Tax bills may not help Whitefish

Dud Mahler

There are four House bills (658, 663, 666 and 673) pertinent to property tax and mitigation of increases in taxable value due to reappraisal. While these bills will surely be amended in both the House and Senate, it is evident that none of these bills will have a significant impact to the unreasonably large increases in taxable value for many Whitefish and Whitefish-area property owners.

Two of the bills do have “circuit breakers” that result in income tax credits when property tax exceeds 3 percent of income. HB 666 has a credit limit of $1,000 and a maximum income of $50,000; HB 658 has a credit limit of $1,500 with no income limit.

The Extended Property Tax Assistance program continues from 2003 and caps the increase in taxable value depending on income as does the disabled veteran and elderly home owner exemptions. There is a question on the cap limits right now, but the maximum income for primary residents is $85,000 with cap limits in brackets of $28,500, $57,000 and $85,000 per year.

The revenue to replace what is lost due to the caps on property tax is paid by the state. I do not know how the reduction in taxable value for local districts is accounted for. I am not aware of any money going to the counties and districts, only that they are allowed to increase mills to be revenue neutral plus an inflation factor, or to decrease mills if above the revenue of last year plus inflation. If this is indeed the case, the locals are being penalized again by assuming the liability of other owners’ taxes.

In my opinion, circuit breakers are a good tool for helping people with limited income that have large tax increases due to mill vote changes. Circuit breakers are not a good tool for mitigation. We already pay income taxes. Do we want to start having our property tax based on income also?

The circuit breaker is really smoke and mirrors because, while the state usually would pay for the tax credits, our House Taxation Committee has decided to pay by increasing the revenue to the state from property tax, i.e. shifting more of the burden of state tax to owners who supposedly can afford to pay. Actually, we will be paying increased property taxes to reduce the income tax of others. (Does this sound socialistic to anyone but me?)

HB 658, by request of the Senate Joint Select Committee on Reappraisal, has the most significant change to the last reappraisal bill, SB 461. First of all, the phase-in and reappraisal is now four instead of six years to be able to track the reductions in taxable value certain in the recession.

The bill also leaves the tax rate at 3 percent but phases in taxable value exemption of 17.2 percent over four years for primary homes only.

Vacation homes have the rate of 3 percent and 34 percent exemption held fixed, so vacation-home owners pay an automatic 17.2 percent more than residents, but the big differences is that the vacation-home owners get no “mitigation,” meaning for every 10 percent increase in market value, they have 10 percent increase in taxable value or, if they have 50 percent increase in market value they will see 50 percent increase in taxable value, or 12.5 percent per year averaged over four years.

Primary residents would experience about 25 percent increase for this bill compared to 0 percent increase for 50 percent market value increase for revenue neutral; the difference being the increase in revenue required to pay for the circuit breaker. There is also the circuit breaker and extended property tax assistance program for primary residences.

HB 663, introduced by Mike Jopek, and HB 673 are very close to the prior reappraisal mitigation scheme — increase exemptions, decrease rate phased in over six years to be revenue neutral in each year. Of course, the problem here is the “outliers” continue to be ignored, and we have very large increases in order to offset the large decreases for owners who had low increases already.

It appears that it is more important for the Legislature to change the purpose for reappraisal from revenue-producing to pay for services to shifting the burden of tax from one group, which has low increases in market value, to areas where the market value is rapidly increasing.

Property owners in Flathead, Lake and Gallatin counties etc. are not as important to Montana because they are invited to move if they cannot afford to pay increased taxes or to change their lifestyle in order to pay because the state has determined who can afford what. This is what has happened in previous years and we all know the impact on Whitefish natives.

Using the numbers in HB 658, revenue neutral, all Montana residents not eligible for the Extended Property Tax Program and having an increase in market value less than around 50 percent will have a decrease in taxable value. Those with increases in market value above 50 percent will have increases such that a 100 percent market value increase will cause a 35 percent increase, 140 percent will cause a 60 percent increase, or 10 percent per year, and 200 percent market value increase will cause a 104 percent increase in tax.

I have been told that 25 percent of the residents of Whitefish can expect market value increase of 200 percent, so our owners can expect to have annual increases in property tax of 17 percent average, higher on the front end, lower at six years. I expect a high percent of owners may qualify for the extended property tax program and their cap, if it is the same as before, will be around 36 percent, so you would be eligible if you have more than 100 percent market value increase and have less than $85,000 household income.

(I wonder how the Legislature is going to justify the additional expense to the state since this expense does nothing for the schools or services, and if the state is not reimbursing the county and districts for their loss, causing mill increases just to remain neutral. All of this is completely unnecessary if the Legislature would adopt the proposal to limit the increase of taxable value to 3 percent per year.)

HB 666, introduced by Rep. Wayne Stahl, R-Saco, reduces the 34 percent exemption to 10 percent over four years and leaves the rate at 3 percent, allowing the taxable value to increase statewide. This approach expands the tax base and eliminates the decreasing of district and county taxable value and correcting the inequity for east side owners.

Revenue neutral is maintained by reducing mills, state and local. Mathematically, reducing mills has the same impact on residential properties, as far as increase/decrease, and the burden shift along with tax as a percent of market value is the same.

The advantage is that the larger tax base makes the number of mills necessary to increase revenue lower and the system more efficient. The disadvantage is that other than the circuit breaker and extended property assistance, there is no mitigation for people with very large increases and the equal protection law is violated. Also the four-year interval causes the increase percent per year to be high.

If you think the circuit breakers and extended property tax assistance will protect you from a large property tax increase, do nothing and watch our state move closer to a socialist society.

If you realize that all of these approaches are unsatisfactory for Montana, and want to protect all of us from paying increased taxes just to off set decreases for other Montanans, rather than improve schools or services, then write, call, visit, e-mail or contact at the Capitol your senators and any other member of the Legislature to voice your opposition.

While you’re at it, recommend Montana use Michigan as a model for a simple, stable and predictable property tax system. This needs to be done right now. Note: The last time I asked that you contact people on the committees there were only five or six people who responded. As far as I know, no one in the other “resort” areas has any activity to prevent this disaster from ruining their communities.