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HomeMy WebLinkAboutMontana Taxpayer May 2000Volume 34 Number 3 Montana Business Agenda Tour For the past three weeks, the Montana Taxpayers Association and the Montana Chamber have been holding informational meetings throughout the state. This tour provided a great opportunity to hear the concerns of Montana taxpayers. Topics discussed at the meetings were, an overview of the last legislative session, what is going on during the interim and what are some of the issues that could arise during the special session was presented. The message from the participants was clear on a few points: the reduction in the business equipment rate was a real benefit to businesses in Montana. Not only do we need to ensure the reduction in the rate continues, but we need to work on eventually repealing the business equipment tax altogether. Although most taxpayers will not experience the actual tax savings from SB200 (the reduction in the tax rate on business equipment and livestock) until this fall, results from a survey completed by meeting participants revealed a positive effect. It was exciting to hear about the other benefits the tax reduction has had or will have on businesses and the Montana economy besides the purchase or planned purchase of additional business equipment and livestock. Some of the businesses plan to use the tax savings for increased wages; others plan to hire more employees or a combination of both. We will be sending out an additional survey later this year to all our merebern to capture more information on the benefits of the tax reform legislation from the past session. Administrative Rules Hearings In April, there were four administrative role hearings pertaining to taxation. Your association attended each heating to ensure the legislative intent was followed and the taxpayers' interests were represented. May 2000_ Family Education Savings Program MAR Notice 42-2-651. The proposed language clarified that a beneficiary does not have to be a member of the account owner's family; clarified that separate accounts don't need to be created for each spouse filing jointly; defined the allocation of withdrawn funds among cunlributions and eamings and qualified and unqualified withdrawals. There was testimony regarding the benefits and the use of the program to date. For example, unqualified withdrawals are penalized at 10%, which goes to the Board of Regents for administration and ~ants. Many of the accounts are from out of state taxpayers who realize benefits since the interest is nontaxable for federal purposes. Oil and Gas Tax Simplification. MAR Notice 42-2- 655. The proposed role was a result of HB 661 which revised the taxation of stripper wells, HB 658 which provided a stripper well exemption and SB530 which generally revised the taxation of oil and gas. At the hearing there was testimony from Gall Abercrombie, Executive Director of the Montana Petroleum Association to clarify that wells that had been idle for five years were also eligible for the drilling incentive tax rate. The department confirmed that this was correct. New and Expanded Industry Credit. MAR Notice 42-2-65 1. The department proposed language to clarify and facilitate taxpayers who qualify for the new and expanding tax credit. The old language contained in the role was more restrictive in that it required industries to not only increase full-time jobs by 30%, but also that the company was manufacturing or creating a new product. Now a taxpayer needs only to prove the increase in jobs requirement. Montana Taxpayer Address all communications to: MONTANA TAXPAYERS ASSOCIATION P,O. BOX 4909, HELENA, MT 59604 Telephone (406) 442-2130 FAX (406) 442-1230 E-mail - mwkitt~montax.org phyaUt~nontax.org Business Office: 506 North Laraborn OFFICERS AND STAFF CHASE T. HIBBARD, Helena....Chairman, Board of Directors SILL SPILKER, Helena, Vice Chairman, Board of Directors MARY WHITTINGHILL, Helena....President PAM HYATT, Helena... ,Office Manager DIRECTORS Constmcl~n - Jeay Hamlin, Helena Contractors - John Harp, Kalispell Cooperatives- Jeanne Barnaid, MaBa Director a~ La~e - Tom Rolfe, Helena Farm MachineP/- GoMon Nelson, Conrad Rnandal - Craig Andersen, Billings G~ & Elect~c - Emie Kintit. B~e Grain G-owing - Deq'l Ayers. Denton Hardware Stores - Terry Taylor, Colsb~p Leqal Profession - Louise Gall Helena Legal Probesion - William Stemhagen, Helena Mining - Russ Riltet, Helena Motor Carriers - Ken Cdppen, Missoala Railroads - Atec Vlncen~ Texas Real Estate ~ Bill Spilker, Hetena Relail - Madlyn Hudson, Helena Sheep & WOOl - Chase Hibbad, Helena TelecornmunicaUons - Barbara Ran f, Helena The department also clarified that companies can receive the credit more than once, as long as they meet the qualifications again. The law specifies that the credit can be taken for three years. Prior to the language change, taxpayers could not apply nor wouid they be granted an additionai'credii orme had received the credit one time. Qualified Endowments Tax Credit. MAR Notice 42-2-657. The proposed rule was mainly due to a request from two taxpayers for a declaratory ruling on how to determine the value of insurance policies for a tax credit under the qualified endowment program. Testimony at the hearing indicated