Governor’s Property Tax Task Force’s proposals finalized for delivery to Gianforte

Gov. Greg Gianforte addresses the first meeting of his newly created property tax task force on Feb. 14, 2024. (Photo by Blair Miller, Daily Montanan)

The centerpiece of Gov. Greg Gianforte’s Property Tax Task Force’s 12-piece proposal could cut taxes by 15% to 20% for about 345,000 homeowners and long-term renters, as well as 32,000 small business owners, according to tax force estimates.

The package of proposals is tentatively set to be finalized and submitted to the governor next week in a report, and the primary proposal is a homestead-comstead exemption that members believe is the most effective proposal they could achieve by the deadline in order to shift the property tax burden away from primarily the middle class and small business owners.

The task force has spent the past seven months working to develop proposals for bills that could alleviate the property tax increase felt by Montana homeowners last year due in part to the legislature’s failure to lower the property tax assessment rate last session as had been recommended by the Department of Revenue to keep tax increases down for homeowners.

During two meetings in July, the task force , which was split into subcommittees focused on education, local government, and tax fairness, agreed to submit 12 different proposals in the final report, which will likely be presented to the governor on Aug. 15, the task force said in its last meeting on July 30 . The task force released a draft proposal that members agreed to move forward.

The homestead-comstead proposal to reduce property tax rates for many

The most discussed proposal at those meetings, the homestead-comstead exemption, is perhaps one of the widest ranging out of the dozen that the task force plans to propose for bills next session and is a similar type of proposal that Democrats said in early July they will bring forward next year as well.

But the two differ in terms of who will see tax breaks and who will likely see property tax increases again as the tax burden shifts between single-home homeowners, owners of second homes and short-term rentals, and commercial business of various classes.

The task force’s proposal aims to cut the tax rate for primary residences and long-term rentals worth up to $1 million to 1.1%, saving each homeowner about 18% on their tax bill compared to current law. The tax rate would move to 1.9% for homes above that market rate under the proposal.

For Class 4 commercial properties, the tax rate would be 1.5% for properties valued up to six times the median value and 2.1% for properties above it. The draft report to the governor said commercial properties worth $2 million and under would see estimated tax cuts of about 23%, while a commercial property worth $5 million would see a 4% reduction. A $10 million commercial property would pay 2% more in taxes, according to the task force’s estimations.

The task force’s draft report and members said the idea behind the shifting of the property tax burden is meant to focus on providing relief to Montanans and not out-of-state homeowners, as they generally do not contribute to Montana’s income tax base and Montana does not have a sales tax.

One of the key messages from Gianforte at the outset of the task force’s work was he wanted to see no sales tax proposals, meaning changes will have to be shifted between property taxes and income taxes.

The Montana Department of Revenue reported 21% of Montana’s residential taxable value is billed to out-of-state addresses for people who use community resources without paying for them.

“Since a statewide sales tax is consistently unpopular, a higher tax rate on properties not occupied by Montanans for at least 7 months out of the year represents one of the few ways to tax out-of-state residents to offset taxes on Montana residents,” the draft report says.

There is still some question about how much the tax burdens will shift because the Department of Revenue is still figuring out the full scope of the types of properties, based in part on the rebate checks homeowners have been applying for and also depending on its appraisals that will come out later this year. The DOR would also likely need to add staff to complete the assessment of whose rates would change and how, according to the report.

“If you are going to rearrange the chairs and you’re going to try to capture some out-of-state, without a doubt there’s a shift. That’s impossible to avoid. The other shift is to shift it to income tax, and we all know Montanans pay the income tax, the outside don’t,” Rep. Llew Jones, R-Conrad, and the chairman of the tax fairness subcommittee, said at the meeting in early July . “I do think this is, as we currently sit, the most equitable one we’ve been able to arrive at yet.”

