Montana taxpayers deserve tax simplification and tax relief

By Jane Egan, Bob Story, and Glenn Oppel

Governor Steve Bullock had an opportunity earlier this month to provide hardworking Montanans with modest income tax relief while also simplifying Montana’s complicated income tax system. He chose not to by vetoing Senate Bill 171. It appears that the state needs your money more than you do.

Senate Bill 171, sponsored by Senator Bruce Tutvedt of Kalispell, was supported by organizations such as the Montana Society of CPA’s, the Montana Chamber of Commerce, and the Montana Taxpayers Association. It was designed to make it easier for Montana taxpayers to file and pay their income taxes - a worthy goal in light of the time and costs associated with tax compliance for businesses and individuals.

Montana’s income tax system is much more complicated than those of other states. For example, Montanans have to consider 50 separate line items that are additions or subtractions to federal taxable income in order to arrive at Montana taxable income. These line items require 48 pages of instructions. To deliver Montanans from this annual compliance headache, Senate Bill 171 simply proposed to start Montana taxable income with Federal taxable income.

Additionally, Senate Bill 171 would have significantly increased the standard deduction and personal exemption, allowing many taxpayers to forego itemizing deductions, making it easier and cheaper for them to file. Montana tax returns for many filers would have been a one- or two-page form.

The bill also would have removed many low income wage earners from the tax rolls altogether.

Senate Bill 171 proposed to eliminate many of the state income tax credits currently on the books in an effort to simplify the system. This is where the bill generated the most opposition. While nixing tax credits means that some special interest group’s ox gets gored, the overall value of simplification to taxpayers across the state would have far outweighed the value of the eliminated tax credits. By and large, tax credits are utilized by the well-off among us because they have the means to make the investment that triggers the tax credit.

The bill also incorporated well-deserved tax relief to the tune of $10 million annually over the biennium. This comes to a small fraction of the amount of surplus revenue flowing into the state’s coffers. Income tax revenues in Fiscal Year 2015 are estimated to be $1.422 billion and are projected to increase by $256 million over the next two years. Passage of Senate Bill 171 would have meant that the state had $236 million extra to spend instead of $256 million over the biennium. The bottom line is that the proposed tax relief would have amounted to less than a 1% reduction in revenue.

Of the three income tax relief bills the 2015 Legislature sent to Governor Bullock’s desk - all of which were vetoed - this bill entailed the smallest amount of tax relief.

We should note that the proponents of the legislation didn’t get everything they wanted. After the Senate refused to concur with House amendments to the bill, the Conference Committee voted to keep the energy conservation, alternative energy, and geothermal tax credits in the tax code. They also struck language that would have reduced the corporate income tax from 6.75% to 6.5%. Lastly, they changed the income thresholds at which the tax rates would apply for individual income taxes, thereby reducing the bill’s tax relief from $15 million to $10 million annually.

In his veto letter, Governor Bullock pointed out that the Montana income tax system is stable, progressive, and fair. Senate Bill 171 would not have changed any of these characteristics. It’s too bad that Governor Bullock again passed up an excellent opportunity to improve Montana’s income tax system while also providing tax relief by vetoing Senate Bill 171.

When it comes to the 2017 Legislative Session, we hope for the sake of Montana taxpayers that the old aphorism “the third time’s the charm” comes to fruition.

Jane Egan is the Executive Director of the Montana Society of CPA’s. Bob Story is the Executive Director of the Montana Taxpayers Association. Glenn Oppel is the Government Relations Director for the Montana Chamber of Commerce.