that perhaps the new language was not necessary or that the proposed language should be changed. The affected parties agreed to help the department with new language to help clear up confusion. The department had also proposed to delete language regarding the donor's ability to retain ownership of the gift. Under federal law, the donor is allowed to reserve the ability to substitute charities or reapportion the charitable gift among several charities. The department is reviewing this request. Special Session There was a joint session of the Senate and House Tax Committees held on Thursday, April 27 in Helena in preparation for the upcoming Special Session. Committee members received the most current revenue estimates from the Legislative Fiscal Division. Senate Tax Committee Chairman Gerry Devlin told the joint committees that the taxation committees would be responsible for estimating the revenues to use in determining the amount of any budget surplus. There were many questions and discussion regarding the assumptions in the estimates. Still not clear is the effect of some fairly significant issues that are not included in the $138 million surplus for the 2001 biennium or the $255 million surplus. estimated for the 2003 biermium. These outstanding issues total approximately $70 million for the 2001 biennium and $87 million for the 2003 biennium. What are these outstanding issues? Let's look at a couple and you can see how complicated it can quickly become. If the motor vehicle initiative on the ballot is approved in November, the effect for the last part of this biermium will be a reduction of $4.2 million (2001) and $16.8 million (for the 2003 biennium) to the general fund. These amounts do not include the reduction for schools and local government that could require reimbursement. Legislation from the last session implemented major property tax reform for taxpayers in Montana. There was a provision to reimbume local governments for the reduction in revenues as a result of the decrease in property taxes. Most of the reimbursements are included as expenditures in the revenue forecasts, but an additional $37.1 million will be needed to reimburse local governments for property tax reductions that were not effective or fully phased in during the 2001 biennium. The committee also received preliminary bill drafts on property and income tax reform and reductions. On the property tax side, there were proposals to reduce the statewide mill levy, one that would increase the contribution for direct state aid (which would decrease local mills), another proposal would increase the homestead exemption and one that proposed to exempt a larger portion of business equipment. On the income tax side, there were two bills. One reduces the marginal tax rates and the other proposes income tax simplification. The income tax simplification is a revised version of legislation introduced last session that has been referred to as the CPA proposal. The association opposed this legislation last session as 30% of taxpayers ended up with a greater tax liability. There have been changes incorporated into the latest version of the bill that minimizes tax shifting among taxpayer groups. Other components of the original bil/we opposed are addressed in the new bill that will be introduced during the special session. The changes correct penalties to retirees, married filing separately and some of the Montana deductions such as medical savings accounts and the family education savings program. A positive part of the bill, besides simplifying reporting by taxpayers, is the removal of the federal deductibility and the corresponding reduction in the tax rates and number of tax rates. Currently Montana has the highest tax rate in the country at 11%. Although the allowance of federal deductibility creates a marginal rate of approximately 6.75% for the highest tax group, the perception is the same. Most of the national studies continually cite Montana as the highest in the income tax area. There will be an additional joint hearing on Friday, May 5 and if necessary, on Saturday. May 6. We will be monitoring proposed legislation at these hearings as well as the Special Session. If you have any concems or ideas on the Special Session, please contact our office. Revenue and Taxation Committee The committee met on April 13 and 14 in Helena. They were given an overview of the joint effort by the counties, Department of Administration and the Department of Revenue on implementing GIS (geographic information system). The joint effort will help minimize costs to all parties who benefit from having digital mapping capabilities of GIS. The Department of Administration recently put together the beginning of a web site for some of the counties who have completed or have nearly completed digitizing the parcel information. You can access the web site at http://~is.doa.state.mt.us (do not type ww~v after the http). The department provided updates to certain legislation enacted last session. Implementation of HB 128, general revision of telecommunicafions taxation, is underway. The first payments under the new 3.75% excise tax will be due May 31. The Public Service Commission provided the effect of lower properties as a result of the reduction in the property tax