Taxing dilemmas

The plight of a legislator might be something like this; you wake up well before dawn with a math problem before you. In my case, here’s the problem: There are 6,485 residential properties valued at between 1.75 million and 3 million dollars. Within that subgroup, there are a percentage of homeowners who are cash poor and increasingly, property rich.

To be clear, a portion of that sub-group may actually have the income to support the tax increases. Also, something to consider; 33% of government in Montana is paid through property taxes. Idaho and North Dakota with a sales tax requires 21% and 18% respectively. 

Are we too dependent on the property tax? We know there has been  irrational, and a predatory-like behavior in willing buyers making crazy offers, especially in the vicinity of lakes and mountains.  

There are about 399,500 residential property owners who have experienced a property tax decrease within the state. The average tax decrease is most generous for properties valued between $250.000 and $750,000 averaging $525/resident. Those who have e-mailed and called me are very likely one of the 6,485 taxpayers. 

That subset of taxpayers have seen increases between $1684-$5,369. How might we address this problem?   

First, we need to have clear data as to who is adversely affected. Such data is being developed and will be helpful in making logical recommendations.  A consideration might include a remedy for Homeowners with values at or above 1.5 million dollars. Such residential property owners have experienced  a higher rate based on past policy, (a rate is the multiplier against the value to derive the taxable value). Previous to the inception of HB 231 and SB 541 only the dwelling was taxed at the higher rate. Presently, both the improvements (a house) and property is subject to the higher rate. The rate of 1.5 million goes a long way in Great Falls, Billings or far off Ekalaka (which also has high taxable valued pipelines and average value well home below the state median, thus subject to the lowest rates). That 1.5 million value tier does not go so far where the mountains and lakes are aplenty or where high demand of property results in an affordability issue for first time home owners. 

Perhaps the luxury home value tier needs to increase to recognize  substantial disparities of residential values in our state. Without subsidizing the use of property taxes with either a phantom sales tax, current general fund money or an allotted amount of additional income taxes, the resulting tax might shift away some of the tax savings for lower valued properties. Thus, the problem with a tax shift. 

Another model currently available to lower income renters and homeowners over the age of 62 could be expanded to more tax payers who are cash deprived and property rich. This program provides a tax credit based on income and tax liability of the taxpayer. You may know this as the Montana Elderly Homeowners Tax Credit, a  popular feature of our tax code. This is also known as a circuit breaker, used in many states to mitigate the tax liability/income issue, where property taxes have undergone disproportional increases. The challenge of such a program is the cost and additional funding that would be necessary from the general fund to subsidize such tax policy. 

The Revenue Interim Committee (RIC), is assigned to look at the impacts of the two property tax bills and make recommendations for the next legislature. This is a systematic approach involving well versed committee members and our talented problem solvers within the DOR and our legislative staff with tax and legal expertise attached  to the committee. 

Many taxpayers within the subgroup sited with more substantial incomes, may well be the beneficiaries of the reduction in the top marginal state income tax and new and expanded deductions within HR 1, better known as The Big Beautiful Bill. Net increases will vary. 

Property taxes fund schools and this past week I visited schools in Columbia Falls  and Whitefish. This article shall continue next week as I talk about classrooms, students and facilities and how your taxes go to work for the education of more than 150,000 students statewide. 

Dave Fern 

SD 2 

Whitefish/Columbia Falls