and Byrne said he would encourage an amendment on his proposal to cover agricultural property to combine both bills.
Ann Brodsky, a Helena resident who worked in the past for the state, praised the idea to cut the tax rate and said the beauty of the bill “is truly in its simplicity.”
Since the last reappraisal cycle, residential payers are picking up 59% of the entire property tax base in Montana, she said. On the other hand, pipelines, metal mines and other large entities are paying less.
“Unless you bring the (residential) tax rates back down so that the taxable value is as it would have been four years ago, we’re going to have baked into the cake these exorbitant property tax increases like we’ve never seen before,” Brodsky said.
Bob Story, though, with the Montana Taxpayers Association, said homes are the largest part of the tax base because there are a lot of homes, and the ones being built are “fairly valuable.”
On the other hand, Montana is losing sawmills, he said. His association represents larger payers, businesses and trade associations.
The legislation would mean a “significant shift” onto other properties, but some of the shift “will just come back in your utility bills,” when they pass on their tax bills to customers, he said.
From the governor’s task force, House Bill 231
Jones, who has served as chair of the House appropriations committee, said one goal of HB 231 is to make sure people who don’t live full-time in Montana are paying their fair share, along with those who own more than one home.
It bumps up the residential rate from 1.35% to 1.9%, but offers a reduction to resident homeowners to 1.1%.
Some proposals want people with luxury homes to pay at a higher rate than people with modest homes, but Jones said HB 231 doesn’t intend to be a wealth redistribution bill, although it bumps up rates on “scenic properties.”
The bill cuts taxes for small businesses as well, making larger businesses pay more. It accomplishes that by changing the tax rates based on the size of a business compared to median value.
The legislation is estimated to lead to an average 17% reduction for 230,000 primary resident homeowners — who recently experienced a 21% increase.
Jones said small businesses would see an 18% drop, and long-term rentals — usually occupied by seniors, not tourists — would see a 19% reduction to the owner.
If you cut in one place, though, you have to figure out who is paying on the other side, Jones said. In this case, out-of-staters, or people whose tax bills are mailed to an out-of-state address, are mostly making up the difference.
In his bill, Jones said, farmers and ranchers pay roughly the same as they do now, and one farm representative expressed support for the bill despite the slight uptick.
“I’m a farmer, and my taxes are estimated to increase, but it’s a manageable amount,” said Cyndi Johnson, president of the Montana Farm Bureau Federation. “It amounts to a couple trips to the grocery store.”
Property taxes support local schools, and Jones said the bill aims to protect funding for schools. Supporters include the Coalition of Advocates for Montana Public Schools, the National Federation of Independent Businesses, AARP of Montana, and a Roosevelt County Commissioner.
Opponents included Story, with the Montana Taxpayers Association. He said he appreciated that the bill contained the shifts within one class of payer, but larger businesses are still going to pay more.
“They’re large companies, sure,” Story said. “But that doesn’t mean they have all kinds of money to pay additional taxes.”
Todd O’Hair, with the Montana Chamber of Commerce, agreed, pointing to benefits for small businesses, but increases for larger businesses, including ones that have been “under particular duress” during the last few years.
Linking income taxes with property taxes, House Bill 154
Rep. Jonathan Karlen, D-Missoula, said House Bill 154 intends to help people who may have been living in their home for years, but end up priced out. For example, if a spouse dies, or the person has another change in life circumstances, a homeowner may earn less.
The bill links a person’s income with their property tax burden through an income tax credit based on property taxes paid, an idea Rose Bender, with the Montana Budget and Policy Center, said is offered in 29 other states and the District of Columbia.
Bender said people with the lowest 20% of income pay 5.2% of their incomes and property taxes, and everyone else pays a “much, much lower” amount.
She said one of the reasons taxes have become imbalanced is because they aren’t connected to an ability to pay.
“House Bill 154 is the most effective property tax bill this session for addressing unsustainably high property taxes for Montana families and housing costs,” Bender said.
Karlen said the bill would offer a credit based at different income thresholds, and it aims to help renters by including “rent-equivalent property tax paid,” or 15% of gross rent.
He gave an example of a senior earning $35,000 with a $3,000 property tax bill; the person would get a $1,700 credit, an amount that adjusts based on income and the property tax bill.
The series of thresholds are meant to “ensure that our constituents will never face a property tax burden that exceeds an affordable portion of their income,” Karlen said.
