Montana Viewpoint


A crazyquilt of sales tax districts is not a good solution to a state-wide problem

February 19, 2007

For several years cities and counties have pinned their hopes for financial security on a Local Option Sales Tax. The idea is to let the voters of a city or county decide whether they want to institute a sales tax dedicated to lowering their property taxes and allowing increased spending on public services like roads and police protection.

There is a similar tax called a Resort Tax in place in four locations in Montana that have economies heavily dependent on tourism. Along with the good things tourists bring, like money, they also seem to place a strain on local services, like law enforcement; and local governments say they are hard pressed to keep things up to snuff.

So, once again, legislation is being introduced to allow local Montana governments the ability to put the question of having a local sales tax to the voters.

There are several reasons that local property taxes have reached the point at which local governments are beginning to fear asking property owners to pay any more.

For the last century property taxes have been used to pay for local governments—schools, towns, fire and police protection—and income taxes have gone to the state treasuries to pay for statewide services. That changed in 1989 when the Legislature increased property taxes by 50 mills to provide increased revenue for schools.

Adding that 50 mills reduced the amount of taxes local governments could raise without causing disapproval. In essence it was a raid on the method local governments used to raise money by the state.

Although it may seem counterintuitive, areas that have had a lot of new homes and businesses constructed are finding that providing services to these new developments costs more that the new properties are paying in property tax. A 66% reduction in business equipment taxes over the past 12 years has also contributed to the problem.

For those who have one, the benefits of the Resort Tax are real and are making significant contributions toward improving services and lowering property taxes. No place that has voted in this tax seems to have regrets, and the improvement in local roads and other infrastructure is noticeable, and impressively so.

But it’s still bad tax policy.

We preach local control in Montana, and this is local control. I support local control just as I support individual freedoms, as long as the actions of one person don’t cause harm to another. Local control has similar responsibilities and restrictions. I think the urban counties will vote in the tax and cease to care what happens anywhere else in the state because their needs are covered.

Even if enacted, a local option tax would not be a benefit to every county in Montana. Take Petroleum County as an extreme example; the 470 good people living there won’t be able to raise a lot of revenue from taxing themselves, and such tourists as pass through on highway 200 are hard pressed to find places to spend money.

I’d make the same argument about a lot of the Eastern Montana counties that are off the beaten tourist track. They have real problems that a local option tax will not solve. This will leave rural legislators—who are a minority—to fix a problem unique to their area, and I don’t think the folks who have “got theirs” will be very enthusiastic about helping them.

The central issue is that many areas in Montana cannot raise enough revenue to take care of the needs of their citizens because of the economic hardship increasing taxes would bring on those citizens. In the East it is declining property values causing high property taxes, and in the West it’s an increased demand for services that the tax on new construction doesn’t begin to cover that’s the culprit.

Letting each local government solve a statewide problem locally is not the way to fix it. A statewide problem needs statewide solutions however elusive they may be. No one county in Montana should prosper at the detriment of another because of bad tax policy.

Jim Elliott
Phone: 406-444-1556
Mail: State Senate Helena, MT 59620