As Montana’s economy changes, the revenue sources that fund state government are changing, too. The state is seeing dwindling funds from taxes on coal, for example, and new revenue boosters like taxes and fees are often a polarizing topic for Montana lawmakers.
However, several proposals to increase taxes and fees are gaining bipartisan support in the 2019 Legislature.
Of the policies proposed by lawmakers, those that shift the burden to out-of-staters seem most palatable on both sides of the aisle.
Senate Bill 338 is carried by Republican Sen. Terry Gauthier. It would increase taxes on accommodations in the state to pay for construction of the Montana Heritage Center, a Montana Historical Society project. It’s been in the works since 2005 but has yet to be funded.
Senate Majority Leader Fred Thomas voted yes on the bill because he says the bed tax targets tourists, and the construction of the Heritage Center will attract more out-of-staters to spend money in Montana. Thomas said this proposed tax is entrepreneurial and will go to good use.
SB 338 passed out of the Senate 33-16 and will move the House.
Not every conservative supports increasing the bed tax, which Thomas said is typical for the Republican Party.
“We’re not a bunch of sheep, we’re a bunch of independent people,” Thomas said.
The new bed tax revenue will go directly to the Heritage Center, not the state’s general fund, which is why some conservatives support it. The revenue will also have a specific purpose.
Another bill moving through the Senate that found bipartisan support would increase taxes on rental cars with revenues going to the state’s general fund.
Sen. Tom Jacobson, D-Great Falls, is carrying Senate Bill 360 which would increase taxes on rental cars from 4 to 6 percent. It was also included in Gov. Steve Bullock’s proposed budget.
“Nobody likes to increase taxes, but we are looking for sources of revenue,” Jacobson said.
Jacobson said extracting money from tourists can be that source of revenue. And a handful of Republicans agreed. The bill passed second reading in the Senate 28-21.
House Bill 694 would increase the licensure fee for out-of-state investment advisers from $50 to $100, and for firms who employ the advisers from $200 to $400. Democratic Rep. Jim Hamilton of Bozeman is sponsoring the bill and presented it to the House Business and Labor Committee last week. He said Montana could use the revenue boost.
“We sell Montana way too cheaply,” Hamilton said.
HB 694 isn’t technically a tax, but a fee. However, the money made from the fee would go to the state’s general fund, meaning it takes money from an individual and gives it to the government. That doesn’t sit well with some conservative lawmakers.
During debate on the bill on the House floor, Speaker of the House Greg Hertz, R-Polson, spoke in opposition, saying the increased fee is not needed to regulate this industry. He said if the state wants more revenue, a lawmaker should propose a tax, not a fee increase on a professional license.
“This is a bad precedent to set, folks,” Hertz said.
According to the Montana Department of Revenue, the license fee for investment advisers hasn’t been increased since it was implemented in 2003. Hamilton used to work as an investment adviser and said a $100 yearly fee is a drop in the bucket for these professionals.
For Democrats, including Gov. Steve Bullock, who asked for the increase in his proposed budget, it’s more about fairness and increasing state revenue.
Hamilton said of the 108,000 investment adviser licensees through the state of Montana, roughly 106,000 are nonresident. Hamilton argued nonresident professionals likely don’t pay property taxes or income taxes in the state, but reap the benefit of cheap license.
Amending the bill to only target nonresident advisers garnered the bipartisan support needed to pass the bill 60-38 in the first major vote in the House.
The Future of State Revenue
The parties sometimes disagree what an appropriate tax looks like and where its revenue should go.
Democrats would disagree that using tax revenues to fill the general fund is arbitrary. The state’s general fund is used to pay for services in the Department of Public Health and Human Services, the Department of Corrections and the Office of Public Instruction.
House Minority Leader Casey Schreiner of Great Falls said the state budget should reflect what the state values, and he believes that means robust funding for public programs. When the state was short on revenue in 2017, many of those services were cut.
“If there is anything we learned coming out of the (2017) special session is that people demand their services in the state of Montana to take care of their families and neighbors,” Schreiner said.
Rep. Kim Abbott, D-Helena, said debating taxes has been frustrating this session.
“Republicans can say as much as they want they don’t want taxes, but every time we fail to do our job in this building, we shift the tax burden onto property taxpayers all over the state,” Abbott said.
Abbott said state revenue not only funds public services, but fills a “responsible end fund balance.”
Lawmakers try to keep money in the bank for emergencies. For example, Montana had a historically expensive fire season in 2017, and the state had to foot the bill. However, Democrats and Republicans aren’t necessarily in agreement on how much that reserve should be.
Another tax proposal backed by Democrats was tabled in committee this week and will likely die.
Rep. Mary Ann Dunwell, D-Helena, sponsored House Bill 650, which would increase taxes on alcohol and use the revenue in the general fund. She said it amounts to a couple of cents tacked onto beer, wine and cocktails.
“We can use these pennies to fund essential public services,” Dunwell said.
She also argued it would benefit addiction and mental health services, which are conditions that can be aggravated by alcohol.
Representatives of the industry don’t see it that way.
Mitch Konen from the Montana Grain Growers Association said the tax would negatively affect the agriculture economy and farmers who grow barley to make beer.
“Declining market prices for farm products will just be exacerbated with an increase in finished product taxes,” Konen said.
Dunwell’s bill most likely won’t move forward.
Schreiner said the state needs to study how Montana will navigate a shifting economy moving forward. Whether or not the opposing parties agree where revenues should come from, sources of revenue are evolving with technology, and the state won’t be able to make money the way it has in the past.
“Our economy is changing and our tax structure needs to change,” Schreiner said.
Lawmakers are considering two bills this session that look at the issue. Rep. Alan Redfield, R-Livingston, is carrying House Joint Resolution 35. Rep. Nancy Ballance, R-Hamilton, and Rep. Llew Jones, R-Conrad, are carrying House Bill 715. Both would have the state study how it can modernize its tax structure.
“We have to be clear about what the economic changes are in the state of Montana. And we have to be realistic about where that revenue is going to come from in the future,” Ballance said in a February interview.
Shaylee Ragar is a reporter with the UM Legislative News Service, a partnership of the University of Montana School of Journalism, the Montana Newspaper Association, the Montana Broadcasters Association and the Greater Montana Foundation. Shaylee can be reached at firstname.lastname@example.org.