Friends and Colleagues,

One of my many extra-curricular activities has been advocating our State’s economic development. One of my goals has been to develop a statewide business news & web portal. I believe it is vital that we promote and discuss Montana’s business climate, economic development opportunities, education, and resources such as MATR. Additionally, I want to learn about those businesses, leaders, and happenings outside of my home community. I’ve been working on the concept for some time, and will be launching the site July 5^th, 2007.

My plans for content include company profiles, leadership profiles & interviews, Government updates, profiles, and interviews as well as thumbnail sketches of websites, technology, and local innovation. The site will feature a well rounded and complete web portal with links to governments, resources, education, and economic development information available via the web. The mtbusiness.com blog, econengine, launches as well. Audio & video podcasts are also planned.

I am in the process of compiling the names of companies, business & community leaders to profile and interview. As with all of my projects, I take professionalism very seriously and the product will certainly reflect that commitment. I would like to add you and your company to my list, as well as asking you to recommend companies and individuals for profile & interview consideration, statewide and local. If you can assist in recommendations it would be most appreciated.

The site, Montana Business, can be found at www.mtbusiness.com

I urge you to take a visit and certainly provide any feedback, comments or recommendations. If you are willing, I would like to make arrangements for an interview or please complete and return via email the attached generic profile or conversation template at your leisure.

Please feel free to forward the email to your friends and colleagues. All feedback is appreciated, and don’t hesitate to email comments, links, news, or events. As always, I look forward to hearing from you.

Jon at Montana Main Street submitted a response which began to address questions MOTTO raised regarding the HB469 veto.  

The legal proceeding was a tax protest filed by Qwest in 2006 that is making its way through the appeal process (still trying to learn more about this). Around 12 companies on average file tax protests per year based on DOR's centrally-assessed theories.

Just to answer some of the questions you pose: Yes, wireless companies will see their taxes double as a result of the governor's veto. Currently, they are not centrally-assessed based on the theory that cell towers do not fall into the same category as other utilities that have physical connections from county to county (railroads, pipelines, transmission lines, telephone lines). That a decision the legislature made in 1999. When DOR moves them into the centrally assessed category after the session, their property taxes will go from 3% to 6%. Not good for investment in Eastern Montana where they need more cell towers.

Also, since the DOR believes no physical connection is needed in order to lump a business into the centrally-assessed category, look for them to drag other companies (department stores, restaurants, banks, etc...) into centrally assessed categories just to double the tax rates without legislative action.

Like you, I am also wondering if legislators who supported the bill initially will switch only because of the governor's veto. Nothing that was presented in the governor's letter was new information. All of it had been discussed in both houses. If it was such a good idea for Montana and constituents, what has changed? No need to respond to my question - I already know the answer.

Jon is a good advocate for the Chamber and business in general.  I, too, have reservations regarding business taxes and agree the State should not be looking at centrally assessing like property as Jon described.  Central assessment is an important issue that needs to be addressed with the executive in context.    

I have long been one of those "urban" voices who rally to support rural interests, particularly central & eastern Montana.  We all have to work together.  That is exactly why this particular bill & veto have to be looked at so closely.  Tax protest places money local gov't need aside, unavailable to the gov't.  I need not remind anyone in North Central Montana the effect of tax protest on local government budgets.  These tax issues have broad implications to our local governments and school districts, and ultimately the local taxpayer (including business).

In this particular instance, it appears that wireless companies have been historically charged at the 3% rate.  Senator Gillan &  Representative McNutt (both of whom I admire & have the utmost respect) have stated that this was a legislative decision in 1999.  The bill carried by then Rep. Gillan in 1999 is not that clear( however it may have been a different bill or administrative rule).  I do  believe these issues were discussed at length in the committee, and a 3% rate is current intent by our legislators.  (That does not change what has been collected or what was projected to be collected according to the HB469 fiscal note).

The primary issue, I believe, is does the legislative intent in 469 harm the ability for the State to collect at a centrally assessed rate of 6% from property owned by non-wireless telecommunication companies?  Are we treating similar companies differently or unfairly?  If the answer is yes, are we potentially creating a large financial risk to the State, local governments, and education?  

