HELENA — A House committee on Friday heard the Legislature’s third major proposal to overhaul Montana’s complex income tax system to make it easier for taxpayers to understand.
Rep. Kris Hansen, R-Havre, presented her House Bill 581 to the House Taxation Committee, which didn’t vote on it.
“This is a simplification bill,” Hansen said. “Our taxes are complicated and we need to fix it.”
She sponsored the 2011 resolution to study Montana’s individual income tax system and recommend options to revise it. It was the top choice of 94 percent of legislators for an interim study, and a committee did so.
Montana’s income taxes have more differences from federal law than most states’ taxes do, she said, citing Revenue Department statistics.
Her bill would use federal taxable income, with a short list of adjustments, as the basis for Montana’s individual income tax instead of the current state taxable income with many adjustments.
HB581 would use three tax rates – 1 percent, 3 percent and 6 percent—which would flatten the current tax structure. At present, Montana has seven tax rates ranging from 1 percent to 6.9 percent.
“It’s simple, fair and has very few winners and losers,” Hansen said.
The bill would eliminate most state tax credits, deductions and adjustments. At present, she said, Montana taxpayers pay $829 million a year in income taxes, but the state gives back $340 million in adjustments, including $68.5 million in tax credits.
“That’s a lot of calculating the department has to do,” Hansen said.
Her bill is projected to raise $30 million less than current law brings in the first two years and $24.7 million less the next two years, although Hansen said she is working with the Revenue Department on amendments to make it closer to revenue neutral.
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Hansen said HB581 would simplify state income taxes to such an extent the Revenue Department could have an easy-to-understand one-page form as opposed to the current complicated three-page form.
The fiscal note for the bill says it would reduce the Revenue Department’s data entry processing by 60 percent and is expected to cut the errors by taxpayers by half.
Hansen said the Revenue Department estimates it could eliminate the job of one attorney because disputes with taxpayers would drop under a simpler system.
“This is the hack-the-lawyers’ bill,” said Hansen, an attorney. “You can see it’s not a self-serving bill.”
HB581 drew most of the same supporters and opponents as the other two income tax revision bills did, SB282 by Sen. Bruce Tutvedt, R-Kalispell, and HB532, by Rep. Roy Hollandsworth, R-Brady.
“This proposes much needed simplification to Montana’s tax code,” said George Olsen, a retired certified public accountant representing the Montana Society of CPAs.
Also supporting the bill were representatives of the Montana Chamber of Commerce and National Federation of Independent Business.
Opposing it were representatives of groups that now benefit from current tax credits, deductions or other tax adjustments used by their members. The groups were the Montana Renewable Energy Association, Alternative Energy Resource Organization, Association of Retired Public Employees, Motion Picture Association of America, Recycle Montana and Montana lodging and Hospitality Association.
Leo Berry said the $3,600 pension deduction that certain retirees are eligible for affects a large number of Montanans. He urged the committee to amend HB581 to retain the deduction.
“Our folks walk softly, but they carry big canes,” Berry said.