State IRS bills bad for Montana

Yesterday the Senate Taxation Committee heard SB 220, a tax bill aimed at going after "tax cheaters." The Governor and others have some good talking points on the issue, but talking points don't often make for good working policy. While the bill has literally dozens of both technical and philosophical problems, I will focus on three main issues:

                                                                                                                   Many of the Department of Revenue (DOR) bills amount to an unnecessary delegation of power away from the legislature and to the executive branch. To illustrate this point, look no further than section 7 of SB 220. This gives the DOR director the power to determine what kinds of transactions he likes and doesn't like. Instead of the legislature giving predictable, understandable language, the director will be given new power to be judge, jury and executioner. And many of these powers don't just target out-of-state "tax cheats." The bill repeatedly refers to "taxpayers," which include all Montanans and resident businesses. Why should anyone want to give the Department more authority to audit them based on ambiguous laws, especially when the DOR just collected record amounts from all taxpayers?

                                                                                                                   SB 220 and other DOR bills require business do the DOR's dirty work of tax collecting when the DOR admits to slacking on their own duties. SB 220 would require businesses to do the withholding of taxes on the nonresident sales of property. The problem is the DOR has not done all it can in many cases to collect the taxes themselves. Take for example HB 74, which would require companies to do the withholding on nonresident oil and gas royalty payments. The DOR came to the tax committee hearing with evidence that compliance of nonresidents was much worse than residents. When pressed further on the statistics, the DOR admitted that the compliance was exactly the same between residents and nonresidents after the DOR sent a simple letter to those nonresident taxpayers notifying them of their tax obligations.

                                                                                                                    The administration tried to sweeten this deal by putting in a provision that would raise the exemption (actually a threshold) on the business equipment tax from $20,000 to $150,000. In the hearing, we applauded the administration's efforts to do this. However, if it's such a good idea for small business, we suggested they separate the tax cut provisions from the other portions of the bill. It's only fair to the many small businesses that would benefit from it.

                                                                                                                    No one is out to protect tax cheats. There are plenty of people and groups, however, that are out to protect taxpayers. Here is a list of groups that urged the Senate Tax Committee to oppose SB 220: Montana Society of CPAs, Billings Chamber of Commerce, Montana Chamber of Commerce, Montana Farm Bureau, Montana Association of REALTORS, Northwest Montana Association of REALTORS, Montana Taxpayers Association, Montana Automobile Dealers, Montana Bankers Association, National Federation of Independent Businesses (NFIB), Montana Land Title Association, Montana Coal Council, Montana Contractors Association, Montana Petroleum Association, Montana Retail Association, Montana Restaurant Association, Montana Equipment Dealers, Montana Tire Dealers Association, Montana Logging Association, Montana Wood Products Association, America’s Health Insurance Plans, Farmer’s Union Mutual Insurance Company, and Greater Montana Independent Electrical Contractors. You either have to assume that all of these groups are protecting tax cheats, or these experts are pointing out fatal flaws in DOR's arguments. You make up your own mind.

                                                                                                                     Also, check out Bob Lake's editorial today on this very issue. He makes some very good points about the proposed increase in the DOR's budget and power.

Comments

[Shane C. Mason]

This just isn't the whole perspective. An important point that you left out is that while Montana businesses and individuals pay 98% of taxes owed the states, out of state businesses and individuals (land owners)only pay an estimated average of 25%. This is bad for Montana businesses, so you'll have to excuse me if I am less than impressed by the number of 'REALTORS' that oppose this bill.

I will admit that there is room for discussion here, but there doesn't seem to be a plan from the Republicans that addresses the key issues.

[montanamainstreetblog]

Shane,

Thanks for your comment. I'm assuming your comment is focused primarily on the second part of SB 220, which is the nonresident withholding on the sales of property. If I'm incorrect, just let me know.

First, I would like to know where you got your statistics? I'm starting to think that the proponents of the DOR bills are simply copying talking points from the administration without asking some key follow-up questions. Your figures of 98% and 25% do not come from actual statewide figueres, but from "random samples" by the DOR. The figures do not take into account 1031 exchanges and they assume someone is a nonresident if their address is outside of Montana. There are a lot of assumptions that go into those figures.

Second, even assuming your figures are correct, I believe there are alternatives to forcing businesses to do the dirty work of the DOR. I believe education and simplification is key in tax compliance. DOR would see increased compliance if more taxpayers were informed about their tax obligations (see my post on oil and gas royalty withholding).

Requiring Montana businesses to do the work of DOR is bad for business. It's kind of hard to spin around that. Throw that together with the power grab provisions in the first part of SB 220, and you've got yourself a really bad bill. While you may not be impressed with the list of organizations that oppose the bill, it continues to grow every day.