Education subcommitee proposals center around levies

The education subcommittee, led by Rep. David Bedey, R-Hamilton, put three proposals into the final report. The first seeks to replace school district BASE levies with a countywide levy, which the task force believes would reduce property taxes for poorer school districts and shift the burden onto wealthier districts.

Bedey said he believed the proposal would fix what he called “wide discrepancies” in mandatory mill levies in districts across the state and that a countywide levy would be more equitable in distributing the state’s obligation to adequately fund schools.

The second aims to set the state mill levy at a fixed 95 mills and leave in place House Bill 587 last year, which took that funding and separated it out from the General Fund and which Jones, the sponsor, said would allow districts to levy lower local taxes.

The third seeks to apply either a turnout requirement or a supermajority requirement in mill levy elections, like are in effect for some bond elections at the local level. The task force members said requiring a higher threshold for school levies would ensure that more voters within a district or county were participating in an election to raise taxes for the jurisdiction.

Local government subcommittee proposals

There are eight proposals coming from the local government subcommittee, which was led by Sen. Greg Hertz, R-Polson.

Four of them concern mill levy elections and go somewhat hand-in-hand, as Hertz explained he believes the proposals would keep local mills from constantly increasing in some communities when not everyone is on board with paying more.

The first would require new voter-approved levies to get 60% of the vote in order to pass, while another would require mill levy elections to have the questions worded in dollar amounts instead of mills in order to have mills automatically adjust to what voters have approved money-wise.

Another proposal seeks to sunset all voter-approved levies except for bond levies after 10 years so they don’t run in perpetuity and so local voters can decide whether to extend levies, the task force’s idea being that would also keep property taxes from consistently going up.

During the July discussions, there was concern voiced by Montana School Boards Association Executive Director Lance Melton that sunsetting some levies, and putting additional requirements on voted levies when they have increasingly failed to pass in recent years , could kneecap districts if voters do not want to raise their taxes to pay for education services.

The fourth aims to modify the statute by which levies are calculated based on last year’s Senate Bill 511, sponsored by Sen. Daniel Zolnikov, R-Billings, which died in a 25-25 Senate vote last session.

The proposal would require some newly taxable property to be included when setting mill values so existing property owners wouldn’t feel as much of the burden and taxing authority would not automatically grow, according to the task force. The draft final report notes some members of the task force felt the statutory mechanism already works fine as is.

Another proposal is to reform Tax Increment Financing laws (TIFs) so that the economic development districts do not add to the community’s tax burdens, and the group also wants lawmakers to come up with a study bill to look at ways to limit the growth of special districts, which the task force says accounts for about 10% of property taxes paid statewide but the state has limited information on them.

The final two proposals include one to adopt parts of Utah’s “Truth in Taxation” law , which would force taxing jurisdictions to only raise taxes above the prior year’s budget when excluding new taxable property if they hold an advertised hearing on the matter then put the question to a vote.

The other would look at changes to Montana’s Property Tax Assistance Program, especially surrounding who qualifies for assistance, and consideration of an asset-based test in order to qualify.

Hertz said at the early July meeting he was unsure how many people might fall into a theoretical he posed about a person having $1 million in a 401(k) plan, is collecting Social Security, has a paid off house, and is receiving PTAP.

“Which, you know, that’s not what it’s designed for, not that particular person,” Hertz said. “So, I think that was some of the thought there, but how many of those are there? We just don’t know.”

The task force at its previous meeting set a meeting for Aug. 15, next Thursday, to deliver the report to Gianforte. His office confirmed late Wednesday afternoon the meeting was still on for that date.

But the subcommittee chairs and the chair of the task force, Office of Budget and Program Planning Director Ryan Osmundson, said at the July 30 meeting they are pleased with their work and happy with the report.

“It looks like we’ve accomplished pretty much everything we wanted to do,” Osmundson said. “… I really appreciate everybody’s time and work in this, because I think this is going to be a very good document going into session. It’s going to give the legislature some great ideas that they can put into practice.”