Montana: Study citing high business taxes based on bad data

A national study that ranks Montana’s businesses taxes among the highest in the country used incorrect numbers that greatly overstated local business property taxes, state officials say.

By MIKE DENNISON
Tribune Capitol Bureau

http://www.greatfallstribune.com/news/stories/20040915/localnews/1236320.html

The study, conducted by accounting firm Ernst & Young for a national business lobby group, said businesses pay 55 percent of the total tax burden in Montana, or eighth-highest in the country.

The study had been cited this spring by Montana Taxpayers Association President Mary Whittinghill, when state Sen. Jim Elliott, D-Trout Creek, pointed out that some of Montana’s largest corporations paid virtually no state corporate income taxes.

At the time, Whittinghill said corporate income taxes shouldn’t be viewed alone, because businesses in Montana pay many other types of state taxes, such as property taxes.

Elliott, however, asked a legislative analyst to review the 2004 Ernst & Young study — and he reported that Ernst & Young’s business property tax figures for Montana were as much as $326 million, or 70 percent, higher than shown by state revenue records for fiscal 2003.

"That is a mistake of no small magnitude," Elliott said Monday.

"If the data were corrected, where would that put us in the realm of state taxation of business?" he asked.

Whittinghill said Tuesday she cited the report only once, and that even if business taxes in Montana are $300 million lower, they’re still 45 percent of the overall state and local tax burden.

She also said she helped legislative analyst Jeff Martin uncover the error and has asked the group sponsoring the study to correct the error.

"When you do these statistics, you rely on (U.S.) Census data, and sometimes the information could be overstated or understated, depending on how it is reported to the Census," she said.

The sponsor of the study is the Council On State Taxation (COST), a Washington, D.C.-based group that lobbies for "equitable and non-discriminatory" state and local taxes on large businesses. Its members are 550 "multi-state" corporations.

Joe Crosby, legislative director for COST, said Tuesday that Ernst & Young made an incorrect assumption on Montana property taxes and will correct the error in its next national study for COST, due out in January.

"I told them, ‘Look, it’s a mistake — let’s admit it and fix it next time,’" he said. "I really just want to get it right. We’ll redo the study and change the assumptions."

In most states, business pays the bulk of statewide property taxes, Crosby said.

Montana is one of the few states that levies statewide property taxes on residential homeowners, and the study incorrectly assumed a larger percentage of statewide property taxes is paid by businesses, he said.

In Montana, property tax rates on business "equipment" have been reduced 67 percent since the mid-1990s, and some of that equipment is now exempt from property taxation.

Whittinghill said some members of her group, which represents primarily business taxpayers, believe business taxes in Montana are now pretty comparable to neighboring states. At the same time, other group members still feel that Montana business taxes are on the high side.

"They are way better than they used to be," she said.

However, she noted that property tax mill levies have increased throughout the state in recent years, increasing taxes for all property owners, including businesses.

Elliott has been raising questions about state corporate income taxes, after he obtained data earlier this year from the Revenue Department showing that corporations with tens of millions of dollars in Montana sales were paying income taxes as little as $50 a year.

Maybe those corporations aren’t paying their fair share, he has said.

Whittinghill has countered that any examination of business taxes in Montana should look at all taxes paid by business.

Martin’s report on the Ernst & Young study also found some other mistakes in the data — both overstating and understating some business taxes — and it said some other business taxes may be missing.

Crosby also said there are always questions about what is included in "business" taxes. For example, some business partnerships don’t pay corporate income taxes, instead paying taxes on the partners’ personal incomes, he said.

"You have to draw the line somewhere," he said. "One of our hopes is that (our study) does get better over time."

Dennison can be reached by e-mail at [email protected], or by phone at (406) 442-9493.