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HomeMy WebLinkAboutMontana Taxpayer Feb. 2002MONTANA TAXPAYER MONTANA TA7[PAYERS ASSOCIATION HELENA, Guest Article: Perceptions, satisfaction and understanding of Montana's Tax System Douglas J. Young, Professor of Economics, Montana State University Bozeman summarized the results of a poll conducted by Montana State Billings. A random sample of adult Montanans were polled on their perceptions, satisfaction and understanding of Montana's tax system.' The results contain some surprises, as well as expected results. Perception of Tax Amount An overwhelming majority (84%) of Montanans thinks that taxes are Very High or Somewhat High, as opposed to only 16% who think that taxes are About Right, Somewhat Low, or Very Low.2 The perception of high taxes shows up consistently across a wide spectrum of population groups: urban and rural, those who own businesses (including farms) and those who don't, and males and females. In fact, no matter how one breaks down the data, a majority of every group believes that taxes are high. However, there are some differences in how large a majority believes taxes are high. For example, people living on farms and ranches are more likely to view taxes as high (90% v. 83%). Among non- farm respondents, homeowners are more likely than renters to think taxes are high (85% v. 76%), which may reflect concerns about residential property taxes. Private sector employees are more likely than those who work in the public sector to view taxes as high (87% v. 80%), and similarly for older age groups in comparison with people age 18-34 (82% v. 72%).' Fewer people with a ' The poll was conducted in late fall, 2001, in order to obtain baseline data and prospective participants for the proposed Citizens Jury on Montana Taxes. ' The question specifically asked, "In general do you think that your overall state and local taxes are Very High, Somewhat High, About Right, Somewhat Low, or Very Low." Twerty one individuals (2.1% of those polled) didn't know or did not respond. All percentages reported in this paper are based on respondents only. ' Questions regarding age, education, sex and political party were asked only of the 430 respondents (44%) who indicated that they Probably Would or Might participate in the Citizens four-year college degree think taxes are high than do those with less education (73% v. 85%), and Democrats are less likely to view taxes as high in comparison with Republicans and Independents (73% v. 83% v. 83%). Despite these differences among various groups, the major finding from this question is unambiguous - a large majority of Montanans thinks their state and local taxes are high. Satisfaction with the Tax System A majority of Montanans is dissatisfied with the current tax system, but the figures are not as dramatic as the perception of high taxes.4 Forty percent of Montanans are Somewhat Dissatisfied and seventeen percent are Very Dissatisfied. On the other hand, forty percent are Somewhat Satisfied while only two and one-half percent are Very Satisfied. Not surprisingly, satisfaction with the tax system is related to some of the same factors that are associated with a perception of high taxes. Urban residents are less satisfied than rural people (39% v. 47%), and homeowners are less satisfied that renters (41% v. 51%). Private sector employees are less satisfied than public sector workers (39% v. 461/o), and older groups are less satisfied than younger people (41% v. 55%). But in contrast to perceptions of high taxes, satisfaction does not vary much with education level or political party: Forty-four percent of Democrats, forty- three percent of Republicans and forty-four percent of Independents report that they are Somewhat or Very Satisfied. Tax System Understanding Only nine percent of Montanans report that they understand the tax system "Well," while another forty- three percent believe that they understand the system "Somewhat Well.i5 Jury. Therefore, results involving these characteristics may not be representative of all Montanans 4 The question specifically asked, "How satisfied are you with the current Montana state tax system?" 5 The question specifically asked, "In general, how well do you feel that you understand the current Montana state tax system?" 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 - mwhitt@montax.org phyatt@montax.or¢ Business Office: 506 North Lamborn V erynvddvvdvdvdddrvWvtiv OFFICERS AND STAFF CHASE T. HIBBARD, Helenaf....Chairman, Board of Directors BILL SPILKER, Helena, Vice Chairman, Board of Directors MARY WHITTINGHILL, Helena.... President PAM HYATT, Helena.... Office Manager Y?r?rvdvdddvdvvtidd?rvvhedv Contractors - John Harp, Kalispell Cooperatives - Jeanne Barnard, Malta Director at Large-Tom Rolfe, Helena Farm Machinery -Gordan Nelsen, Conrad Financial - Craig Anderson. Billings Gas & Electric- Ernie Kindt, Butte Grain Growing - Daryl Ayers, Denton Legal Profession - Louise Galt, Helena Motor Carriers - Ken Crippen, Missoula Railroads - Alec Vincent, Texas Real Estate - Bill Spiker, Helena Retail - Marilyn Hudson, Helena Sheep & Wool - Chase Hibbard, Helena Telecommunications - Rick Hays. Helena Timber Products - Doug Mood, Seeley Lake Utilities-Tom Ebzery, Billings say tax system "Not Very Well" (36%) or "Not Well" (11%). Not surprisingly, people who own a business or fare: were more likely to report that they understand the tax system Well or Somewhat Well (60% v. 50%), as did homeowners (55% v. 38%), and older people (age 55 or more) in comparison with younger people (age 18-34) (67% v. 42%). Fifty-two percent of Democrats say they understand