Proposal would halve the number of businesses paying equipment tax

Mar 10, 2017

By MBPC Staff

Missoulian - March 10, 2017

A Billings Republican wants to expand an exemption to the state’s business equipment tax, which has been whittled down repeatedly since 1989.

“Senate Bill 327 is another bite of developing a more positive business climate in the state,” Sen. Roger Webb said.

The tax on many types of equipment – from swathers and balers to commercial printers and bottling machines – has been at the center of perennial debates about the Montana tax code. Legislators have reduced the tax multiple times since a high of 12 percent in the 1980s. Today, the first $100,000 in equipment value is exempt from taxation. Businesses then pay 1.5 percent on the first $6 million and 3 percent beyond that.

SB 327 would raise the exemption from $100,000 in taxable value to $350,000. It would reduce the number of businesses paying anything from about 7,000 to 3,500 and amounts to an estimated tax cut of $12 million in 2018-19. The state would reimburse local governments and the university system for lost revenue.

Supporters of the measure included the Montana Chamber of Commerce, Montana Grain Growers Association, Montana Beverage Association, Independent Electrical Contractors, Montana Stockgrowers Association and the Montana Association of Counties. They argued it would spur economic growth and improve the state’s overall business climate without gutting local budgets.

Many business groups said they would prefer eliminating the tax altogether but understand a compromise is necessary given a slump in state revenues.

The Department of Revenue and Montana Budget and Policy Center opposed the bill because of lost state revenues and a shift in tax burden. 

 “Look at the fiscal note and the total impact in the context of the current session,” Revenue Director Mike Kadas said, noting that previous reductions typically came in years with a better budget situation. “To make a reduction of this magnitude just exacerbates what we understand is a significant challenge because of business cycle and the price of oil. Now is absolutely not the time.”

Montana Taxpayers Association Executive Director Bob Story said he opposed the bill because it does not go far enough.

“The people left (paying the tax) are the large employers that have a lot of business equipment,” he said. “That group is getting so small, there won’t be a lot of political will to deal with business equipment, so I would rather see a rate decrease that applies to everybody rather than an exemption from the bottom.” 

Gov. Steve Bullock declined to say outright whether he would sign or veto Webb’s bill if it reached his desk, noting he still needed to review the proposal. Broadly, however, he said the state has already made significant efforts to reduce the tax and highlighted a proposal that would expand an abatement for new capital investments.

“I’m not sure we need to take additional steps,” he said.

But long before the bill would reach Bullock, Webb noted his proposal first must move out of the Senate Taxation Committee and clear Senate Finance and Claims.

“That will be the test,” he said. “That’s when we’ll find out if there’s money in the budget to do this.”