I have asked DOR for information regarding the tax protest. 

Summit Aeronautics, located in Helena, recently hosted a press conference in support of HB529, Representative Lake's attempt to reduce the business equipment tax .  HB529 has been closely followed by the Chamber at their Montana Main Street blog.

H.B. 529, by Rep. Bob Lake, R-Hamilton, would exempt a business’s first $100,000 in equipment from the tax (versus a $20,000 threshold now, which is all taxable if the value of the equipment is above that level) and lower the rate from 3 percent to 2 percent.

Lake said businesses in Washington, Wyoming, North Dakota and South Dakota all pay no tax on their equipment, while in Idaho the rate is 1.75 percent.

“All of these states have an advantage on the state of Montana” when it comes to luring and retaining business, Lake said.

In the conference, Hoffman said Summit paid $200,000 in business equipment tax last year, and the anticipated addition of several more multi-million dollar milling machines would drive that figure significantly higher in the future.

HB529 is one of the major policy bills remaining during these final weeks of the session.  It deserves serious consideration.   On a side note, congratulations to Summit and the growing aeronautics sector, including Avmax, Cable Technologies, Sonju and the many other private companies calling Montana home.

When I read articles like this, I know why people have a hard time trusting our government.  It also underscores the publics concern about providing additional authority to state agencies, as discussed in the previous posts about the DOR.

The agents confiscated several Old West gambling items from the Cowboy Cabin, saying they were illegal — two ancient roulette wheels, two early 20th century punchboards and a chuck-a-luck. A chuck-a-luck is an small hourglass-shaped cage that spins — with three dice inside.

One roulette wheel and its table dates to the 1880s. It was fixed up to be a prop in the saloon on the CBS television series “Gunsmoke” before ending up in limbo before the Turners found it.

One old punchboard is framed behind glass. Winning punchboard combinations offer prizes such as 5 cents, a candy bar or one cigarette.

The agents marked as evidence and left a huge craps table, a blackjack table, a roulette table and an smallish craps table top — all 19th century items to be picked up later. The blackjack table is a half-circle table with green felt on top and no markings, which the Turner thought eventually would be bought as a bar for a recreation room. All the remaining gambling gear has been moved into storage in the back, except for the huge, almost unmovable craps table.

[snip]

Ron Turner said: “Some of these things are over 100 years old. These are not gambling devices. These are antiques ... It’s a historical collection. .. This never is, was nor will be a gambling establishment.”

Gambling equipment appears to make up a tiny fraction of the Cowboy Cabin’s rustic-looking stock. It has Old Western cavalry and Indians oil paintings, saddles, lots of guns, gun racks, furniture, furs, 1930s cowboy movie posters, old-time photos and a huge PG-13-rated painting of a reclining lady of likely easy virtue

 For gosh sakes, do we need a law to clarify when an antique is an antique, or can common sense prevail?  Apologize already.   

3 tax bills axed, very politically and publicly.  Editorials from major papers asking why, Shane at Netroots asking the question twice.  Jon at Montana Mainstreet obliges with their perspective.  One does not have to look far, however, to find the reasons why this issue is so polarized.  The Department wants a bigger stick, and with SB220, they're offering a carrot to get it. The problem is that old, er.. pachyderm, won't budge.  Should they?

Representative Lake makes three basic points in his editorial surrounding the house bills killed in committee: DOR wants to increase gov't when they don't need to; our tax system need to be simplified, not made more complicated; and these bills simply portray an anti-business sentiment.  The chamber provides a bit more specific response, stating DOR would be handed an unprecedented amount of authority and are frankly asking the taxpayer to do their job for them.

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.

[snip]

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

It is clear more than a few entities have skipped out on their obligation to the State of Montana by either skirting the law or outright abusing & breaking it.  They need to be dealt with.  But are these the bills to address it? What is most bothersome is the number of professionals and professional organizations which oppose the measure/s.  One would think after the issues in Revenue committee last year, work could have been done in the interim to address the problems.  One reads the article in the Gazette and BAM!

