HomeMy WebLinkAboutMontana Taxpayers 09/01MONTANA
TAXPAYER
MONTANA TASPAYEM ASSOCIATION
HELENA, MONTANA
Volume 35 Number 7 Se tember 2001
Our thoughts and prayers go out to all families and
friends who lost loved ones due to the recent attacks on
the United States. God Bless America.
The Jury's Task
The Citizens Jury on Montana's Tax System will focus
on what type of taxes should finance government
services in Montana and how, if at all, the mix of taxes
The Citizens Jury on Montana's Tax System
Background
Over the past decade, the legislature, executive branch,
and private groups have made many attempts to address
Montana's tax system. Key goals of these efforts were to
determine what types of taxes are best for Montana and
what types of taxes should fund government services
(including schools, cities, counties, and state
government). As Montana continues to seek the best
possible tax system, it is imperative to engage citizens
across the state in a public dialogue regarding these key
tax issues.
Seeking Citizen Input
A broad-based group of citizens have formed the
Montana Citizens Partnership (including the Montana
Tax Foundation) to explore what Montanans think about
the state's existing tax structure. They will sponsor a
Citizens Jury to seek input and advice on the role of
property, income, and other taxes. The Citizens Jury
will be coordinated and convened by the Montana
Consensus Council and the Jefferson Center.
The Jefferson Center, a not-for-profit organization based
in Minneapolis, developed the Citizens Jury process to
meet the need for an informed public dialogue on critical
public issues. The Center has coordinated 30 Citizen
Jury projects on a wide range of issues, including tax
policy and land use.
A Citizens Jury is a randomly selected and
demographically representative panel of 18 to 20 citizens
that meets for five days to carefully examine an
important public policy issue. This approach generates
thoughtful and constructive input from a group of
citizens who reflect the general population and who,
through the course of the five-day process, become well
informed about an issue.
can be changed to improve the state's economy.
The Citizens Jury on Montana's Tax System will hear
information from a variety of expert witnesses on the
current tax structure in Montana and how we compare to
other states. Jurors will deliberate together as they
develop recommendations for the Montana tax system.
Their recommendations will be shared with decision
makers and the public, and will be used to foster public
dialogue on Montana's tax system.
Funding
The Montana Citizens Partnership is looking for support
from a broad range of interests across the state and hope
you agree this is a worthwhile project. Tax deductible
contributions can be sent to the: Montana Citizens
Partnership, PO Box 4909, Helena, MT 59604.
Montana Medical Care Saving Accounts - Accounts
can be established until December 31
Few Montanan's (0.5% of all filers) take advantage of a
tax benefit available for medical expenses and long-term
health care. Montana's income tax system, unlike the
federal system, allows taxpayers a reduction up to
$3,000 annually per taxpayer (a spouse may also claim
up to $3,000) for deposits made into a medical care
savings account.
Qualifying taxpayers can maximize tax savings between
the following tax benefits:
? Flexible Spending Accounts (FSA)
? Itemized deductions
- qualified medical expenses (subject to 7.5%
of adjusted gross income)
- 100% of medical insurance premiums
(Montana only)
• Montana Medical Care Savings Accounts
(MSA) (Montana only)
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Montana Taxpayer
Address all communications to:
MONTANA TAXPAYERS ASSOCIATION
P.O. BOX 4909, HELENA, MT 59604
Telephone (406) 442-2130
FAX (406) 442-1230
Web Site - www.montax.org
E-mail - mwhitt4montax.or¢
phyatt®montax.orz
Business Office: 506 North Lamborn
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OFFICERS AND STAFF
CHASE T. HIBBARD, Helena..-Chairman, Board of Directors
BILL SPILKER, Helena, Vice Chairman, Board of Directors
MARY WHITTINGHILL, Helena.... President
PAM HYATT, Helena.... Office Manager
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Contractors -John Harp, Kalispell Mining - Russ Ritter, Helena
Cooperatives- Jeanne Barnard, Malta Motor Carriers - Ken CnDOan, Missoula
Director at Large-Tom Rolle, Helena Railroads -Alec Vincent, Texas
Fame Machinery -Gordon Nelsen, Conrad Reel Estate - Bill Sinker, Helena
Financial- Craig Anderson, Billings Retail- Marlyn Hudson, Helena
GasB Electric- Emie Kindt. Butle Sheep &WWI- Chase Hlbbard, Helene
Gran Growing- Deryl Ayers, Denton Telecommunications- Rick Hays, Helena
Hardware Stores- Terry Taylor, Colstrip Timber Products- Doug MOW, Seeley Lake
Qualified medical expenses can only be useo once Tor
each benefit; (i.e. qualifying medical expenses paid from
a FSA could not be claimed also as part of the itemized
deductions in excess of the 7.5 percent threshold).
The MSA account can be self-administered by the
taxpayer. The account holder is not required to register
with the Department of Revenue, however the account
must be kept separate from all other accounts and
maintained specifically to pay eligible medical expenses
for the account holder and any dependents.
