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Bill targets property-sale tax collections
Senate Bill 181, by Sen. John Esp, R-Big Timber, is a rival approach to legislation the state Revenue Department unsuccessfully sought in 2005 and 2007 to have withholding taxes collected on Montana land sales involving out-of-staters.

HELENA - Title company owners Tuesday proposed an alternate way to help get out-of-state landowners to pay their taxes on their Montana land sales.

Senate Bill 181, by Sen. John Esp, R-Big Timber, is a rival approach to legislation the state Revenue Department unsuccessfully sought in 2005 and 2007 to have withholding taxes collected on Montana land sales involving out-of-staters.

"It proposes a simpler, easier approach with compliance," Esp told the Senate Taxation Committee.

His bill requires proceeds from real estate transactions to be reported to the state as they are the federal government through Internal Revenue Service 1099 forms.

The Revenue Department endorsed Esp's bill, but said it doesn't fully solve the problem of out-of-state landowners not paying the Montana taxes they owe.

"We'd view it as another tool for our toolbox," said Gene Walborn, administrator of the department's Business and Income Taxes Division.

Revenue Director Dan Bucks said later that the department in 2009 hasn't proposed a free-standing bill to set up tax withholding system for nonresidents' Montana land deals as it did in 2005 and 2007.

However, Bucks said Gov. Brian Schweitzer suggested in his 2008 campaign that such a tax withholding system would raise the money needed to eliminate the business equipment property tax on many Montana businesses.

Representatives of business trade associations testifying said Esp's bill was preferable to a tax withholding system on land sales by out-of-state residents.

Mark Josephson, a title company owner from Big Timber, said SB181, if approved, would "give the department the precise information it needs to collect taxes."

He said he studied realty transfer certificates in Wheatland County and can't make sense of the Revenue Department's statistics gleaned from its study of realty transfer certificates filed after land deals.

"It's highly likely no more than 10 percent of real estate (transactions) involves a nonresident involved in a taxable transaction," he said.

Josephson said it would put a burden on title companies to collect a withholding fee after land sales, something for which they would have to charge a fee.

"It does turn us closing agents into tax collectors," he said. "That's the job of the state."

The bill drew support from representatives of the Montana Taxpayers Association, Montana Chamber of Commerce, Montana Society of CPAs and Montana Association of Realtors. No one opposed it.

Mary Whittinghill, president of the Montana Taxpayers Association, said the 2007 Legislature gave the Revenue Department additional money to hire more lawyers to go after out-of-staters who aren't paying their Montana taxes. Various trade associations also published a pamphlet, to be distributed at property sale closings, explaining the tax obligations from land sales.

Joe Roberts of the Realtors agreed, saying: "We do think that tax compliance is important, but we think voluntary tax compliance is best."

Walborn also backed the bill as helpful but said it wouldn't replace the agency's realty transfer certificate project or a tax withholding system.

The department looked at all 417,000 realty transfer certificates filed in Montana from 2003 to 2007, captured the statistics electronically and cross-matched them with tax information to find people who hadn't filed taxes on land sale profits. It sent 10,000 letters to nonresidents and 4,800 to residents.

Through November 2008, he said, the Revenue Department had collected $3.2 million in previously unpaid taxes under the project - $2.8 million from nonresidents and $400,000 from Montana residents. The nonresident payments averaged $3,700 apiece.

Walborn said the 1099 forms provided for in Esp's bill are a tool to augment the realty transfer certificate project, which the Revenue Department will continue to run.

In an interview, Bucks said Esp's bill, combined with the realty transfer certificate project, "only gets us halfway there." Without a tax withholding system on land deals, the department will never reach full tax compliance, the director said.

The committee did not vote on the bill Tuesday.

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