News

Software CEO calls income tax harmful

May 31, 2002 /

MATR Sponsor (view all)

TOMIS is the Tour and Activity Industry's only one-stop shop for all things digital marketing.

The chief executive officer of a Bozeman software company said Thursday that Montana’s tax
climate is so unfriendly for his high-income, high-tech business he had to set up an office in Texas
because some people wouldn’t move to Montana.

By CHARLES S. JOHNSON
Gazette State Bureau

Greg Gianforte, founder of RightNow Technologies, told the governor’s Income Tax Advisory Council how
the state’s high top marginal income tax rates is a major deterrent to hiring people.
RightNow Technologies, which employs more than 200 people, most in Montana, at an average wage of
$52,000 a year, has brought $70 million in revenue into the state the past four years, he said.
"We’re thrilled to call Montana home," Gianforte said, but added; "This tax code represents a huge
impediment to business."

For software businesses, wages make up 75 percent of their expenses.
Gianforte said he needs to recruit world-class executives at salaries of $200,000 to $300,000 for RightNow
Technologies, a national company. Some said they couldn’t afford to move to Montana, so he set up a company
office in Dallas because Texas has no state income taxes.
In high-tech businesses, most of the compensation comes through capital gains, which he described as
"lumpy" or varying by year. He has given employees ownership of 30 percent of the company, Gianforte said, so
when the company goes public, the values of their holdings should greatly increase and will be subject to
capital gains taxes when they sell their stock.
With Montana taxing capital gains at regular rates, "it’s essentially a financial incentive to leave the state,"
Gianforte said.
He said Montana competes for business with states with no state income tax and no state capital gains
tax.
Sen. Jon Tester, D-Big Sandy, asked if the Montana’s lack of a sales tax was an advantage in selling
software. Gianforte said it has no impact because the software his company sells costs $75,000 to $100,000.
Gianforte’s solution is for Montana to eliminate its state income and capital gains taxes and replace them
with a sales tax, which be ideal for encouraging high-tech business but he conceded was perhaps not possible
to sell politically. Montana is one of five states without a statewide general sales tax and voters overwhelmingly
rejected enacting sales taxes in 1971 and 1993.
Another option, he said, was to lower the state’s income tax rates, calling the top rate of 11 percent
"offensive," and pay for tax rate cuts by no longer allow state taxpayers to deduct their federal taxes from state
taxes.
The state also should do something about its capital gains taxes or perhaps offer an incentive to
encourage high-tech jobs, he said.
Gianforte said he and his family have lived here for seven years after vacationing here for 20 years.
When the company goes public and "morphs" from its current form, Gianforte said he would make up to
$10 million that would be subject to capital gains taxes.