Uncertain future for business-tax cut

Montana House Republicans previously opposed full funding for a Children's Health Insurance Plan expansion, but they reached a budget compromise with Democrats Monday providing for just that.

So what's the status of one of the GOP's highest priorities going into the legislative session - a reduction in the state's business equipment tax?

The outlook is uncertain.

Sen. Ryan Zinke, R-Whitefish, is optimistic that a bill he is sponsoring has a good chance of clearing the process in some form, providing businesses with an increased and different type of exemption from the equipment tax.

But Rep. Scott Sales, R-Bozeman, said he is increasingly skeptical that House Democrats will give in and provide tax relief when the Legislature is faced with a tight fiscal future.

"They opposed us the last time when we had a $1.4 billion surplus. We couldn't get any meaningful tax relief," said Sales, who led the Republican fight for tax relief during the contentious 2007 session. "Logic would indicate that we would have trouble getting tax relief passed in this session when the budget is tight … I can't see it. I'm increasingly skeptical that we're going to see any meaningful tax reduction in this session."

Zinke, a freshman senator, said he's confident there will be some change in the business equipment tax largely because Gov. Brian Schweitzer spoke about it in his state-of-the-state address.

"I think the outlook is positive," he said.

Zinke added that he has been meeting with the administration on the matter and it remains a priority for Republicans who hold a majority in the Senate this year, unlike the 2007 session.

"We want to make sure we don't have what happened in the last session, where we walked out without anything for small business," he said. "It is one of the highest issues on the list."

During the 2008 campaign season, the need for reducing taxes on business equipment was a stated priority for all Republican candidates in the Flathead Valley, as well as many Democrats.

But then the economy tumbled and state revenue forecasts have been shrinking ever since.

Even so, Zinke has been pressing ahead with Senate Bill 315, which would increase an exemption on business equipment from the current $20,000 to $200,000. And it would change the way the exemption is applied.

A business with equipment exceeding $20,000 in value currently gets no exemption from the tax rate of 3 percent.

But under Zinke's bill, a business that has equipment valued at $200,000 plus a dime, "you would pay 3 percent on the dime," he explained.

Zinke added that it would make a significant difference for most small businesses, providing a $6,000 tax cut on any operation with at least $200,000 in equipment value.

"In the Flathead Valley, any small timber outfit probably has, according to the Montana Logging Association, a minimum of $900,000 in equipment," he said.

Sen. Roy Brown, R-Billings, has a competing bill that would provide an exemption on equipment up to $5 million.

But Zinke said the fiscal note on his bill - a cost of $23 million to the general fund - is more politically palatable under a tight budget.

House Republicans and Democrats touted the compromise reached Monday that will provide $35 million for the Child Health Insurance Program, the full amount approved by voters in a ballot initiative last fall. The deal also provides for a $250 million reserve for the upcoming biennium, a generous amount that many lawmakers believe will be needed if state revenues turn out to be less than expected over that period.

Zinke believes his bill would provide an economic boost for Montana.

"I think it is a stimulus," he said. "I think it makes good business sense because small businesses remain the heart of Montana. In these hard economic times we have to make sure that these businesses stay in business."

He said businesses will be more likely to invest in equipment, increase production and hire more people, and there will be a second-tier benefit for other businesses that sell or maintain equipment.

"I always go back to the same argument, that you want to tax profit, not investment," Zinke said. "And the equipment tax is a regressive tax that taxes the very tools businesses need to operate."

Sales agreed that it would provide an economic boost. "I think that it's the surest way of stimulating the economy, but I would say the likelihood [of the bill passing into law] is slim," he said. "I hope I'm wrong but I'm a little jaded by the process, to be honest."

Reporter Jim Mann may be reached at 758-4407 or by e-mail at jmann@dailyinterlake.com