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HELENA — Representatives of business and agricultural groups on Wednesday supported a bill to eliminate the state's 3 percent property tax on business equipment, which brings in $90.5 million to state and local governments annually.

Rep. Keith Regier, R-Kalispell, told the House Taxation Committee that his House Bill 325 ending the tax would give businesses a much-needed boost, help put Montanans back to work and make the state more attractive for businesses to relocate here.

“When businesses are financially stressed, jobs are cut,” he said, adding, “Taxes inhibit economic growth.”

However, HB325 fails to provide money to reimburse local governments for the lost revenue from eliminating the business equipment tax.

Jim Standaert, a legislative fiscal analyst testifying as an informational witness, said eliminating the business equipment taxes under HB345 would shift property tax burdens to other types of property, if no local government reimbursement money is provided and the same level of services are provided.

Property tax bills for homeowners would rise by 4.1 percent, he said. Small businesses would have to pay 9.7 percent more, he said, while utilities and other centrally assessed property would pay 7.8 percent more and agricultural and timber businesses 9.1 percent more.

Regier maintained that reducing taxes on businesses would increase state tax revenues ultimately because it would provide an incentive for existing businesses to expand and for out-of-state businesses to relocate here.

If the committee wants to find money to reimburse local governments, he suggested taking it from the state treasury, which Schweitzer boasted last week had a $330 million balance.

Business representatives argued that this tax is uncompetitive and unfair.

“This business equipment tax is kind of like the movie 'Groundhog Day,'” said Patrick Heffernan of the Montana Wood Products Association. “It keeps coming back and back.”

He called the oft-debated tax “a job stifler.”

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Jason Todhunter of the Montana Logging Association, said, “We have members that are paying that tax on equipment that is sitting.”

Cary Hegreberg of the Montana Contractors Association said the construction industry has lost 35 percent of its employment in Montana since mid-2007. One-third of its heavy equipment is sitting idle, he said, but contractors still have to pay business equipment taxes on this costly machinery. “We think the time to make Montana businesses competitive is now,” he said.

Evan Barrett, the state's chief business development officer under Gov. Brian Schweitzer, opposed the bill and instead advocated a pending one coming from the administration. Over a three-year phase-in, Schweitzer's bill would remove 98.6 percent of businesses from having to pay this tax, leaving only the largest businesses still paying it, he said.

Barrett said Montana once had “a black flag” flying over it when the business equipment tax was up to 12 percent or 15 percent, depending on the property classification, before it was systematically reduced, starting in 1989, to the current 3 percent rate.

He said the current tax rate, which amounts to an effective rate of 1.5 percent, is already competitive regionally. Barrett said economic studies have shown that taxes aren't the No. 1 factor in business expansion and relocation decisions. The top factors, he said are work force, infrastructure, utility rates and transportation rates.

Under a 2005 law signed and supported by Schweitzer, businesses with equipment with a total market value of up to $20,000 are exempt from the tax.

That law removed 14,000 businesses from the business equipment tax rolls and left another 14,000 businesses on the tax rolls. Asked afterward if the Schweitzer bill provides for local government reimbursement, Barrett said the measure is still being drafted.

Diane Fladmo, speaking for the MEA-MFT union, opposed HB345 and instead endorsed Schweitzer's forthcoming proposal.

“We think it's critical to provide adequate revenue,” she said.

The committee took no immediate vote on the bill.

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