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Former Montana revenue director says property tax system ‘rigged,’ ‘broken’

by KEILA SZPALLER Daily Montanan
| August 16, 2023 12:00 AM

Homeowners and renters in Montana are about to experience the largest property tax increase in history — and it’s by design, said Dan Bucks, former head of the Montana Department of Revenue.

They’ll pay nearly $200 million more altogether, Bucks said.

On the other hand, he said, large entities such as telecommunications companies received a tax break last year approximately half that amount, or $107 million.

And Bucks said large entities’ tax breaks are growing.

“I spent more years as director of revenue than anyone else, and I’ll tell you that the system is rigged and broken,” Bucks said. “And we need a constitutional case to bring back fairness and equity in taxation if the legislature won’t do it.”

Bucks made his remarks Monday at a City Club Missoula presentation called “Treasure State Taxes: Shedding Light on Montana’s Tax System.”

Missoula County Commissioner Josh Slotnick and Sen. Greg Hertz also served as panelists at the event that drew an estimated 115 participants.

City Club Missoula has a mission to engage people on vital community issues, and this year, many Montanans received property tax appraisals with record increases, as much as 40%.

In his presentation, Bucks noted that while homeowners and renters will see a property tax increase, their dollars will pay for the decrease that large corporations and industrial taxpayers receive.

“This record tax increase is not an oversight or accident,” he said. “It is the result of a conscious decision by the governor and legislature that failed to do what legislatures in the past — in the past 40 years — have done to stop this kind of property tax increase.”

In his presentation, Bucks acknowledged the property tax rebate this year for residences. However, he also said it’s temporary, while the shift in burden onto residential property taxpayers is permanent without action in the future.

He said residential is the only class of property taxpayer that “feels the full wind of the marketplace.” Commercial taxpayers are protected at roughly 60%, he said, and other classes are protected as well.

At the event, participants asked panelists questions about taxes, including the reason the legislature opted against helping residential property taxpayers even after being advised back in November they would take a hit unless lawmakers reduced their tax rate.

“Why didn’t you do what your Department of Revenue suggested should be done to make sure that there would be a neutral tax rate?” said Jon Ellingson, who served in the legislature in 2005 and 2006.

Hertz, a Polson Republican and chairperson of the Senate Taxation Committee, said the legislature hasn’t changed the tax rate since 2015, although he said he tried to change it in 2015 and 2017 but received pushback from both parties and then-Gov. Steve Bullock, a Democrat.

Republicans held a supermajority in the 2023 Montana Legislature, and Gov. Greg Gianforte is also a Republican.

However, in his own remarks, Hertz argued the current tax system offers Montanans transparency. For example, he said if the legislature were to tax businesses more, a business owner would simply charge customers more for goods or services.

Even if the state did change the tax rate to the benefit of residential property taxpayers, he said their taxes would still go up because the amounts they pay are determined in part by local government and schools.

Additionally, Hertz said the state works to equalize revenue across counties — which he said then helps residential property taxpayers. For instance, if five counties see a windfall from, say, oil and gas revenue, some of the money goes to help other counties without those extra dollars.

“You need to redistribute that to make sure it’s fair,” Hertz said.

Montana has only two major types of taxes, income and property, and Hertz said it’ll take a citizens’ initiative to get a governor to sign off on a sales tax.

He also said the legislature considered many tax bills, but many of them failed, including some of his own bills in his own committee. For example, Hertz said one bill would have made levies sunset sooner, but it didn’t get traction.

But Commissioner Slotnick, a Democrat, and Bucks, who led the Department of Revenue from 2005 to 2013, also argued one troubling thread in the debate about taxes is an attempt to undercut the work of local government.

For example, local governments are criticized for their budgets, but Slotnick said two-thirds of Missoula County’s funds does not come from local property taxes but from competitive grants. He said Missoula earns that money because of its skilled staff.

“Measuring government budgets is not a proxy for measuring taxation,” Slotnick said.

Local government also operates under a cap set by the legislature; it can’t raise taxes by more than half the rate of inflation. But Slotnick said that math doesn’t work when the county goes out to buy, say, new sets of tires for its deputies.

He said new growth sits outside that cap, so the county must “grow or die.” But new growth also doesn’t pay for itself, Slotnick said: “You see the riddle, right?”

This year, however, even if the county said it wasn’t going to increase its budget at all, Slotnick said people’s property taxes would still go up. He said that’s because of the burden shift onto residential property taxpayers by the legislature.

Slotnick said one morning outside a local bakery, a man holding a coffee and a pastry recognized him and quizzed him.

“What do you guys even do?” Slotnick said he was asked.

Slotnick said he ticked off some examples from that very moment: The water used to brew the man’s coffee was clean, the kitchen that made his pastry was inspected, he was standing on a sidewalk stamped 1931 thanks to the foresight of local government, and the adjacent street had sewer and water and broadband utilities underneath.

“The problem here is local government has been great — and invisible,” Slotnick said. “We’ve come to believe that our safe, secure, predictable high functioning society is our birthright as hardworking Montanans.”

But he said it’s no one’s birthright. Rather, he said it’s a conscious decision that people make to come together and share resources to create a place.

“That’s local government, and that’s taxes,” Slotnick said.

Hertz said the legislature will take up other tax ideas in 2025.

He said one idea Slotnick has for a tourist tax might be a win-win. Slotnick said it would tax things that mostly tourists use, spend the income to provide property tax relief, and send a chunk to the state so it can redistribute it to counties that don’t experience the costs or benefits of tourism.

“We’ve got a lot of work to do, but I do feel like there’s a glimmer of hope,” Slotnick said.

Keila Szpaller is deputy editor of the Daily Montanan, a nonprofit newsroom. To read the article as originally published, click here.