Account holders must file Montana form MSA with their
individual income tax return (or two separate forms if
both spouses have established an account). The form
requires an accounting of deposits and withdrawals for
eligible medical expenses. Taxpayers could delay
establishing an account until the end of the year and
conceivably make a deposit and withdrawal on the same
day. The taxpayer needs to maintain their own records
that document qualifying medical expenses for the year.
There are advantages of the MSA (for Montana income
tax purposes only)
? Both the taxpayer and spouse can reduce taxable
income by $3,000 for a total of $6,000.
? Interest earned on the account is tax-free.
? The reduction in income is $3,000 regardless if a
medical expense is incurred.
? Taxpayers can make deposits (or establish an
account) after the medical expense is incurred.
Unlike Flexible Spending Accounts where you lose the
funds if they are not spent within the year, the MSA
account remains and eams tax-free interest for Montana
income tax purposes.
Eligible medical care expenses are defined under the
Internal Revenue Code Section 213(d) and are the same
expenses allowed as itemized deductions for federal
income tax purposes. Eligible medical care expenses
that are paid with MSA funds cannot be deducted in any
other section on the Montana income tax return. An
MSA allows those who do not itemize deductions to
have a method of deducting medical expenses. Also,
without an MSA, a person's medical expenses cannot be
deducted unless they exceed 7.5% of his or her total
income. An MSA allows taxpayers to avoid that 7.5%
floor.
For more information, contact the Montana Department
of Revenue at (406) 444-6900 or access the Montguide
article `Montana Medical Care Savings Accounts" at:
http://www.montana.edu/wwwpb/pubs/mt9817.html
Capital Gains Tax Cuts Help Markets Recover
Even before the terrorist attack last week, Republicans
were proposing a cut in capital gains tax rates, among
other measures, in order to stimulate the economy.
Experts say the case for a tax cut is even stronger now.
o The nearly 800-point decline in the Dow Jones
Industrial Average this week hurts all American
investors and imperils the jobs of millions of workers.
o Cutting the capital gains tax in half, from 20
percent to 10 percent, would pump value back into
stocks and increase investor confidence.
o While other tax cuts are desirable, only a cap-gains
cut provides instant relief for the economy -- and
virtually every time the rate has been reduced, the stock
market has risen.
o Most recently, when rates were reduced in 1981
and 1997, the stock market soared in value.
The reason markets rose is simple: a share of stock is
valued at the expected future earnings of the company --
after taxes. When the capital gains tax is lowered, the
after-tax earnings of every company in America rise --
thus, the stock market must rise in value.
The anticipated military response to the terrorist attack
also makes this the right time for the cut, experts argue.
From Lincoln to LBJ, presidents raised taxes when they
went to war. Ronald Reagan -- in his boldest and most
ridiculed decision -- did the opposite, cutting taxes and
beginning a massive military buildup. As a result, the
stock market boomed, the economy was revitalized and
we won the Cold War.
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Source: Stephen Moore (Club for Growth) and Jeffrey Bell
(Capital City Partners), "Cap-Gains Cuts Can Rally Battered
Markets," Wall Street Journal, September 20, 2001.
Economy Poised For Recovery
Last week's massive drop in the stock market led many
analysts to believe we are now in an official recession.
A recession is defined, informally but not officially, as
two consecutive quarters of negative real (inflation-
adjusted) growth in the gross domestic product.
As horrific as the loss of life and property were in the
World Trade Center and Pentagon attacks, the purely
economic loss was minimal in a $10 trillion economy.
o Adjusted for inflation, the physical loss was less than
that of Hurricane Andrew in August 1992.
o And it is almost identical to the loss of the
Northridge, California earthquake in January 1994.
o The total loss may be higher, due to impact on future
output, but as a share of GDP these disasters are
comparable.
A recession may be avoided because of private sector
and government actions. The Federal Reserve is easing
monetary policy very aggressively. And the federal
government will add a significant amount of fiscal
stimulus in coming months, including $40 billion in
new spending for relief and defense. In addition, it is
very likely that there will be a cut in the capital gains
tax and other stimulus as well. Finally, business
investment is going to pick up, as businesses buy new
equipment and make other investments to cope with the
new terrorist threat.
The economy has already fallen sharply for about 20
months. It is poised to recover and the monetary and
fiscal ease that is occurring will only accelerate that
trend.
Source: Bruce Bartlett, senior fellow, National Center for
Policy Analysis, September 24, 2001; "Bouncing Back from
Terror," New York Post, September 22, 2001.
Administrative Rules - Energy Taxation Incentives
The Department of Revenue held an informal discussion
regarding proposed administrative rules pertaining to
energy taxation incentives legislation from the 2001
Session (HB600, HB643, SB 143, SB506 and SB508). A
group of taxpayers representing various interests were
asked to provide input prior to the department filing
proposed rules with the Secretary of State. We continue
to be pleased with the Department's involvement of
taxpayers early in the process in the administrative rule
process. The discussion centered on these key issues.
