Legislative Preview 2018 - Local option tax

A sales tax in Montana has been a political lightning rod for years, but more voices are pushing the idea of allowing cities and communities to adopt a local version in an effort to reduce property taxes.

Montana is one of only five states that does not impose a general or local sales tax and fast-growing communities fighting increasing housing costs and tourist destinations plan to argue they should allow local voters to decide whether to impose a community sales tax. It is an idea that has failed in recent state legislative sessions.

The only local version of a tax currently on the books is a resort tax and it can only be implemented under specific conditions. They can exist where tourism is the major industry and the population is below 5,500 for incorporated towns or 2,500 for unincorporated areas. Even then, the tax can only be 3-percent.

Local option sales tax would be different, allowing citizens to decide whether to impose a sales tax in their community in order to pay for specific projects. Local option taxes typically are collected until the project is complete, or may be renewed by the community to continue funding other projects.

Supporters argue the legislation would give power to local voters, stressing it could be a way to lower local property taxes and raise more money from tourists who use local infrastructure but do not financially support it.

“What we really support is giving each community the option,” lobbyist for the City of Missoula, John MacDonald, said. “It continues to get more and more difficult for local governments to raise that revenue.”

But it is not that simple. One point of debate is determining which communities should be allowed to impose a county-wide tax. And here even advocates appear to disagree.

The Montana Association of Counties earlier this year said their group would support providing “gateway” counties the opportunity to choose a seasonal or year-round local option tax. This would limit the local option tax because it would only give the option to those counties that are considered an entryway to tourism in the state.

The counties’ position is echoed by Bozeman City Manager Andrea Surratt. She said property tax revenue is now the only funding that exists to maintain infrastructure at a pace that is ideal for Montana’s “regional hubs.”

“Commissioners are looking for ways to spread the burden among those who do use the services,” Surratt said.

On the other hand, the Montana League of Cities and Towns favors providing the option to all counties, regardless of that county being considered a “gateway.” A lobbyist for the League, Kelly Lynch, said its proposal would provide for the same kind of benefits that a resort tax currently does, although the local option would be more “flexible” in what goods to tax and in what communities.

Missoula Mayor John Engen said he backs this broader local option sales tax because it would provide for “property tax relief while also benefiting citizens in terms of infrastructure and service.”

These local option tax debates play out in a state where the issue of sales taxes remains controversial. Some worry a local option would create a patchwork of taxes around the state and say a statewide solution would be better. That’s the position of the Montana Taxpayers Association.

“I think it is a realistic claim to make, the property tax has reached its limit, people feel like they are taxed enough,” Association President Bob Story said.

For veterans of the sales tax wars, that position draws skepticism.

“I don’t think the Montana Taxpayers Association wants to support this at all because it’s a new tax,” Sen. Mike Phillips, D-Bozeman, said. “I can’t imagine that Gov. Bullock would sign off on a statewide sales tax.”

And Phillips would know. Two years ago the Bozeman Democrat proposed Senate Bill 331 to allow a local option tax and it died in committee. He said that he will not sponsor another bill on this issue in the upcoming session.

“There’s a lot to be said for time,” Phillips said. “Some big ideas take time to mature. In the Legislature there is only one way to advance ideas and that is to continue to bring the idea forward.”

And the local option tax as an idea still faces opposition from several key groups, like the National Federation of Independent Businesses, Montana Retail Association, Montana Restaurant Association, Montana Telecommunications Association and Northwestern Energy.

This story was produced by students reporting for the Community News Service, a service of the University of Montana School of Journalism. Editors with questions should contact reporter Marti Liechty ([email protected]) or Lee Banville ([email protected].)