Bill to create sales tax and remove property or sales tax returns

A proposal to ask the voters to limit the state of Montana to two of three sources of tax revenue has returned this session, offering an alternative to the state’s current tax structure that could have huge implications for spending on government programs and services at all levels.

Rep. Derek Skees, R-Kalispell, framed his House Bill 261 as a vehicle for adopting a statewide sales tax while shedding either the property or income tax. He told the House Judiciary Committee Wednesday that voters in the state have roundly rejected adding a sales tax, an idea that surfaces periodically among conservative policymakers in Montana — but that the people would be more amenable to the sales tax “if we eliminate one of the other taxes,” Skees said.

The proposal would ask the voters to approve a ballot initiative in 2022 to that effect, which Skees said is necessary so as to prevent future legislatures from reversing the measure.

“The whole point of this constitutional change is to limit the state of Montana,” he said.

Fulfilling Skees’ vision for a smaller state government could mean huge hits to state revenue and the services that tax money funds, or at the least necessitate the recategorization of dozens of taxes, levies and fees at the state and local level that don’t fall cleanly into the three categories in the bill.

“Does this prevent the state from collecting revenue based on excise taxes, motor vehicle fees and other things?” asked Bob Story of the Montana Taxpayers Association. “Because if it does, you can see the hole that it’s gonna leave in the state budget.”

Montana has more than a dozen selective sales taxes and excise taxes totaling $500 million per year in revenue that would be “effectively eliminated” under this amendment, said Heather O’Loughlin, the co-director of the Montana Budget and Policy Center.

Tobacco taxes, gas taxes, the state’s treasured coal severance tax and many others would either require reclassification by the legislature or become unconstitutional. While many of these revenues go to the general fund, many also draw down federal matching funds for things like infrastructure — such as in the case of the gas tax — or help support programs within the Department of Health and Human Services, as is the case with the cigarette tax, O’Loughlin said.

In 2019, Skees proposed identical legislation that ultimately died on the House floor. Legislative fiscal analysts at that time estimated that the biennial hit to the general fund would total nearly $240 million, with hundreds of millions more gone from state special funds.

Replacing state property or income tax with the sales tax would also necessarily be regressive, opponents say.

“Limiting the ability to raise tax doesn’t change the need for revenue,” said SJ Howell, with Montana Women Vote. “Local fees, tuition hikes, there are other ways these costs would be shifted to Montanans.”

Montana is one of five states without a statewide sales tax; the others are Delaware, New Hampshire, Oregon and Alaska. Alaska also lacks an income tax, but is supported by ample natural resource revenues. Washington, another state with no income tax, classifies income as property, and subjects it to a property tax, Story said.

Constitutional amendments require 100 votes across the two chambers, creating a high watermark for passage. The Legislature is also considering a bill this year to allow for a local option sales tax.