 State Revenue Director Dan Bucks said Montana's existing tax laws are simply inadequate to pursue highly sophisticated tax-evasion schemes devised by large national accounting firms, investment banks and law firms

No one likes lawyers, accountants or investment bankers until they need them.  Guess what, Montana needs them, business needs them.  As a whole, one working on behalf of their client within the law can hardly be characterized as a scheme.  A bad apple doesn't reflect on the entire orchard.

A closer look at the fiscal note of all 4 bills does include an increase in staff and operating expenses.  Whether or not they are needed is the issue at hand.  Clearly, Representative Lake believes DOR has the resources and staff to handle any increase in workload, and the administration disagrees.  Looking at the bills themselves, one wonders why DOR would even think they had a chance in a GOP controlled house tax committee.  HB100, for example, includes a statutory appropriation for the money collected, meaning that money automatically, without legislative oversight, reverts back to the Department.  They can't be surprised it ran into resistance.

On to the carrot.  Increasing the Business Equipment Tax (BET) exemption in the Senate bill is a great idea, and should be carried through as a stand alone bill, not as part of this package.  A BET bill has its own issues, such as tax shift and keeping local governments whole, or more than enough work for one bill.  Speaking of fiscal notes and GOP distrust, the SB fiscal note states it will take three (3) more FTE to deal with the BET tax reduction.  Cut taxes and add staff? Again, they can't be surprised it ran into resistance.

The GOP has legitimate issues with the bills in question, however, it is difficult to determine whether either side has made an honest attempt to discuss and possible work out differences.  On its face, the quick death and straight party line vote on the floor of the house smacks of politics.  The GOP must recognize that there are some out of state tax collection issues that need to be dealt with.  They to have a responsibility to attempt to work on solutions, and should. 

 

With all of the press on the out of state tax collection bills, there has been little from the opponents of the measures.  Representative Bob Lake's editorial on the subject was included in the last GOP ebrief.  Here is Representative Lake's editorial:

 

Governor's Tax Bills Bad For Business

By State Representative Bob Lake

Two weeks ago, the Governor held a press conference complaining that legislators had tabled some of his tax bills in the House Taxation Committee. Apparently he thought we should hold our noses and look the other way when faced with some of the worst bills to be heard this session.  Excuse me while I set my rubber stamp aside and look at the details of the Governor's tax bills.  

The tax committee's opposition to these bills should not be construed as somehow supporting tax cheaters, as some have suggested.  Nobody condones that type of illegal activity.  But to look only at that small aspect of these proposals and ignore everything else is simply irresponsible. 

There are no limitations on DOR's authority to chase tax cheats, and we fully support DOR aggressively bringing them to justice.  But the other parts of the governor's bills will have a far greater impact on honest taxpayers than on non-compliers.

Many of the Governor's tax proposals are designed to create a bloated Department of Revenue (DOR), which is the state version of the IRS.  Just look at his budget proposal to increase the DOR's size by 67 percent as an example.  As the Governor purports to go after "tax cheats" or "close tax loopholes," the real story is a massive increase in the DOR bureaucracy. 

Many legislators in the House Taxation Committee are very concerned about this move to increase the state's tax bureaucracy, especially when the state just finished collecting record amounts from taxpayers last year.

In addition to increasing the size of Montana's IRS, the governor's tax bills also make tax compliance more difficult for everybody.  If your taxes are already complicated enough, consider that the governor is proposing over fifty additions to the tax code.  He's spent a lot of time vilifying "Big Business" by insinuating that they're not paying their fair share of taxes, but the tax changes he's proposing affect everyone from the smallest individual filer to the largest corporation.  

Consider that over eighty-percent of Montanans work for small business. It's not the big guys with their teams of CPAs who are going to have trouble complying with unnecessarily-complicated tax laws; it's going to be the Mom and Pop stores as well. 

The fact is that the vast majority of tax filers are following the law.  In fact, corporate tax collections for this biennium were almost seventy-percent more than originally projected.  And it's not just business – individual taxpayers also paid more than expected in property and income taxes.  The notion that we are in some sort of fiscal crisis due to tax cheats is laughable at best, and in no way justifies the massive growth being proposed for the DOR.

