Tax bill at center of tirade

HELENA - A multipurpose tax bill with provisions affecting Plum Creek Timber Co. turned out to be at the core of a meltdown in budget negotiations Wednesday between Republicans and Democrats.

The disintegration developed early Wednesday morning, when House Majority Leader Mike Lange, R-Billings, met with Democratic Gov. Brian Schweitzer. Soon after, Lange went on a profanity-riddled tirade in a Republican caucus, for which he later apologized.

Lange told the Inter Lake that he was he was overwhelmingly frustrated that Schweitzer had told him that he wanted House Bill 833 to pass, as written, even though it contains provisions unacceptable to House Republicans.

Lange said the bill connects "permanent tax cut" provisions that Republicans favor with unacceptable elements, including one aimed at extracting roughly $20 million during its first year of application from Real Estate Investment Trusts by imposing a corporate-income tax on profits. Plum Creek is the state's largest REIT, with more than 1 million acres of timberlands.

Lange said the governor specifically mentioned his desire to see the REIT tax provision remain in the bill.

The Department of Revenue contends that Plum Creek does not have to pay corporate income taxes on most of its land sale revenues, and characterizes that as a "loophole" in state tax code. But company officials say they are not like other corporations, because the REIT must distribute 90 percent of its land sale revenue to investors in the form of dividends while other corporations do not. And it must pay a corporate income tax on the remaining 10 percent.

Democrats have portrayed House Bill 833 as a property-tax reduction measure with elements that cover the cost of providing tax relief, including the additional revenue it would raise from such trusts.

Tax relief included in the bill includes a $400 property-tax rebate, proposed by the governor since the start of the session, business-equipment-tax reductions, renter-tax credits, a vehicle-fee exemption for cars that get at least 35 miles a gallon, and money to pay for water-rights adjudication, replacing a fee that has been charged for the past two years.

But supposed tax relief also includes contributions to state retirement funds and an unemployment-insurance provision for transferring military families.

Although Republicans support many of those provisions, they contend most of them have nothing to do with property-tax rate cuts that they have pursued as a priority since the start of the session.

And they question the need to raise money through REIT revenue and other "loophole" measures to cover the cost of tax relief when the state has a surplus that is expected to be about $1.2 billion.

"That's not a tax cut," said Speaker of the House Scott Sales. "That's a tax shift in its purest form."

Sales said Plum Creek officials are understandably nervous. House Bill 833 includes language that would allow the company to donate land to the state for conservation purposes, in lieu of paying the REIT corporate tax.

"We are either going to tax you, or you are going to give us your land. That's right out of 'Robin Hood,'" Sales said.

Another element of the bill to which the GOP leadership has objected are provisions aimed at providing increased funding to the Department of Revenue to hire, at last estimate, an additional 25 employees in the next year to improve tax-revenue collections. The leadership considers it an unsustainable "empire building" measure.

On Wednesday afternoon, House Minority Leader John Parker, D-Great Falls, moved to put House Bill 833 on the agenda for debate this morning.

"This gives us an excellent opportunity to come together" on tax relief, Parker said.

On a 50-49 vote, the House voted to allow the bill to come to the floor.

"We are going to kill it," Lange bluntly predicted earlier in the day.

Subsequent motions by Democrats to move major spending bills to today's agenda were defeated on 50-49 votes.

Sales said the House leadership wants to resume negotiations on tax relief and spending reductions with the Democratic leadership before those bills can advance.

"The bottom line is those bills spend way more than what the governor even wants," he said.

By the end of the day, there was buzz through the Capitol about the growing potential for the Legislature to hold a special session to produce a balanced budget.

But Sales remained optimistic. "There are lot of hours in three days," he said, noting that if the House doesn't go into session until 1 p.m. Friday, then the session isn't required to close until 1 p.m. Saturday.