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Massive income tax revision clears committee
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Massive income tax revision clears committee

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On a 6-5 vote Thursday, a Senate committee advanced a dramatic re-write of the state's income tax laws.

Senate Bill 399 is from Sen. Greg Hertz, R-Polson. It's similar to a 2015 bill from another Republican Flathead lawmaker, former Sen. Bruce Tutvedt. That bill cleared the Legislature but was vetoed by the former Democratic governor. 

"For years our Montana tax code's been loaded with special interest credits (and) deductions, so to me it's time to broaden the base and simplify our process," Hertz told the Senate Taxation Committee.

The bill would cut the state's income tax brackets from seven to two, and set their tax rates at 4.7% for the lower tier and 6.5% for the upper. It would also eliminate several individual and corporate income tax credits.

A note attached to the bill estimates by the 2025 fiscal year the state will see a drop in tax collections of $34.1 million. Hertz said he expects 50,000 people would drop from the state's tax rolls because of a move to calculate taxable income more in line with how it's done at the federal level.

The bill comes as the legislative session nears a transmittal deadline, and it must clear the Senate by next Thursday to stay alive. Hertz is also carrying Senate Bill 159, which aims to cut the top income tax rate in the state.

That legislation, part of Republican Gov. Greg Gianforte's tax reduction plans, had cleared the Senate but is now stalled in a House committee, where it had been amended to increase the percentage of the tax rate cut. The bill originally had the same hit to the state's general fund revenue as Hertz' new proposal, about $30 million. But the amendment dramatically increased that, to a $84.7 million reduction in general fund revenue.

On Thursday, Hertz said he'd consulted the governor's office before bringing his most recent bill. The governor's office said in an email Thursday the governor "supports cutting income taxes for hardworking Montanans to make our state more competitive and create more good-paying Montana jobs," but did not clarify which bill it preferred.

The legislation saw support in the committee hearing from certified public accountants, who said Montana's tax code is complicated even for trained tax preparers.

"This bill provides much-needed simplification to Montana's calculation of taxable income," said George Olsen, with the Montana Society of CPAs.

Bridger Mahlum, with the Montana Chamber of Commerce, said complexities in tax codes add to the cost of doing business.

Opposition to the bill came from those concerned about tax credits being eliminated. Denise King, an administrator of the Montana Historical Society, said the state's tax credits for people who rehabilitate historical properties has led to historical buildings being saved and boosted the state's economy.

"While owners realize the immediate tax benefits, Montana sees the real benefits through job creation, increased property values an an imposed tax base," King said.

Chere Jiusto, the executive director of Preserve Montana, said the credit has helped revitalize downtowns around the state.

"This is a tool that finally now there's a little bit of development interest in places like Lavina, Roundup, Lewistown, Ekalaka. This is a tool that can help make that happen. Taking this credit away now when we're on the brink of some of these really important projects going forward would be a mistake," Jiusto said.

Recyclers also asked for a tax credit for their businesses to be preserved, saying it helps them stay afloat in an industry with tight margins. The Montana Catholic Conference and an adoptive parent also advocated to continue tax credits that offset the high costs of adoptions.

Senate Minority Leader Jill Cohenour, D-East Helena, questioned why the bill came so late against a April 8 transmittal deadline to clear the Senate.

"Having it last-minute dropped into the committee without the ability to really have a good analysis of how it affects all Montanans … I just have huge concerns about increases in taxes for Montanans," Cohenour said.

Cohenour was able to amend the bill to keep the historical preservation credits, while committee chair Brian Hoven, R-Great Falls, brought a change to preserve a capital gains tax break for mobile home park owners who sell to residents.

The bill now moves to the full Senate for debate.

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