the system Well or Somewhat Well, while sixty-two percent of Republicans and sixty-six percent of independents gave the same responses. Discussion Most Montanans think their taxes are high, but it is hard to know exactly what to make of this. Objective data show that Montana taxes are about average as percentage of income in comparison with other states, but this fact may not be widely known e Alternatively, Montanans may think their taxes are high in comparison with the benefits they receive from government services. Or many people may simply not think about services when answering questions about taxes. Questions which specifically link taxes and services might give a different picture. For example, in the last decade many Montanans have voted to increase taxes on themselves in order to increase funding for local public schools. A much smaller but significant majority of Montanans is dissatisfied with the current tax system. Again, it is hard to know exactly what this means, because questions pertaining to specific reforms - such as general or local See "_Montana Taxes - Comparisons with Other States" published by the Montana Taxpayers Association and the Montana Chamber of Commerce. sales taxes, flattening out the income tax, property tax limitation, etc - were not asked. Interestingly, Democrats, Republicans and Independents all show about the same level of dissatisfaction with the current system. Most Montanans don't think they have a thorough understanding of the tax system, and they are probably right. In fact, the tax system is so complicated that the details can only be comprehended by specialists working in particular areas, CPA's for example. But many Montanans also lack a basic education on how Montana's taxes have evolved over time, how they compare with other states, how taxes affect business climate, and - most basic of all - where the money goes. An understanding of these issues is crucial for good public decision making about the level and structure of Montana's taxes. Proposed Administrative Rules of the Department of Revenue MAR Notice 42-2-687 - Relating to tax exemptions, reduced tax rates, and credits for energy facilities. March 12, 9:00am 4" Floor Conference Room, Mitchell Building. Close of comments, March 22. The proposed rules are a result of SB 134, 506, and 508 and RB 643. The association has been involved in discussions with the department and other interested parties on these rules for the past few months. Most of the comments were incorporated by the department. We will be making additional comments at the hearing on Rules 3 and 4 specifically. MAR Notice 42-2-685 - Relating to penalties and interest charges for late filed and late paid taxes. March 7, 10:00am 4" Floor Conference Room, Mitchell Building. Close of comments March 14. The department is proposing changes to 42.15.315 and 42.23 ).605 regarding interest and penalty for income and corporation license tax purposes. The department indicated that the change is necessary in order to correct situations where the taxpayer originally paid penalty and interest and subsequently, through an amended return, had a reduction in the tax liability. In those cases the department did not waive or reduce the penalty. Another change indicates taxpayers who filed an original return in a timely manner and subsequently files an amended return could be subject to penalty provisions (as well as the interest that is due whenever there is a deficiency payment). We will be asking the department for additional clarification at the rule hearing. MAR Notice No. 42-1-686 - relating to Montana appraisal plan rules March 13, 2002 at 1:00pm, 4" Floor Conference Room, Mitchell Building. Close of comments March 22, 2002. Amendment of rules related to the Montana property tax appraisal plan as found in Chapter 18, Title 42. These -2- rules update references to the Montana Appraisal Plan for the January 1, 2003 reappraisal. The updates are mostly housekeeping. Proposed valuation changes are not included in this filing. (copies of all department of revenue proposed rules are available hltn'l,'mww.state.n+l.us/revenue For Your Reference Link, DOR administrative rules). Other rules under discussion, but not finalized Taxpayer appeal rights - The department is preparing a proposal notice to amend ARM 42.2.613 and 42.2.619 and adopt one new rule to clarify the appeal process for all taxpayers. One Stop Licensing - The department is working with various agencies involved in the one-stop licensing program. Draft rules will be presented to the Board of Review (30-16-302) on March 4 at 1:00pm in the Mitchell Building, Director's Office. First time homebuyers - Rules would provide guidelines for documentation required to receive the deduction against gross income for contributions to a specified savings account. Change in land classification - Rules would provide clarification on reclassification of Class 3 ag and Class 10 timber land to Class 4 when certain land use changes have occurred. Public Hearings on Recommendations from the Governor's Advisory Council on Education In the last two issues of the Montana Taxpayer the recommendations of the education advisory council were discussed. This council was formed as a result of HB625 during the 2001 session to address issues in school funding. These recommendations were shared with the Interim Committee on Education and Local Government. A series of public meetings have been scheduled. We would encourage our members to attend one of these sessions. Each public hearing will begin at 7 p.m. Each hearing will open with a presentation by the Public School Funding Advisory Council. Following