HELENA — By a 2-to-1 margin, the Montana House on Thursday endorsed a major bill that seeks to simplify a state income tax system that some tax preparers rank as one of the nation’s most complicated.
The House voted 67-33 for House Bill 581, by Rep. Kris Hansen, R-Havre. The tally showed 60 Republicans and seven Democrats voting for HB581, while 32 Democrats and one Republican opposed it.
HB581 faces a final House vote next week before moving to the Senate.
“Our tax code is incredibly complicated,” Hansen told the House.
Hansen said the current income tax system makes 25 changes from federal adjusted gross income, has eight more deductions than the federal tax form and 28 tax credits.
She would reduce the current seven tax brackets to three, with three tax rates — 1 percent, three percent and 6 percent.
A key to the simplification, she said, is that fact that her bill strips the state tax code of all but a handful of tax credits, which are dollar-for-dollar reductions in tax liability.
Among the tax credits the bill would jettison are those for recycling, adoption, geothermal systems, historic property preservation and film production employment and expenditures.
“This is massive simplification,” Hansen said. “It is not intended to give anyone a break or an increase.”
If enacted, it would make state tax returns shorter and reduce taxpayer errors by half, the Revenue Department estimated, she said. In addition, it would eliminate 17 jobs at the department, including one attorney’s position.
Hansen said the Montana Society of Certified Public Accountants strongly supports the bill.
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The House passed an amendment by Rep. Alan Redfield, R-Livingston, to automatically void some new tax credits that pass and are signed by the governor if Hansen’s bill becomes law.
Rep. Greg Hertz, R-Polson, endorsed the bill, calling Montana’s income tax instruction booklet “atrocious” because it’s at least as long as the instruction booklet for the basic federal tax form. He lauded the removal of tax credits.
“Montana has the most complicated tax returns around,” he said. “I’ve prepared a lot of tax returns in a lot of states. This may allow people to prepare their own tax returns.”
Rep. JP Pomnichowski, D-Bozeman, opposed the bill, saying some tax credits had been restored to HB581, contrary to its goal of simplification.
“We have haven’t reached simplification,” she said. “This is not an improvement. Why? We have begun to cobble together our existing system back.”
Disagreeing was Rep. Brian Hoven, R-Great Falls, who called HB581 “a very, very good bill” that achieves simplification. He defended the reinstatement of tax credits for people investing in energy conservation, elderly homeowners and those making charitable endowments.
“The concerns of the people that were affected were looked at and handled,” he said. “It’s a very good rewrite of a tax code that’s long overdue.”
Rep. Nancy Wilson, D-Missoula, opposed the bill, citing an estimate that it would bring in $28 million less in revenue over the next two years than the current tax code.
“Do we have $30 million to help people save a couple of hours in preparing taxes?” she asked.
But a fellow Missoula Democrat, Douglas Coffin, praised the bill because it would benefit low-income people by increasing the personal deduction and personal exemptions. It also helps single parent, low-income families by introducing the head of household tax classification to the state code.
“It’s a win for low-income families,” he said. “It’s a win for married (couples) filing jointly.”