HELENA – Lawmakers want to tackle the state’s business equipment tax, but it’s predicted to be a moving target through the duration of the legislative session.
That’s because legislators are wrestling with how to replace or “backfill” the revenue lost to local governments when the equipment tax is reduced or eliminated.
“It’s going to be one of the last bills of the session,” said Rep. Mark Blasdel, R-Somers, chairman of the House Taxation Committee. “We have to see where the money is at, and see what chunk we can put back” to local governments.
Republicans, who now have significant majorities in the House and Senate, have been calling for the tax to be eliminated for years.
“It’s great having the majority, but we don’t have any money,” remarked Sen. Jon Sonju, R-Kalispell.
Sonju, like many other legislators, considers the tax capricious because it is levied against equipment regardless of whether it made any revenue in a given year or not. Logging equipment is taxed, for instance, whether it sits idle or not, Sonju said.
Earlier this week, the Taxation Committee held a hearing on a bill sponsored by Rep. Keith Regier, R-Kalispell, that would outright eliminate the 3 percent tax.
“I would say businesses don’t have the money either,” Regier said in regard to the state lacking backfill money.
Regier said he intentionally left any backfill provisions out of his bill with the thought that it could be forwarded to the House Appropriations Committee to find replacement funding for local governments.
“The governor says we have $330 million in the bank. Why not use that?” Regier said.
Completely eliminating the tax would amount to a loss of $90 million to local governments statewide, and some counties would be hit harder than others.
Sen. Bruce Tutvedt, R-Kalispell, said Yellowstone County, for instance, would be faced with sharp revenue reductions because of refineries and other industrial operations that have high equipment values.
If there is no backfill from the Legislature, he said, local governments can raise their property-tax mill levies to replace the revenue.
And when that happens, the equipment tax reduction amounts to shifting the tax burden to property taxpayers, said Tutvedt, who chairs the Senate Taxation Committee.
Blasdel and Tutvedt have been coordinating legislation that would reduce the equipment tax to 2 percent, with provisions for it to be phased out if state revenue increases hit certain triggers as the result of a growing economy.
But there also are considerations for adjusting exemptions for businesses with equipment values that exceed certain amounts. Blasdel said the Republican approach is to exempt the first $1 million for all businesses and applying the tax to equipment values that exceed $1 million.
Blasdel said he and Tutvedt also are considering providing a partial backfill to local governments that also have an interest in spurring economic growth with a reduced equipment tax.
“We’re saying, local governments need to have some buy-in here too, guys,” Blasdel said.
Because the amount of money available for backfill won’t be clear until House Bill 2 takes shape, the solution for the equipment tax won’t become certain until the end of the session, Blasdel said.