Bill to increase business equipment exemption earns bipartisan support in Senate

On a bipartisan vote Tuesday, the Montana Senate approved a bill to increase the business equipment tax exemption rate, a priority for Gov. Greg Gianforte.

Gianforte, a Republican, earlier described it as a “tool tax,” and members of the agricultural and business communities spoke in support of it at a hearing.

Sen. Josh Kassmier, R-Fort Benton, sponsored Senate Bill 322, which he described as a simple bill that offers tax relief to small businesses.

The bill will expand the tax exemption to cover business equipment with a market value of as much as $3 million instead of the current $1 million limit.

Kassmier said an estimated 700 businesses will come off the tax rolls as a result.

“Anytime you allow these small businesses in your community to invest in their businesses in their communities, it grows the local economies,” Kassmier said.

The bill passed a key floor vote Tuesday on a 39-11 count with little debate, and with both Republicans and Democrats in support and in opposition.

It earned significant support in the Senate Tax Committee as well, with seven legislators in favor and just one opposed.

But some of the resistance it met was due to another priority for both Republicans and Democrats this session — a property tax cut for residential payers.

“This is a time we don’t need to be giving exemptions, when we need to be giving relief to residential property taxpayers,” said Sen. Mary Ann Dunwell, D-Helena, in committee, opposing the bill.

A fiscal analysis of the bill said it reimburses lost revenue to local government jurisdictions and the Montana University System from the general fund to the tune of an estimated $11 million a biennium.

However, the fiscal analysis also said school district mills are not reimbursed and will have tax shifts associated with them. It estimated a $1.3 million decrease for schools.

In committee, Dunwell asked how much more residential and commercial “main street” entities would pay in the shift — “in addition to the huge historic increases they’ve seen” the last couple of reappraisal cycles.

The Montana Department of Revenue’s Dylan Cole said the changes are “not gigantic,” an estimated taxable value drop of 0.35% for school districts. The increase would depend on how much business equipment property is in a district.

“But on average, people’s tax bills will be about 0.35% higher as a result of this,” Cole said.

Rose Bender, with the Montana Budget and Policy Center, said the cut comes on top of a history of decreasing rates and increasing exemptions for business equipment.

In 1989, business equipment tax was cut from 11% to 9%, and it’s been cut repeatedly since, said Bender, in opposition to the bill.

Bender said that rate dropped to 1.5% in 2013 for business equipment valued from $100,000 to $6 million.

The exemption hit $1 million in 2023, a tripling from 2021, and the current proposal would triple it again, Bender said.

A look at the groups that are paying property taxes shows business equipment used to pay 15% of the pie in 1995, and now it pays less than 5%, she said.

But residential payers are in a group that went from paying 38% of all property taxes to paying more than 57% in the same period, Bender said.

Margie MacDonald, with Big Sky 55+, said if the state has those extra millions in its budget, she had some ideas besides help for businesses.

MacDonald, who expressed “soft” opposition to the bill, said the money could help working parents, buy down interest rates to build housing that nurses and teachers can afford — or provide relief for “skyrocketing residential property tax and rents.”

Most members of the public spoke in support of the bill, however, including many connected to agriculture.

The Montana Agricultural Business Association, Montana Chamber of Commerce, Montana Economic Development Association, Montana Building Industry Association, Montana Taxpayers Association, and others supported the bill.

John Semple, with the Montana Grain Growers Association, said the bill would allow his members to put more money back into farming endeavors.

“Most of our equipment that we use to raise a crop costs quite a bit of money,” Semple said.

Earlier this month at a press conference, Gianforte said the bill should be a priority if Montanans are serious about addressing the affordability crisis.

“We should call this tax what it is, it’s a tool tax,” Gianforte said. “It’s an annual sales tax on equipment, and it never goes away.”

He said the bill would allow family farms and ranches to invest in their operations instead of repeatedly paying the state for their own equipment.

“For farmers, it’s a tax on tractors and a tax on combines,” Gianforte said. “For dentists and doctors, it’s a tax on machines, and even their instruments.

“For restaurant owners, it’s a tax on grills, and even knives, forks, and spoons. For a carpenter, welder, plumber, or homebuilder, it’s a tax on their tools.”

The Governor’s Office said previous bills in 2021 and 2023, also sponsored by Kassmier and signed by Gianforte, expanded the exemption from $100,000 to $1 million, “eliminating the business equipment tax burden for more than 5,000 small businesses, farms, and ranches.”

In a video posted on the governor’s site, farmer Brent Hanford from Fort Benton said the increase to the exemption makes sense for family farms.

Hanford said one tractor alone can cost half a million dollars, and a new combine with an attachment can cost $700,000.

“Two pieces of equipment will get you over one million bucks in a hurry,” Hanford said.

One Democrat, Sen. Ellie Boldman of Missoula, signed onto the bill as a sponsor, as did four other Republicans, Sens. Butch Gillespie of Ethridge, Wendy McKamey of Great Falls, Gayle Lammers of Hardin, and Rep. Randyn Gregg of White Sulphur Springs.

The bill was referred to Senate Finance and Claims.