Contracts
Offers - Most of the legislation contains language that
requires an offer in order to receive the associated tax
incentive. SB 134 is structured a little different from the
other bills because the mine operator gets a tax break if
the generator "agrees to offer" cost based electricity.
The DOR is still working on "agrees to offer" since a
strict interpretation of the bill indicates that the generator
does not have to even offer the contract, only that they
"agree to offer."
There was also discussion on whether an offer needed to
be advertised. For example, a generator could secure a
purchaser and the contract meets all the conditions for
the incentive without public notice. If advertised, DOR
will be looking at standard time frames that long-term
contracts are offered (perhaps 60 - 90 days).
Length - Under SB508 companies must first offer 50%
of the net generation power for 20 years from the date of
completion. If 50% is not contracted for under those
conditions, the surplus capacity must be offered on a
declining contract term basis. There was discussion that
if there are 5 year contracts for the surplus capacity, then
these would need to be offered again in 5 years.
Under SB134 once an offer is made for the appropriate
length, the conditions have been met.
Costs of the Offer
The DOR has been visiting with the Public Service
Commission about allowable costs and appropriate
forms. For regulated industries the DOR could utilize
federal forms such as FERC Form 1 and REA Form 7.
There was discussion on how these could be adopted for
deregulated generators.
Rate of Return
Most of the legislation allows for the price to be cost
plus a reasonable rate of return not to exceed 12%. In
these instances it would not be necessary for the DOR to
determine a "reasonable rate" since it cannot exceed
12%. In SB134 it might be necessary for the DOR to
determine a rate. In HB643, the Public Service
Commission is to determine a "reasonable rate."
Confidentiality
There continues to be concerns on maintaining
confidentiality of information as a result of the Supreme
Court Decision in AP.
Time Frame
The department has proposed dates for the rules process.
Cleo Anderson indicated we would be presented with the
"draft" rules around October 29, which I will forward to
those of you who are interested. If the tentative schedule
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is adhered to, the rules would be filed on November 9
and the hearing would be on December 12.
The department's handouts (including draft forms) as
well as a more detailed summary of the discussion are on
our website at www.montax.org/legislative.htm (Recent
Information link).
Administrative Rules - Adopted
On August 23, a notice of adoption pertaining to rules
covering unemployment insurance and withholding
taxes was published. The unemployment insurance rules
were transferred to the Department of Revenue from the
department of Labor and Industry and, for the most part
,
were not changed unless there was a conflict between the
unemployment insurance and wage-based processes.
The Department of Revenue has also filed notice of
adoption for corporation license taxes. These rules were
mostly housekeeping - MAR Notice No. 42-2-674 and
MAR Notice No. 42-2-675.
Administrative Rules - Proposed
MAR Notice No. 42-2-676. On November 23 proposes
to amend various administrative rules to update the
annual depreciation and trend schedules for business
equipment and to reflect statutory changes made to 15-
16-613, refund of certain taxes paid on migratory
property. The law was changed to allow the taxpayer to
make an application for a refund for property taxes paid
on migratory property. Taxpayers are required to file the
application for the refund with the board of county
commissioners. The law also struck the requirement that
the application be made by January 31' following the
year of assessment. For a copy of the proposed rule, go
to the department's website at www.state.mt.us/revenue,
For Your Reference, DOR Administrative Rules.
The Department is also working on proposed rules
regarding:
First Time Homebuyer Rules - clarify requirements and
documentation to qualify for a credit against adjusted
gross income for contributions made to a specified
savings account.
Retail Telecommunications Excise Tax - amend existing
rules in Chapter 31 to implement changes in law. Other
considerations include: credit cards, ATMs, inter-
company calls, Internet, 900 calls exemption certificates
and at what point taxability starts.
Interim Studies
An agricultural land valuation advisory committee (15-
7-201(7), MCA), will be meeting October 2 and 3 in
Helena. The committee's purpose is to recommend
agricultural land valuation schedules to the Department
of Revenue for the upcoming reappraisal cycle. These
values will be used for the 2003 tax year. 513609, passed
in the 2001 Session made some changes to the
determination of values including allowing the
committee to recommend a different capitalization rate
then the statutory 6.4%, and amending the parameters
used to determine the per-acre net income.
Another committee is reviewing the valuation of non-
qualified agricultural land as a result of SJR21 passed
this last session. The legislative Revenue and
Transportation Committee will be studying this issue as
part of their regular meetings. At their December 3-4
meeting they will review background information,
develop study questions and determine the scope of the
study.
Correction
There is a correction on page 1 of the brochure Montana
Taxes - Comparisons with Other States. Washington's
dollars per capita in the first column should be $3,584
instead of $2,584. We apologize for any confusion.
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