Montana may need to change the way it applies taxes to collect revenue amid a changing state economy, according to state elected officials searching for solutions during the ongoing budget crisis.
Lawmakers from both sides of the aisle agree that the state’s current tax system may be outdated, and changes to the state’s tax structure could be on the agenda for the 2019 legislative session.
“Fundamentally this is one of the significant issues facing the state right now. Our revenue streams do not reflect the economy as it currently exists today,” said State Budget Director Dan Villa.
Villa told lawmakers during last week’s meetings of the Legislative Finance Committee that the way the state’s current taxes are applied, they’re not capturing state economic growth, and that’s leading to less money coming into the state to pay for government programs.
Hamilton Republican Nancy Ballance, who chairs the LFC, said times are changing.
"There are things in there that are just not making sense the way they used to," Ballance said.
As of right now, the state’s budget is at least $75 million in the red, and that hole is expected to grow over the next two years.
Ballance said as lawmakers consider solutions to the current shortfall, Montana’s economy is looming in the background as a possible long-term complication.
As Montana’s traditional economic engines decline, and sources of tax revenue from coal, oil, and natural gas dip, the state is seeing growth in the service, tourism, and healthcare industries.
Lawmakers also see a need for potential updates in taxing the altered field of retail sales as customers turn to e-commerce companies, like Amazon, that don’t have to pay taxes in Montana.
Ballance said the strategy for digging out of the current fiscal crisis should include a plan to avoid falling into the next one, which could include reorganizing which industries the state targets for taxation.
“The end game has to continue this thing forward to understand how it is changing and make a determination about how we are going to go forward in this new economy,” said Ballance.
Significant changes to the state’s tax system are unlikely to happen if lawmakers are called back to the capitol for a special legislative session. Governor Bullock said he’s in talks with some lawmakers about calling a special session in the next few months.
Republican Senator Llew Jones said a special session wouldn’t allow enough time to do any meaningful work on changing the state tax system. But he says Montana may need to consider some temporary tax adjustments to patch the state’s current problems.
“I could see a number potentially, from lodging to rental cars, a number of temporary, turn-the-dial-up for two or three years, turn-the-dial-down-type impacts that get us through this short-term challenge,” Jones said.
Jones said, long-term, it’s more important to change where taxes are drawn from in order to bring money into the state, rather than increasing how much people and business are taxed.
Neither the governor’s office nor lawmakers have voiced fully formed ideas for how the state may shift its tax system to keep up with Montana’s changing economy, but both branches see change coming in the near future.