The public is getting mixed signals about SB 542 and HB 231’s sweeping property tax changes. Some state lawmakers are hailing the tax package as “meaningful and permanent tax relief” while national tax policy experts have characterized the package as a flawed tax shift that fails to deliver permanent relief. Who should Montanans believe?
I think it’s true that many property owners are likely to see a tax cut under this package, largely dropping back to levels a few years ago before valuation spikes. But a lot of other property owners are going to be hit hard with tax hikes to pay for it. Ultimately, these property tax changes are unlikely to deliver the scale of ongoing property tax relief we need.
A quick background on the big changes. Starting in 2025 the SB 542 / HB 231 package enacts a new progressive property tax rate structure, meaning that lower value properties get a lower tax rate and higher value properties get a higher tax rate. On the lower end of this scale, residential properties will see a 43% tax rate decrease vs current law on values up to $400,000. On the upper end, residential properties will see a 63% tax rate increase on values over $1.5 million.
Then, in 2026 we’ll see the introduction of intentional tax preferences for certain property uses. The government’s disfavored uses – second homes, cabins, and short-term rentals – will get a 40% property tax rate hike compared to current law. Long-term rentals, a favored use, will get about an 18% tax rate decrease.
Importantly, SB 542 / HB 231 shifts tax rates but does not directly limit the amount of property tax revenue the government collects. This means these tax rate changes don’t equate to the actual tax impacts people will ultimately experience. Your actual property tax burden will continue to be driven by fluctuating property valuations, market dynamics, and government budget decisions. This is the critical flaw of SB 542 / HB 231 that the Tax Foundation and economist Dr. Jeremy Horpedahl have pointed out.
By redistributing the tax burden, SB 542 / HB 231 may well provide relief to many primary homeowners, long-term rentals, and others – assuming market conditions remain constant. However, if valuations continue to rise—as they likely will—taxes will increase again.
Similarly, if government revenues drop due to this redistribution, most governments can and will increase their mill levies to make up the difference (except Billings). And of course, existing levy limits can also be overridden by a simple majority of voters.
There are also many questions about implementation. It will be a logistical nightmare to accurately identify and implement separate tax rates for all short-term rentals in the state, to include those not listed on major platforms. There have also been serious constitutional concerns raised, making legal challenges a real possibility.
Finally, instead of fixing the serious ethical problems with our system of property taxation, SB 524 / HB 231 doubles down on them. Not only are Montanans denied the right to truly own their property, forced to rent their land from the government in perpetuity, but now they are being penalized for using their property in the best way they see fit.
In sum, while helping some in the short term, SB 542 / HB 231 fall short of the property tax relief Montanans desperately need and, in many ways, actually make our tax system worse. As valuations climb and taxes rise again, lawmakers will face renewed pressure to fix our tax system with permanent reforms. Montanans deserve more — the job is far from done.
Kendall Cotton is president and CEO of the Frontier Institute, a think tank based in Helena dedicated to keeping Montanans free to build, create, and innovate.