Property tax inequities

In Flathead County, property taxes have increased well beyond inflation for residential homes and businesses. I was appointed to the Governor’s Property Task Force to dig deep into the cause of such escalations and provide recommendations for reforms for the 2025 legislature. In my eight years in the legislature I’ve been a member of the minority party, nevertheless,  willing to work collaboratively with the majority to address Montana’s solvable problems.

I was assigned to serve on the Tax Fairness Sub-Committee under the leadership of Rep. Llew Jones, Conrad, the Chairman of House Appropriations. So, here’s how we define the problem in laymen’s terms: During the past several two-year reappraisal cycles, the comparative market value of residential homes and commercial values of many small businesses have escalated well beyond inflation. 

Often times the wealth of the property owner has not kept pace with the taxes assessed on the property. Residential property is the largest segment of tax classifications in the state dwarfing agriculture, forestry, business equipment, centrally assessed properties such as railroads and utilities and pipelines. 

The rates vary significantly among classifications. Twenty one percent of the value of residential properties are second or third homes, short term rentals or homes structured under an LLC, likely part of a farm or ranch. The LLC status provides needed tax advantages for the volatile agricultural sector. The plan derived by the sub-committee and part of the final recommendations for future legislation proposes a rate increase from 1.35% to 1.91%. 

The rate is a multiplier of the appraised value and yields a taxable value. That value is then multiplied by the number of mills (one mill is 1/1000) needed to meet the budgets of school, municipal,  and county  budgets plus a set amount of state mills to pay for a portion of K-12 education and lastly 6 mills to the university system. 

But that new rate will be discounted under a homestead exemption for the 79% of full-time residents (7 months or more during a year). 

The discount will bring the rate down to close to 1.1%. Taxes can be decreased if one or more factors are mitigated including the lowering of the appraisal, the rate or reducing mills. 

This is a mitigation strategy that equates a significant portion of residential properties (59% of the total value statewide), to tourism and visitation and discounts the rate as a remedy for reduced property taxes. 

Secondly, the sub-committee proposes property tax reductions for small businesses. The current rate of 1.89% will be reduced to 1.5% up to six times the median commercial value. If a business is appraised above the six times threshold, the new rate will be 2.1%. 

The Department of Revenue has modeled the two aforementioned proposals so that task force members (and the public), can plug in values across the state. The recommendations from Tax Fairness are based upon successful modeling that works well throughout the state.

Two other sub-committees, studied the impacts of property taxes applied to schools and local governments. 

All local government budgets are capped through MT code 15-10-420 and disproportionately effect low growth municipalities and counties which have limited prior year’s growth to be included in calculating a new budget. 

Much of the growth of local governments and schools are non-general budget items that are exempt from caps. They include permissive levies for important expenditures such as pension contributions, health insurance premiums for non-school employees and bus transportation for k-12 students but they are components of escalating taxes.  Recommendations are included that address such issues. 

The Task Force is one source of recommendations to lower property taxes. I expect individual legislators to bring forward competing models for homestead exemptions and other remedies. I am often asked, “Why wouldn’t the legislature pass such common-sense proposals?” 

I would bet that the 2025 legislature won’t leave town without a set of bills signed by the governor that collectively address the inequities of the current system. 

Anything less would be dereliction of duties and I would then expect citizen initiatives to resolve the issue. This falls solidly within the purview of the duties of the legislature and I would expect the recommendation of the Task Force to hold gravity. 

Dave Fern

HD 5

Whitefish