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Gov. Martz offers plan to cut state income tax

April 16, 2002View for printing

Gov. Judy Martz on Monday proposed cutting state income taxes by 10 percent or $66 million annually, while imposing a sales tax on tourist items, possibly including restaurant meals and alcoholic beverages, on both Montana and out-of-state tourists to make up the lost revenue.

By CHARLES S. JOHNSON Gazette State Bureau

"After months of study and review, today, on tax day, I am announcing a proposal for the largest income tax cut in more than 30 years for the people of Montana," Martz said at a press conference. When she ran for governor in 2000, Martz pledged she would cut income taxes if she were elected. Her proposal also includes cutting Montana's top marginal income tax rates and capital gains tax rates, which she said deterred the state from attracting and retaining businesses. One possibility is to end Montanans' current ability to deduct their federal income taxes from their state income taxes.

The governor also suggested studying the possibility of giving local governments the power, if voters agree, to levy local option tourism taxes. Martz said she would appoint three committees to work out the details. One would work on the income and capital gains tax reductions, and another would figure out how to replace lost revenue with a tourist tax.. The third panel will study the possibility of authorizing a local option tourist tax on goods and services.

The package will be presented to the 2003 Legislature. If approved, the tax plan would take effect in 2004. "While economic growth and more tax revenue will be the long-term benefits of this reduction, in the short term we will need to find another source of revenue," she said. "That source is nonresident tourists. Montana has the lowest taxes on tourists in the entire Rocky Mountain region." She said tax dollars of Montanans provide the public works and law-enforcement services that tourists rely on, adding: "It is now time for Montana visitors to support those necessary services."

"By exporting tax and importing revenue, we are shifting the tax burden off the shoulders of Montanans," she said. "This shift will put more money into the pockets of Montanans to spend and invest and into services." State Sen. Dan Harrington, D-Butte, who has served on legislative tax committees for years, said the proposal would give wealthy taxpayers a break, while hurting lower income people. "The lower income will probably be taken off the tax rolls, but they will be hit by the tourists. Sixty-five percent of that (bed) tax is paid by the people of Montana. You're raising taxes on the people of Montana." Said Stuart Doggett, president of the Montana Innkeepers Association: "This is, of course, a whole new dynamic of reducing taxes and using this to fill in. It's a recognition of the tourism industry and what a driving force it is. It's something we should take a look at."

He cited statistics that nonresidents pay 60 percent of the lodging tax, while Montanans pay 40 percent. Here are the details of the proposal, offered by state Revenue Director Kurt Alme: Income tax reduction. Alme said the specific details have not yet been determined, but he said there is one parameter: "It has to be a tax cut for all Montanans." Alme said Montana's residential and business property tax rates and corporate income tax rates are generally competitive with states in the region.

However, Montana's top marginal income tax rates, from 9 to 11 percent, are the highest in the region, he said, and Montana's effective marginal capital gains tax rate is also highest in the region. "This often keeps businesses and individuals from even considering Montana as a place to locate or encourages them to leave," he said. "That keeps some people and businesses from investing in Montana and causes others to leave the state," Alme said. Eliminating Montanans' ability to deduct federal taxes from state income taxes would allow the state to reduce the top marginal income tax rate and effective capital gains rate to less than 7 percent, which Alme said would be competitive regionally.

Tourism tax. Alme said the state needs a tax in which nonresidents would foot the bill for a significant portion. He estimated that 77 percent of bed tax revenue is collected from non-Montanans.

Besides the bed tax, Alme said the state could consider imposing tourist taxes on restaurant meals and alcoholic beverages, rental cars, admissions to tourism attractions, rental of recreational equipment and other items.

"It is important to note that under such an option, Montanans would pay a portion of this tax when they buy these items," Alme said. "However, the tax Montanans would pay under a tourist tax would be more than offset by the savings from the 10 percent income tax reduction."

He said Montana now has the lowest taxes on tourists in the region. A local option tourist tax. A committee will explore whether to allow local governments, with voter approval, to add on local option tourist taxes to help pay for some of the costs of tourists.

http://www.billingsgazette.com/index ... artztax.inc
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