Also in support of the bill were Shelter Whitefish, the AARP of Montana, Forward Montana, which advocates for young people, and the Montana Nonprofit Association.
Rep. George Nikolakakos, R-Great Falls, said he worried the bill would be futile because people alleviated from their property taxes, which are capped, might simply be more inclined to vote for a levy — that’s not under a cap.
In response to his question, Bender agreed the shift was a consideration. However, she said the solution is targeting people most affected, and she also said studies don’t show an increase in levies at the local level as a result.
To ‘even out’ the burden, House Bill 155
Rep. Mark Thane, D-Missoula, said his proposal, House Bill 155, is designed to even out the tax burden among all 16 classes of property and address the growing burden on residential property.
Property taxes for residential payers in the state recently jumped an estimated 21% on average. Those payers also are contributing a greater share compared to other groups, such as commercial payers.
Proponents said HB 155 would help seniors on a fixed budget and help people who own properties that aren’t luxury homes. Opponents, though, said it would strip out a big chunk of taxable value from some smaller counties and push up the burden on farmers and ranchers.
A fellow legislator said he appreciated the simplicity of the bill, but he also worried the approach might be too simple to work across all the different counties in Montana.
Thane said his bill would do two main things.
First, it would provide an actual exemption for a portion of both residential and commercial properties. Secondly, it would offer a graduated tax rate for residential properties, with a lower rate for modest homes and a higher rate for luxury homes.
He showed the way his bill would apply to a couple of different properties. A home currently valued at $750,000, with the current rate of 1.35% and, for sake of argument, 500 mills, pays $5,063.
Under his plan, however, the bill for the same house would drop to $3,813, he said. That’s because the first $50,000 would be exempt from any tax, the next $450,000 would be under a 1% rate, and the following $250,000 would be taxed at 1.25%.
The result is a drop in both taxable value and the actual tax bill, Thane said. His bill offers a similar exemption for commercial property, for the first $200,000, to help “Main Street” businesses.
Montana, Thane said, is the least affordable state in the country when it comes to housing costs relative to income, and small businesses are struggling too.
“Residential taxpayers and Main Street businesses have been subject to property tax increases that have strained budgets and which are simply not sustainable in the long term,” Thane said.
Margie MacDonald, with Big Sky 55+, said the plan will bring meaningful and targeted relief to middle class people and retirees living on fixed incomes, and it would help those living in Billings, Bozeman and Missoula, places that saw the most severe impacts.
“But all around the state, people experienced these almost tidal wave increases,” MacDonald said.
Sam Momeyer, representing the City of Missoula, also expressed support for the structure of the bill. Momeyer said the bill would target luxury homes and more evenly distribute the responsibility among payers, such as homeowners and industry.
“The city recognizes how important it is to alleviate pressure on low- and middle-value property owners in Montana,” Momeyer said.
Story, however, opposed the idea on behalf of the Montana Taxpayers Association. Story said the idea might work as intended in some larger cities, but he showed the way it would affect at least one smaller county, Daniels County.
In Daniels County, Story said, 140 businesses are classified as commercial properties. However, with an exemption on the first $200,000, the bill would leave just 21 businesses on the tax rolls.
Story said other payers, such as residential ones, will have to make up the difference in places that don’t have other types of classes, such as industrial. In those cases, he said, local government will levy more mills, a taxing value, and hit residential payers anyway.
“This bill takes so much taxable value out of a lot of places, you’re gonna have significant mill increases,” Story said.
Nicole Rolf, with the Montana Farm Bureau Federation, said farmers and ranchers are worried about the tax shift as well. Their homes might get a break, but not their agricultural land.
“Particularly in counties with a lot of ag land and not a lot of other types of property to shift the burden onto, our members, they’re going to see an increase in their property taxes,” Rolf said.
Nikolakakos said he appreciated the simplicity of the bill. However, he said it doesn’t separate people who have second or third houses, including out-of-state residents who own homes at “tremendous values” in Madison County.
He said the approach didn’t appear to “employ a scalpel” in the way it addressed different types of residential properties, and he called for more modeling to see how it would impact different counties.
The residential class is the “big gorilla” now, he said, so a drop on that side was like a push on one side of a waterbed, possibly “earth shattering” on the commercial, agricultural and industrial side.
The committee did not take action on the bills, and some sponsors already have discussed possible amendments.