rate for telecommunication companies. Although companies were not required to ask for rate adjustments, many of the local exchange carriers that are regulated by the PSC have reduced rates for customers. For example, US West reduced its charges to residences by $1.21 per month and businesses by $2.75. They also reduced its carrier access charges by $1 million and intralata toil charges by $1.68 million. The results of oil and gas tax simplification and reform were presented. Testimony from representatives of the industry described the increases in production and proposals for possible future production as a result of tax reform legislation from the past session. The previous rates were some of the highest in the nation and discouraged production on marginal wells. The Montana Petroleum Association has been instrumental in touting the benefits of the tax changes in Montana as well. At the North American Prospect Expo held in Houston, they prepared a pamphlet that describes the new competitive rates i_n. Mo~.tan~. ~pproxim~te!y 3,009 people attended the expo fi-om the industry. Business and Labor Committee The committee met on April 19 and 20 in Helena. They continued to hear testimony regarding competition and privatization of state activities. Sherrel Rhys from the Jefferson County Solid Waste District presented an interesting overview of their districts use of full cost accounting. Prior to accounting for all direct and indirect costs (including landfill regulatory costs), the district was charging customers $42 for refuse collection and landfilling. After full cost accounting was implemented, the actual costs rose to $123. At this level, private contractors were able to offer bids to the district for some services. Anything under $123 benefits not only the taxpayers in the district, but also adds to the tax base if a private business provides the service. Lois Menzies, Director of the Department of Administration, gave a report on whether full cost accounting could be implemented by state agencies. Recently, the Department of Labor and Industry made changes to their accounting procedures to utilize full cost accounting on the state's new computer system. Other agencies could conform, but there would be costs associated with accounting for all the indirect costs not currently tracked. Representative Roy Brown stated that full cost accotmting would allow him to better respond to constituents' questions regarding where the money is going in state government. The committee has asked for "preliminary" draft legislation to be presented at the next meeting. The legislation will include language to establish a private preference policy in law. The language will make it clear that if it is in the public's best interest the state will endeavor to utilize the private sector when appropriate. There will a requirement by state agencies to utilize full cost accounting so the determination of whether to utilize a public agency or a private vendor to provide the service is more readily apparent. The committee will be meeting again June 22 and 23 in Helena. Court SWucture and Funding Committee The committee met April 7in Helena and continued to consider the possibility of the state funding the district court system. The hearing was well attended by many of the Clerks of the Distrie. t_Court who are cone_creed about losing local control. There was also testimony from numerous court reporters regarding any proposed changes. The committee is aware of the concerns of local government and is trying to balance the preservation of the elected offices and ability of the district courts to continue to conduct business as usual, while finding ways to ensure the district courts have the appropriate funding levels to operate. The committee will meet again in Helena on May 25 & 26. MAMMOTH BUREAUCRACIES AND COSTLY REGULATIONS Analysts point out that few Americans really appreciate how big, pervasive and costly Washington bureaucracies and their satellites across the nation really are. Here are some eye-opening numbers: · Congress passed and the president signed just 170 bills into law in 1999, while agencies issued 4,684 rules last year and more than 40,000 roles during the 1990s. *Today, the 60-plus federal departments, agencies and commissions are at work on another 4,538 roles -- 137 of which will cost at least $I00 million to comply with, and 963 of which will have an impact on small business. · Based on figures from Thomas Hopkins of the Rochester Institute of Technology and the Tax Foundation, a median, two-eamer family of four with $41,846 in after-tax income in 1998 was burdened with regulatory costs of about $7,400. · If one thinks of these regulatory costs as part of a family's after-tax budget, regulations take an 18 percent_ bite out of after:tax income. Experts say that reform of the regulatory behemoth first requires better disclosure of the costs and potential benefits of roles. Then the electorate must hold Congress responsible for the good and bad results of those roles. Source: Clyde Wayne Crews, Jr. (Competitive Enterprise Institute), "Gorging on Regulations," Washington Times, April 26, 2000. lIE 0I XOIt Od 06~ ;2)(IV~ ~IO~[ TIV***OJAIV********** gel ON &INH!~d ~LN 'S~FIV:t ~LV~tHD GIVd ZtDVLSOd 'g'fl O~tO &klOlld-NON