Montana homeowners and small businesses will see sharp increases in their property taxes if 130 corporate taxpayers succeed in altering the way their own property is assessed, Gov. Brian Schweitzer said Tuesday.
Speaking during the Billings Chamber of Commerce Newsmaker Forum and in an interview with The Billings Gazette editorial board, Schweitzer said corporations whose Montana property is centrally assessed are preparing to float a proposal that would cut their own taxes by about $100 million per year, down from the $200 million they currently pay.
If the 2013 Legislature were to approve such a proposal, the tax burden would be shifted to 350,000 Montana homeowners and 45,000 small businesses, Schweitzer said.
Schweitzer, who is completing his second consecutive term in office and can’t run for re-election due to term limits, won’t be in office when the 2013 Legislature convenes. Still, he’s concerned that a property tax proposal will surface next year, potentially creating a huge shift in the tax burden.
He said lobbyists in Helena are lining up behind a proposal that will be considered by the Legislature’s Revenue and Taxation Interim Committee.
Because of interest from many lobbyists, “This looks and smells a lot like the wool getting pulled over our eyes in utility deregulation,” Schweitzer said, referring to a 1997 bill that deregulated Montana’s electrical industry and eventually led to the demise of the former Montana Power Co.
The Montana Department of Revenue has centrally assessed certain large companies since the 1890s, and the taxation system has withstood several court challenges, Schweitzer said.
To explain centrally assessed taxation, Schweitzer invoked a simple example using the assets of a hypothetical telephone company that has 10 poles worth $100 each, all connected by a single strand of copper wire worth $50.
One way to assess the property would be to simply place a value on each pole and the wire. But a telephone company connects to many customers and a lot of business is transacted across those lines, so the company is actually worth much more than $1,050 value, Schweitzer said.
“When it’s centrally assessed, the whole is worth more than the sum of just the telephone posts and the wire, when you consider the easement they have and their ability to connect with customers,” Schweitzer said.
Normally, when a company files a tax protest, the case goes to the Montana Board of Tax Appeals.
“If you’re not happy with that decision, you go to District Court,” Schweitzer said. “But what these companies are doing now is taking it directly to District Court and when that’s done they take it to the Supreme Court, delaying this thing as long as they can,” Schweitzer said.
Schweitzer said companies that are challenging central assessment are essentially seeking the ability to appraise their own property rather than having the Department of Revenue do it.
Schweitzer has also received letters from the Yellowstone County commissioners, the Billings City Council, Big Sky Economic Development, the Billings Chamber of Commerce and other organizations expressing concern over property tax protests. In Yellowstone County’s case, $30 million has been tied up due to tax protests. One letter suggested the Department of Revenue had changed the way it had done assessments on a number of businesses, Schweitzer said.
“Nobody has changed anything,” he said. “These companies have just challenged the law that has been in place for a century.”
Sen. Jeff Essmann, R-Billings, a member of the Revenue and Transportation Interim Committee, said no specific legislative proposals have been presented to the committee, although many companies have expressed concerns about their property taxes.
“We have a significant number of employers and taxpayers in Yellowstone County that have protested their assessments,” Essmann said. “Basically, they have come to the committee expressing frustration that they can’t get their protests resolved.”
Essmann said companies that operate in several states frequently say that their property in Montana is assessed at a much higher rate compared to similar property located in other states.
“The shift I’m worried about is that the governor and the (Revenue Department) director are confident they are going to win these cases and they’re headed to court because the department won’t negotiate with taxpayers,” Essmann said. “It has begun to have an impact on local government.”
Later Tuesday, Dan Bucks, director of the Montana Department of Revenue, responded to letters from the city, county and other agencies.
“Your decision to intervene in the legislative process against the department’s valuation and on behalf of a few major corporations threatens to increase property taxes for tens of thousands of homeowners and small businesses in Billings,” Bucks wrote.
One protesting company “has generated a report advocating legislation that would expand the tax shift several fold by granting unprecedented tax breaks for all major corporations,” Bucks wrote.