Montana state income on target to trigger business equipment tax phase-out – Taylor defends plan

Preliminary, unofficial figures show total state wages and salaries will hit an economic trigger later this year that will start a phase-out of property taxes on business equipment, a legislative report shows.

By CHARLES S. JOHNSON, IR State Bureau

If so, the lost taxes would cost local governments, the university system and the state general fund $68 million in lost revenue in fiscal 2008 when the business equipment property tax phase-out is completed and the tax eliminated, a report by Terry Johnson, principal legislative fiscal analyst, says. Businesses, in turn, would save this much in taxes.

Nothing is certain until official state wage and salary income is available in late September.

A 1999 law sponsored by Sen. Mike Taylor, R-Rollins, reduced the property taxes on business equipment from 6 to 3 percent. This law also said if the growth in the state’s annual wage and salary income, adjusted for inflation, exceeds 2.85 percent, property taxes on business equipment would be phased out over three years. The taxes would be reduced from 3 to 2 percent the first year, 1 percent the second year and to zero the third and later years.

Taylor pitched his bill as one that would spur the Montana economy. As property taxes for businesses were cut and possibly eliminated, he said companies would invest more in their businesses and hire more workers.

‘‘There is no proof that it works,” said one critic, Sen. Jon Ellingson, D-Missoula. ‘‘The rate of increase in investment in business equipment hasn’t gone up, even though the rate of taxation has gone down. This is just ideological, pie-in-the-sky nonsense.”

Legislators in 2005 must decide whether they want to cut $68 million a year out of state and local government tax collections or whether to freeze the business equipment tax at 3 percent, he said. Ellingson and some other Democrats failed in attempts in the Republican-controlled 2003 Legislature to freeze this tax rate at 3 percent.

‘‘Local governments, mostly schools, will be eating a reduction of $54 million a year into the future,” Ellingson said. ‘‘That probably means increased local property taxes.”

The State Bureau could not reach Taylor for comment Monday nor Sen. Bob Story, R-Park City, a top Republican on tax issues.

The calculation is made using wage and salary income for Montana as reported by the federal Bureau of Economic Analysis and inflation reported by the federal Bureau of Labor Statistics. Johnson’s preliminary figures, using quarterly data, calculate the growth in salary and incomes, adjusted for inflation, from calendar year 2001 and 2002 to be at 3.34 percent, or well above the 2.85 percent trigger.

State law, he said, defines the calendar year to be used in the calculations as tax year 2005. If the trigger is met, beginning in calendar year 2005, the business equipment property tax would be phased out over three years.

Johnson’s projections show the total impact of lost local, state and university system property taxes on business equipment — or tax savings for businesses — would be $9 million in fiscal 2005, $32 million in 2006, $53 million in 2007 and $68 million in 2008.

If the trigger is met, the 2005 Legislature ‘‘will be faced with a significant fiscal issue that will impact local government (including public schools) as well as state government,” Johnson said.

http://helenair.com/articles/2003/06/24/montana/a05062403_01.txt

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Taylor defends plan to phase out business tax

By CHARLES S. JOHNSON – IR State Bureau – 06/25/03

HELENA — Sen. Mike Taylor, R-Rollins, on Tuesday defended his 1999 law with the economic trigger that may be met this year to eventually eliminate property taxes on business equipment.

A recent report by legislative fiscal analyst’s office said that preliminary but unofficial figures show Montana’s total state wages and salary income, when adjusted for inflation, increased by 3.34 percent between 2001 and 2002. The trigger in the law is 2.85 percent. If the preliminary figures prove to be accurate, it would result in a phase-out of the state’s property tax on business equipment from 3 percent to zero over three years.

There’s nothing the matter with that, Taylor said.

‘‘That means our wages and jobs are up,” Taylor said. ‘‘Inflation is down. That means our economy is in better shape. If we hit the trigger, then that means to me our projected income from state tax sources is going to be somewhat higher than we project.”

The official calculations will be made this fall when final statistics are reported by the federal agencies.

Taylor has defended his law, which lowered property taxes on business equipment from 6 to 3 percent and could phase out the tax if the trigger is met. Existing Montana businesses would be more likely to expand their businesses and hire more workers, he said, while some out-of-state businesses may relocate here.

‘‘There is no proof that it works,” Sen. Jon Ellingson, D-Missoula, said Monday. ‘‘The rate of increase in investment in business equipment hasn’t gone up, even though the rate of taxation has gone down. This is just ideological, pie-in-the-sky nonsense.”

If the trigger kicks in, it would cost local governments, public schools, the university system and the state general fund $68 million in lost property-tax revenue in fiscal 2008 when the business equipment property tax is eliminated, the report by Terry Johnson, principal legislative fiscal analyst, concluded. Businesses would save this much in taxes.

Taylor questioned the report’s numbers and said he wants to review the legislative fiscal analyst’s report.

‘‘They do a nice job, but they don’t have a crystal ball there,” he said.

Despite an analysis by USA Today that ranked Montana 48th in taxing and spending money wisely since 1997, Taylor said some Montanans are calling for spending more money, including some of the $73 million the state will receive from the federal government. He urged the state to keep most of the $73 million and not spend it until it sees which direction the economy is heading.

‘‘It would seem to be prudent financial management critical to the future of Montana,” Taylor said. ‘‘And critical financial management means you don’t just outspend what you have to spend.”

Senate Majority Leader Fred Thomas, R-Stevensville, said if the Legislature meets in special session, possibly in January, the Legislature could freeze business equipment property taxes at 3 percent to stop the potential phase-out of this tax and the loss of revenue.

http://helenair.com/articles/2003/06/25/helena/a09062503_01.txt