I am also very concerned that the Governor's demonization of out-of-state businesses may lead to decreased investment in our state.  Fewer investors mean fewer high-paying jobs coming to our state.  Last time I checked, Montanans' number-one priority for the past two decades has been getting more good paying jobs in our state.

At a time when our state is experiencing record revenue surpluses, the Governor and the DOR should be looking at ways simplify the tax code and lower tax burdens on everyone.  All I see from them is a move in the opposite direction.  I will not sit by idly, and neither will some of my colleagues, as the Governor tries to slip these detrimental proposals under the radar of taxpayers in Montana.

Bob Lake is a Republican legislator from Hamilton and Chairman of the House Taxation Committee.

MOTTO will comment on the issue in a future post

Lets raise the hackles of all the non-believers, Local Option Sales Tax.  Unfortunately, only a handful of legislators apparently attended this discussion, however the reporting covers the subject well.

"We can focus all our energy on our biggest problems or we can focus all our energy on our biggest opportunity," said Larry Swanson, a Missoula economist. "This is vitality that needs to be harnessed."

Swanson, director of the Center for the Rocky Mountain West at the University of Montana, said major cities in the state are unable to respond to economic growth because they can't raise money for things like infrastructure and schools.

Local, voter-approved city sales taxes are one way to finance these needs, but cities can't do that without authority from the Legislature, he said.

[snip]

Swanson said with a 3 percent local-option tax, Billings and Yellowstone County could raise $12 million a year and Missoula could take in $9.6 million.

While a local-option tax often is seen as benefiting only the city where it's levied, Swanson said the money also will help the surrounding areas, which is where most of Montana's growth is happening.

It simply makes sense to invest in these areas where growth is occurring, helping it expand outward into the areas within 50 miles of major cities, he said.

"Instead, we're almost disabling local governments," Swanson said. "I can't go to a school board meeting where their backs aren't against the wall.

"In this state, we have a human resource economy, and we are disinvesting in human resources."

One can't say it any better, unfortunately the blinders on are on when it comes to this issue.  Republicans, democrats, moderates, progressives, and conservatives are too often caught up in the "anti-sales tax" sentiment that accompanies this issue.  When the issue is discussed, all that is seemingly heard is "sales tax", when the real focal point of the discussion should be "local option".

We have all heard the expression "economic development begins at the local level". however, we choose not to give them the tools, which is all the option tax is.  Local Option taxes provide revenue for specific projects and local tax relief.  Last week, a delegation from Great Falls traveled to Helena to plead for additional funding to complete the work on the Trades building.  Only 2 members of the Appropriation committee are from Great Falls.  Imagine Great Falls making similar decisons for Great Falls. 

While a number of important and needed policy legislation is making its way through the legislative process, we also see those bills which have a personal or ideological motivation working through the system.  The problem with many of these bills is that they create issues where none exist.  Unfortunately, it is a bi-partisan effort:

Representative Lange is pushing forward his parental rights language bill (HB312), which would change the wording of the constitution.  From the Independent Record.

House Majority Leader Lange said the amendment would merely formalize two Montana Supreme Court decisions dating back decades that essentially state the same things. Lange said he only added a few things to the decision: He stipulated certain things that parents have the right to “direct,” like education and religious training, and his bill states that government must have a compelling interest “of the highest order.”
[snip]
He said the amendment is not intended to interfere with laws that mandate compulsory education, be it public or private. The state has a clear “compelling interest” in making sure kids go to school, he said. He also said it doesn't pave the way for religions that may include illegal practices, like polygamy.

The bill is not needed, and a change to the constitution in this manner would most certainly create numerous issues, particularly in education.  More surprising, it is being heralded as part of the "Handshake", obstinately to carry an individual rights banner.  Wrong bill, and the GOP can certainly develop better policy statements than adding a couple of sentences to the constitution.  Ironically, should the amendment succeed, the GOP would be providing for more judicial interpretation when they can develop good law and policy themselves ( I digress).