the presentation, the Education and Local Government Committee will take comments from the public on the recommendations. Monday, March 11, 2002 - Shelby: Shelby High School Auditorium, 1001 6th Street North Tuesday, March 12, 2002 - Great Falls: Great Falls High School South Campus, Room 108 1900 2th Avenue South Wednesday, March 13, 2002 - Lewistown: Fergus County High School Cafeteria, 201 Casino Creek Tuesday, March 19, 2002 - Stevensville: Stevensville Junior High Multi-purpose Room, 300 Park Wednesday March 20, 2002 - Kalispell: Flathead Valley Community College Eagle's Nest (Cafeteria) 777 Grandview Drive Tuesday, April 2 2002 - Miles Ciri: Miles Community College, Room 106, 2715 Dickinson Wednesday, April 3, 2002 - Wolf Point: Wolf Point High School Auditorium, 213 6th Avenue South Wednesday, April 17, 2002 - Billings: Billings Community Center, 360 N. 23rd Thursday, April 18, 2002 - Butte: College of Technology Commons, 25 Basin Creek Road Income and Expense Questionnaire The Department of Revenue will be mailing questionnaires to business owners in Montana beginning in March. We asked them to provide an overview to taxpayers of why the information is being requested and what it will be used for. The Valuation of Commercial Property By Randy Wilke, District Lead Compliance, Valuation & Resolution Process Montana Department of Revenue The Department of Revenue is currently conducting a reappraisal of all taxable real property within the State of Montana. The current reappraisal must be completed by December 31, 2002 and will include commercial property. Here is some information on how commercial property is valued and how commercial property owners can assist the department by completing a questionnaire. There are three traditional approaches to value real property, the Cost Approach, the Sales Comparison Approach and the Income Approach. The department values commercial property by using the Income Approach. The other approaches are used only if there is not sufficient information to complete the preferred Income Approach. The Income Approach is a standard appraisal method used to produce a value indication by capitalizing the net income or earning power of the property through use of a capitalization rate. This approach to value uses rents from comparable properties, expenses attributable to the land and improvements and capitalization rates determined from the market place. The capitalization rates include a combination of a recapture rate, discount rate and effective tax rate. It involves the following steps: The typical gross income for each property is determined. - 3 - Vacancy and collection loss, and all appropriate operational expenses are deducted from the gross income, resulting in net operating income. The net operating income is capitalized into an estimate of value using a capitalization rate. This capitalization rate is derived from the market and reflects investor attitudes. Taxpayers who own commercial real estate will receive an income and expense questionnaire from the Department of Revenue in early March. A similar questionnaire was mailed last year. The information we receive back is critical to our department's ability to produce fair and equitable values for commercial properties. The information requested on the questionnaire relates only to the land and building. We do not want income associated with the operation of the business. For example, we need rental and expense information on the building. We do not want cash receipts relative to any business in the building. As always, the income and expense information provided by taxpayers will be held confidential by our department. Credit Card Payment Option Coming Soon The Department of Revenue has announced that taxpayers soon will be able to pay state individual income taxes online using a credit card. Taxpayers will be able to make credit card payments electronically via the Internet, using an application called Income Tax Express. The application can be used to pay both current and past year state individual income taxes, and estimated taxes. Income Tax Express is expected to be available to taxpayers in late February 2002. The online application was created by software developer Montana Interactive, the company responsible for developing the State of Montana's official website, Discovering Montana. The application will be accessible through both Discovering Montana and the Department of Revenue's website. Accepted credit cards include MasterCard and VISA. Taxpayers will be assessed a 2.5% fee for this service. The fee is calculated as a percentage of the total tax payment amount and will appear in the total payment price. A taxpayer can file early and wait until April to make the credit card charge. Mailing of Unemployment Insurance Experience Ratings The department is currently working to determine employer Unemployment Insurance experience ratings. By statute, these ratings are to be mailed to employers by March 31, 2002. The department is working to resolve outstanding issues on employer accounts. They plan to complete ratings by the statutory deadline of March 31, 2002. Errors Found in Tax Materials The Department of Revenue has identified minor errors in the income tax filing materials that may impact taxpayers. The specific corrections for taxpayers is on the department's website: http://www.state.mt.us/revenue/css/taxbookleterrors.asp Or you can contact the department at (406) 444-6900. 0100-"069. 11N lame' O L x08 Od laine-1 Io A1!0 joAew 069 11JI0 LE L EA Y F MAR 4 2002 CITY OF LAUREL 17096S W 'eualal{ cn?d 606 xog O d - u.cogweZ gaaoN 90S z?r„?a s n „r a NOI.LVIDOSSV SH9AVdXV1 VAIVINOW