Who Benefits from a Business Equipment Tax Cut?

By Beacon Staff

During floor debates Montana lawmakers generally strive not to name specific people or businesses affected by the legislation at hand. But sometimes they lapse.

Such was the case during a March 25 debate in the Senate where Democrats painted Exxon Mobil as one of the chief beneficiaries of a bill by Sen. Bruce Tutvedt, R-Kalispell, cutting the business equipment tax.

“I have no umbrage about Exxon Mobil. I have lots of constituents who work there. And when this bill works out, they’re going to get around $64,000. If you think that that is going to incentivize that large refinery to hire another person – wrong,” Sen. Kim Gillan, D-Billings, said. “And I can almost guarantee you that they would much rather have a well educated and trained workforce than $64,000, because that $64,000 relative to billions of dollars for an international corporation, is a drop in the bucket.”

Gillan had been carrying a different business equipment tax bill, on behalf of Gov. Brian Schweitzer, but it was tabled the previous week by the committee Tutvedt chairs. The Democratic approach, Gillan said, was aimed at small and medium-sized businesses, while Tutvedt’s bill conferred the greatest benefit on Montana’s largest corporations.

Tutvedt, however, described his business equipment tax cut as, “a fair, flat, broad policy,” that would encourage businesses to invest in new equipment and, hopefully, new employees to operate that equipment. And though he managed to avoid naming specific businesses in his remarks, anyone familiar with the Flathead Valley could identify his references.

“In my district, or right next to it, I have several lumber mills,” Tutvedt said. “They’re large. They employ people. I guess one’s smaller and one’s fairly big. I’ve got a small industrial technology (company) and a larger one. They both need a break; they’re the ones that provide the jobs. A label company, that has big presses: Their presses are very valuable.”

In interviews last week, some of those local businesses, including the F.H. Stoltze Land and Lumber Co. and Total Label USA, expressed broad support for Tutvedt’s bill, though opinions differed as to its impact.

Chris Farris, the operations manager for Total Label, the label printing business outside Whitefish, expressed support for any attempts to reduce the business equipment tax.

“Total Label is an ‘expensive-equipment’ business and with technology changing so fast, new equipment is mandatory. With each major component costing upwards of $1 million and creating four or five new jobs, the Montana business equipment tax is a real negative and in these times can be a deal breaker,” Farris wrote in an email exchange. “A significant decrease or elimination of the Montana business equipment tax would encourage and enable us to invest, grow and hire more.”

But Stoltze Vice President Chuck Roady downplayed the effect of a business equipment tax cut, saying it was unlikely to impact his Columbia Falls sawmill operation one way or another, though it would be significantly more helpful to smaller outfits, like farmers and loggers.

“It’s much, much better for small businesses,” Roady said. “You don’t buy anything in a sawmill for less than a couple million dollars, so it’s kind of irrelevant.”

Tutvedt’s bill passed the Senate on a straight party-line vote and now heads to the Republican-controlled House, where it is unlikely to encounter much resistance. Eliminating or cutting the business equipment tax has long been a campaign pledge of all Republicans and many Democrats.

“Senate Bill 372 is a promise that many of us made on both sides of the aisle to reduce the business equipment tax,” Tutvedt said. “I know that every Republican in the Flathead ran, and nearly every Democrat ran, on reducing the business equipment tax as a way to promote jobs. This bill does that.”

Montana currently charges a 3 percent tax on businesses with equipment valued at $20,000 or more: everything from combines to logging skidders to cash registers. That tax rate has declined steadily over the last 20 years from a high of more than 12 percent.

Tutvedt’s bill reduces the tax rate from 3 percent to 2 percent on business equipment for the first $2 million worth of business property. Once corporation license and individual income tax revenue to the state surpasses a certain level, the business equipment tax would be cut further, to 1.5 percent on the first $3 million. Any equipment beyond that would continue to be taxed at 3 percent.

Tutvedt also emphasized his bill employs exemptions. Under an exemption system, businesses paying taxes on, for example, $2.5 million receive the break on the first $2 million.

But in fiscal year 2010, the current business equipment tax brought in $85.8 million to the state, so any cuts must also compensate for that loss in revenue somehow. Tutvedt’s bill is paid for in part with another bill, by Sen. Bob Lake, R-Hamilton, that eliminates tax credits for energy conservation, biodiesel production, recycling, historic preservation and incentives aimed at attracting movie production to Montana.

And though local governments will be reimbursed, Democrats questioned whether any loss in revenue could force cities and counties to increase residential property taxes to make up the difference.

“I’m concerned because in an area like Flathead there is going to be some tax shifting,” Gillan said. “And haven’t we heard, during this session, that the residential property owners in Flathead County really can’t afford much more on the tax?”

According to Flathead County Administrator Mike Pence, counties are to be compensated for any revenue loss they might see from business equipment tax cuts by an increase in state entitlement funding. Cuts in that revenue source could force commissioners to consider an increase in property mill levies, but it’s unclear whether that will be the case.

“In the end, there should not be any loss of revenue to actual jurisdictions,” Pence said. “Any calculated loss will result in a tax shift to other entities.”

“We have to see what hand we’re dealt and we’ll just adjust for it,” he added.

Stay Connected with the Daily Roundup.

Sign up for our newsletter and get the best of the Beacon delivered every day to your inbox.