Montana's regressive property tax system

One of the less acknowledged consequences of property tax reappraisal is that it can sharply shift local property tax burdens from one class of taxpayers to another.

For example, after the current round of reappraisal takes effect, Montana residential taxpayers – in other words, Montana families – will be paying more local property taxes, and industry, utilities, agriculture and other businesses will be paying less.

Why? Because over the past two years, residential property has gone up in value a lot more than other types of property have and now makes up a bigger share of the tax base – and must pay a bigger share of the local tax bill - than it did before reappraisal. And since the residential share of the property tax base is going up, the shares of other types of property have to be going down.

It’s important to understand in this situation that even though residential property taxes are going up (and in some cases going up a lot!), it’s not because local governments and schools are collecting a windfall increase in tax revenue. Indeed, state law bars local governments and schools from taking advantage of such windfalls; as a result, most of the additional taxes paid by homeowners will be offset by reduced taxes paid by everyone else.

The logic of the property tax rests on the assumption that the value of a taxpayer’s property is a reliable indicator of their ability to pay taxes. But that assumption is faulty. If it were true, the shift of taxes resulting from reappraisal would appear reasonable and fair; if your property is worth more, you should pay more.

But it’s not true: property value is not a good indicator of ability to pay; property taxes fall disproportionately on families with low and fixed income, and many taxpayers report being unable to pay rising taxes and to stay in their homes.

Recently former Gov. Brian Schweitzer and a group of Democratic senators criticized the Republican legislative majority for failing to neutralize the effect of reappraisal on taxable value. They argue that since, unlike local governments, the state faces no limit on revenue growth, rising residential taxable value has generated an undeserved state revenue windfall which Republicans have chosen to spend, rather than provide badly needed property tax relief.

That’s true, but by allowing the shift in taxes toward homeowners to go forward, Republicans have also protected property tax cuts for business interests at the expense of Montana families, and especially families with limited means.

Even if reappraisal had been neutralized by the Republican Legislature, we would still be left with the regressive property tax system we have in place today, with hardly any relationship between tax bills and ability to pay. People would still be worrying about being taxed out of their homes.

So yes, we need to neutralize reappraisal to prevent shifting the tax burden onto residential properties, but quite aside from neutralization, we also need to create an effective property tax assistance program that helps those who most need it.

Dick Barrett is a retired economist and former member of the Montana Legislature, where he served on the House and Senate Committees on Taxation from 2009 to 2021. He lives in Missoula.