Could This Be the Year for the Sales Tax?

By Beacon Staff

Certain policy ideas circulate perpetually through the Montana Legislature, emerging every two years in some new iteration, then languishing in one committee or another before being quietly relegated to the political dustbin until the next session. Chief among these policies is the implementation of a local option sales tax.

Depending on party affiliation, the concept evokes a reflexive reaction by lawmakers. Republicans tend to reject any new tax, while Democrats are often the ones carrying such a bill. Meanwhile, cash-strapped cities and counties across Montana assert – with increasing vehemence – that the state must provide its municipalities some additional tools to raise revenue, even though the local option tax remains a hard sell in Helena.

But in the 2009 session, a powerful Billings Republican is introducing a carefully crafted local option sales tax bill that aims to counter many of the common objections to allowing cities to vote on whether to institute a local option sales tax by inserting a mechanism that would require a portion of the funds generated by the sales tax be used to reduce property taxes. And while there has yet to be so much as a murmur about a local option tax in the Capitol in this Legislature, the 2009 session might just be the one to pass it through.

As of last week, Sen. Jeff Essmann, R-Billings and chair of the Taxation Committee, was putting the finishing touches on the draft copy of his bill authorizing a local option sales tax directed at tourists. Mayors, city council members and county commissioners across Montana have known for months about the bill, and are waiting to see what kind of a reception it receives from the Legislature.

Essmann’s bill would allow cities or counties the option to vote to impose a sales tax that puts a 4 percent charge on lodging facilities and campgrounds, prepared meals, alcohol sold by the drink or the bottle for on-site consumption, and vehicle rentals ranging from cars to boats to snowmobiles. The tax would also apply to recreational equipment rental, guided recreation from fishing to historical sightseeing, and admission fees at water slides, amusement parks and other resorts.

By law, 35 percent of the proceeds raised from the sales tax would go toward reducing locally imposed property taxes, and 20 percent of revenue would be shared with surrounding counties and towns in several broad regions defined by the bill. The rest of the proceeds would be dedicated to infrastructure improvements, like road or sewer work, or the city can put to its citizens another vote to spend the money on something else, like a community pool. A small percentage of the proceeds would go back to merchants for the cost of administering the tax.

The traditional argument in favor of a local option sales tax – repeated ad nauseam by many local officials – is that it puts the burden on Montana tourists to pay a portion of the upkeep required on the roads and other infrastructure they impact. Essmann doesn’t discount this benefit, but said he sees the bill primarily as a vehicle to provide “a source of revenue that takes the pressure off the property taxpayers.”

“A city would not be faced with going to voters for property tax increases to improve their roads,” Essmann said. “Anybody that votes for this bill is not voting for a tax increase.”

The arguments against imposing a local option sales tax are straightforward. While tourists would be paying a little extra for certain items, so would the residents of the city where the tax has been adopted. But Essmann said what’s different about his bill is the amount required to go toward property tax relief – which would make up for the extra dollar or two a couple in Kalispell might pay on a $30 dinner bill.

Another common argument against a “tourist” tax is that it puts those who live outside of cities with such a tax at the most distinct disadvantage – so lawmakers representing such areas are usually loathe to support legislation allowing the tax. For example, someone who travels into a city with a local option tax must pay extra for certain items they need, but fail to reap the rewards of improved roads or other services that result from the tax’s proceeds.

But again, Essmann’s bill overcomes that potential drawback by its revenue sharing provision, which would see that areas near a city or county with a local option tax would see some money going toward their infrastructure and property taxes – even if they live somewhere that does not have such a tax.

“If the senators and representatives for Flathead County cast a ‘yes’ vote on this bill, they’re not increasing any taxes,” Essmann said. “They would be letting the people of Flathead County decide whether they want to do something or not.”

In Kalispell, where the city council has been grappling with a tight budget and a bleak outlook for increasing tax revenue, council members often lament the lack of funds for infrastructure improvement, while looking longingly to the north valley, where Whitefish’s resort tax has helped fund pedestrian paths, streetlamps and other improvements in a town free from any financial woes.

In recent meetings, Kalispell Councilman Jim Atkinson often references the lack of a local option sales tax when the city weighs the possibility of job cuts to balance the budget, or road projects for which no funding exists. Atkinson said he doesn’t understand why local lawmakers wouldn’t support a bill that gives Flathead residents that option to impose a sales tax if they so choose.

“That’s where I get confused and frustrated,” Atkinson said. “If the citizenry feels like this is a good way to reduce property taxes and spread taxes out over more individuals, then they ought to have the opportunity to test that.”

The Montana League of Cities and Towns also supports the bill, which it helped craft, and is taking the approach that it’s more of a tax cut than a new tax.

“This is one of the few bills in the Legislature that provides generalized property tax relief,” Alec Hansen, the league’s executive director, said. “Not only does it relieve the municipal levies, it relieves the pressure down the road to increase these levies.”

Since few in Helena have seen the bill, it has yet to generate much opposition, but Mary Whittinghill, president of the Montana Taxpayers Association, said her group has long opposed any expansion of the resort tax due to its inconsistencies from town to town. Municipalities have ample tools to raise funds if necessary, she said, and a statewide solution, perhaps in the form of a sales tax across Montana, would be a better option.

“They have myriad other assessing mechanisms available to them,” Whittinghill said of local governments. “Frankly, before levying an additional tax on our residents we need to all be cognizant of if the charges, fees, etc., are being consistently applied throughout the state.”

As for the bill’s chances of passing, Essmann said only a fool would predict success for any given piece of legislation, but he’ll take his best shot.

“If they like what they see, we’ll get it passed,” Essmann said. “Everybody talks about property tax relief, no one does anything about it – this is my attempt to do so.”

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