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Your new tax bill

by Jim Elliott
| April 25, 2024 12:00 AM

By now most Montana homeowners and business owners have gotten a new and unexpected tax bill from their county treasurers. Here’s why.

Due in equal parts to Covid-19 and to the TV series “Yellowstone,” Montana real estate became a hot item and the value of Montana property was bid way up in the process. Out-of-state buyers were calling up Montana Realtors and buying homes and acreage sight unseen and paying for properties worth hundreds of thousands of dollars with their credit cards. This increased the appraised value of Montana homes because, even if they weren’t for sale, they were worth more on paper. 

In an effort to spare property taxpayers from having to pay the state of Montana an increased tax that goes to support K-12 education throughout the state and, also, I suspect, to defray the expected fury of irate taxpayers seeing sky-high tax bills, the Montana Association of Counties recommended that the counties reduce the statewide mills from 95 to 77.9 to defray the unintended windfall to the state. 

Well, they shouldn’t have recommended that, because, as the Montana Supreme Court pointed out, only the Legislature can change the law, and the 95 mills is set by law. So, the court directed that the remaining 17.1 mills be collected by the 49 counties that didn’t collect it and send it along to the state.

The Montana Legislature could have done something to help the situation but did little. Yes, they did pass a property tax rebate of a maximum of $675 for two years, but only for homeowners. Owners of rental properties had to pass their increased property tax along to their renters, who got no rebate. The rebate was given out to millionaires and people of modest means alike.

Homeowner’s property taxes are based on the appraised value of the home which is often determined by market forces and not any action on the part of the homeowner. 

Governments tax basically three categories of activity: income, consumption and wealth. The first two are straightforward. The income tax is levied against what a person earns, and the consumption — or sales — taxes are levied against what a person buys. The idea is that at a certain level of income you can afford to pay taxes and you can control your purchases to what you can afford to pay sales tax on. Some states tax essentials such as groceries which are really necessities that some — including myself — believe should not be taxed.

But the property tax on homes is a tax on wealth and is far more difficult to make fair because the values and changes in values vary all over the state. The run-up in home values was pretty much restricted to areas with mountains and rivers. The flatland areas of Montana did not see significant increases in property values and so saw no huge tax increases.

If there is a significant change in statewide appraised values, the Department of Revenue is required to suggest a new tax rate that would put the new statewide taxable values the same as on the previous appraisal cycle, making it “revenue neutral” to the state.

In a Nov. 17, 2022 memo from the Montana Department of Revenue to the Legislature’s Interim Revenue Committee the DOR stated that residential property values were estimated to increase by 44% and that to be revenue neutral — bring in the same amount of money as the previous year, the tax rate on residential property could be lowered from 1.35% to .94%, so the governor and legislators had plenty of time to think about it … and did nothing. 

But being revenue neutral to the state doesn’t mean it is revenue neutral to the individual homeowner because of the wide variations in different areas.

There is a better way to achieve taxpayer fairness and that is to link the amount of property taxes to a homeowner’s income level so that the property tax does not exceed a certain percentage of a person’s income. It’s already in place for people over 65, but could be extended to all homeowners and renters. In fact, there were a couple of bills introduced by Democrats to do this which did not make any headway in the Republican controlled Legislature. 

Would it cost the state money? Yes, but the state started out the year with a $2.5 billion surplus and managed to give most of that away to other causes.

Gov. Greg Gianforte blamed the counties as the evil forces behind the high tax bills but they are restricted by law to not raise taxes beyond modest limits. It was his and the Legislature’s inaction that caused the increases. 

CORRECTION: In my last article I wrote that the phrase “…all men are created equal…” was in the Constitution. It’s not, it’s in the Declaration of Independence. Apologies to the Founders.

Jim Elliott served 16 years in the Montana Legislature as a state representative and state senator. He lives on his ranch in Trout Creek.