The republicans certainly don't have a monopoly in this arena, as the democrats have positioned themselves with a number of worthy challengers.  The Montana Main Street blog (Chamber) highlights three worthy nominees:

HJ 11 urges Congress to change hundreds of years of common and statutory law by limiting corporate "personhood" rights. The resolution cites a 2005 poll which states that 90% of Americans believe corporations have too much power. That's great, but our December 2006 P-base poll shows Montanans are very supportive of businesses, including corporations. They want to see more business growth, more good-paying jobs and more budget surpluses.

SB 240 is a bill that would require corporate officers to "consider the impact of any action upon the public health, public safety, and environment" in discharging any duty for the corporation. What could be wrong with that? Just a tidal wave of new frivolous lawsuits by anti-business groups anxious to shut down your business. And it doesn't reserve this special power for the big corporations. This law would allow a person or group to sue any corporation, including family farms and ranches that are set up as corporations.

SB 242 is another attempt to break federal law by changing the confidentiality of tax records. Federal statutes require all tax information to be confidential, and there are multiple reasons for that. The Montana Supreme Court upheld the confidentiality of tax records last fall.

It is bills like these that perpetuate the stereotype that democrats are anti-business.  While these bills are not a piece of the party's platform or the Governors proposals (that MOTTO is aware of), it will be interesting to see the type of support provided by democrats in the Senate, hopefully little.  Like 312, these bills would also create more problems than they purport to help.

On a positive note, good public policy proposals are being developed by both parties, including residential property tax relief and higher education tuition accessibility. 

The Center for Enterprise Development has released an annual report grading the states' economic vitality.  Montana received an average grade:

Montana's performance on the 2006 Development Report Card for the States reveals achievements as well as challenges to be confronted. High scores on quality of life, employment, and investment in human resources are the brightest spots, demonstrating that Big Sky Country is a good place to live and work. However, poor job quality, lackluster business vitality, and low levels of financial resources threaten to eat away at these gains.

 

C	Performance
		Employment	B
		Earnings and Job Quality	D
		Equity	C
		Quality of Life	A
		Resource Efficiency	D
D	Business Vitality
		Competitiveness of Existing Businesses	C
		Entrepreneurial Energy	D
C	Development Capacity
		Human Resources	A
		Financial Resources	D
		Infrastructure Resources	C
		Amenity Resources and Natural Capital	B
		Innovation Assets	C

The Montana link identifies the state's top 19 strengths and weaknesses, including the listing of Montana as number 1 in manufacturing investment (expansion of capacity) to the the dead last (50) in three areas: job creation by start-ups; annual average pay; and , and strength of traded sector.

MOTTO hasn't had a Kawasaki post for a while, so we'll get the new year off with his latest 10 questions.  Kawasaki discusses a new business book by Chip & Dan Heath, Made to Stick.  Kawasaki will be adding the read to his must read business books.  The 12 questions provide a good feel for the book and authors.  Worth a look. 

Question: What separates ideas that stick from those that don’t?

Answer: We spent lots of time researching sticky ideas—ideas that people understand, remember, and that change the way people think or behave. The ideas we studied ranged from the ludicrous to the profound, from urban legends (no, there is no kidney theft ring) to great scientific theories (yes, the land we walk around on does ride on giant tectonic plates and when they collide they cause mountain ranges and earthquakes). We found there were six principles (“SUCCES”) that link sticky ideas of all kinds. Sticky ideas won’t always have all six, but the more, the merrier.

For example, JFK’s idea to “put a man on the moon in a decade” had all six of them:

1. Simple A single, clear mission.

2. Unexpected A man on the moon? It seemed like science fiction at the time.

3. Concrete Success was defined so clearly—no one could quibble about man, moon, or decade.

4. Credible This was the President of the U.S. talking.

5. Emotional It appealed to the aspirations and pioneering instincts of an entire nation.

6. Story An astronaut overcomes great obstacles to achieve an amazing goal.

Made to Stick: Why Some Ideas Survive and Others Die