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.

MOTTO has generally steered away from the debate regarding Highwood Generating Station (HGS) coal-fired power plant.  Over the past year, the issue has grown in a fairly significant way in North Central Montana.  It is certainly no secret that I support energy development and generation, including coal, wind, and ethanol, all of which at one time or another was (or is) to have a positive effect on the region.  The HGS debate has evolved, and now appears to have very distinct (& divisive) avenues of thought.

The pro HGS factions include

• Government: City, County, School District, Airport Authority
• Larger business
• Rural Co-ops
• Economic development & pro-growth advocates
• Public power advocates

Those opposed are distinct as well

• Anti-coal generation, period
• Pro- clean/green alternatives, such as wind
• Process driven opponents concerned with government & tax payer dollar involvement
• Combination
• The PSC & Northwestern Energy

Public power versus "clean/green" energy versus government accountability versus the state's default supplier.  There are plenty of issues to discuss.  Electric City blog has taken on the government accountability issue very substantially.  Groups have formed specifically to oppose the coal aspect, and the city has continued to advocate amidst the negativity.  What has been lost in the discussion is the public power debate.  Hopefully an examination of these issues will illuminate both sides of the discussion.  More to follow.       

The tax credits for transmission of & clean coal technology have the support of key democrats & republicans, as evidenced by the amendments to bills in the house & senate tax committees.  Good news for democrats & the Governor, and perhaps a bit premature for the republicans.  Who plays poker and shows their hold cards before the turn? The house R's blinked.

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. 

Montana Main Street posts on the veto of HB469, A bill carried by Representative McNutt which "clarifies" the tax assessment rate of wireless property.  Simply, the bill allows such property to be assessed as class 4 & 8 property (a tax rate of 3%) rather than centrally assessed class 13 property (a rate of 6%).  It has been recent practice that such property been classified as 4 & 8, or the 3% rate.  The bill passed with bi-partisan support in both houses, on its face enough to override a veto, should the yea votes remain solid.  Lets examine the issues.

Montana Main Street contends it was DOR's intention to reclassify such property

There are two negative consequences to the governor's veto. First, raising the taxes of the wireless companies will discourage development of new cell towers, especially in areas with spotty reception like Eastern Montana. Do we really need to raise taxes during a time of record tax collections?

The second consequence is that this veto signals the administration's intention of doing similar "reclassifications" on other businesses. In short, more businesses will see their taxes go up. This is not a result of legislative action, but crafty new legal theories cooked up by the DOR. The administration wants to bring more companies into the centrally-assessed category in order to raise taxes. So, any business with multiple locations around the state should be very worried about changes coming their way.

The executive contends the bill was vetoed (Governors veto letter) for a variety of reasons, including a legislative audit, which exposed the error

Rather than “clarifying” current law, HB 469 ratifies the unlawful practice of prior Administrations, which failed to properly implement the tax laws enacted by the Legislature. As concluded by the Legislative Auditor, it was a mistake for past Administrations to grant millions of dollars of tax breaks to wireless telephone companies, contrary to Montana statutes and at the expense of homeowners, farmers, ranchers, and other businesses. HB 469 ratifies the past unlawful practice and rewards past mistakes. However, let me be clear. HB 469 does not “clarify” current law. HB 469 changes it.

Indeed, the legislative auditor did recommend to centrally assess such property (recommendation #7, summary page 3).  Additionally, the Governor stated education and local governments are at risk because of the past practice.

As a final addendum, I unfortunately must also let you know that this past practice has created financial risks for local governments and schools. It is likely no coincidence that on the day after HB 469 was transmitted to my office, Montana’s largest telecommunications company filed a constitutional complaint to the tax methods endorsed by this bill. That challenge is based on a claim of discrimination due to the more favorable treatment of wireless phone company property as compared to traditional landline telephone property under the practice adopted by past Administrations. HB 469 thus attempts to engrave into Montana statutes what has been alleged as a constitutional discrimination claim in a formal legal proceeding.

Certainly, the potential threat of a further loss of property tax revenue at the local level from a land line telecommunications lawsuit legal proceeding is disheartening. 

Having been one of the few who has been on the receiving end of a Governors veto, with a veto proof vote, that ultimately was not overturned, I must admit I was initially very skeptical of the veto.  However, the legislative audit recommendation and lawsuit legal proceeding certainly provides compelling evidence for one to examine and contemplate all available information. Finally, a couple of questions remain to be answered. 

1. One can assume these issues were fully debated, discussed and investigated in committee and by both houses of the legislature.  The vote was striking.  If these issues weren't discussed (unlikely), why?  What reasoning did the committee and our legislators utilize in determining their position? 

2. What was the historical reason initially for assessing as class 4 & 8?  Why & how did it differ than land based telecommunications?

3. Loss of revenue that has been placed on local homeowners, past & future

4. Worst case scenario, does the pending lawsuit legal proceeding potentially threaten to change all telecommunication assessments currently assessed from class 13?

5. Is this considered a tax increase?

 Democratic legislators will find it difficult to vote agaist the veto inlight of the strong veto letter.  This issue, however, will not go away.  Should the veto stand, the issue will certainly be raised again, and these very issues will need to examined very closely.    

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.

Earlier MOTTO posts discussed Schweitzer political savvy when it came to proposing his anticipated energy bill.  A press conference discussing tax breaks for green energy, clean coal technology, transmission, and a free consumer license fees were probably enough to quiet the impending political storm regarding the  tardiness of the bills introduction.   While politics was able to provide a calm, it couldn't change time.  When the bill was finally ready for committee discussion, politics couldn't place the proverbial "lipstick on a pig" when the pigs handlers weren't in the seats.  (Democratic tax committee members absent and without proxies...whoops).  It is hard enough to place 50+ substantive amendments on a complex bill with time and numbers, impossible at the last hour.  Politics may move this bill forward,  continued political errors will kill it. 

Thus the blast motion and subsequent vote.  Motion fails 25-25, with the Chairman of the Tax Committee voting nay.  Enter politics once again, this time bring in the big guns and local issues:

"This thing isn't necessarily dead if you have some Republicans who wake up tomorrow morning and decide they support economic development," he said. "I'm passionate about Montana leading in clean and green energy, and this was the vehicle to do it. I suppose it's not a surprise that Republicans did not develop energy over the last 20 years."

The bill, he said, would spur $2 billion worth of economic development and create 2,000 jobs, Schweitzer said.

He said he may have to go on radio stations in Shelby, home of Republican Jerry Black, where a $500 million wind-power project is tied to a transmission line that depends on the tax breaks the bill would provide. Or, Schweitzer said, he might have to take the message to Roundup, home of Republican Sen. Kelly Gebhardt, that stands to lose a $2 billion coal gasification project if the bill doesn't pass.

"They probably know and understand what's at stake," the governor said of the Republican senators. "There's a chance they'll start working for the folks back home and not the lobbyists in this building."

Gloves off, politics raising its uglier side as political posturing moves to political threats.  This is what happens when time expires.   Policy development cannot occur in a vacuum, particularly in the midst of one of the most partisan sessions in recent memory. 

Regardless, the proposals (sans free license fees) deserve further consideration.  Taking a closer look at the tax credit concepts is possible in the always stingy House tax committee.  A solid conference committee or even a joint subcommittee once to the house can provide further scrutiny, due diligence, and a more thorough review and consideration of needed amendments. 

And the threats?  Not necessary.  Senators Black & Gebhardt had nothing to do with the late introduction and problems associated.  That lies with the Executive.  Blame thyself, make amends, and get the proposal across to the House for the work as previously noted.             

Montana is in line to lose 50 missiles as part of Malmstrom's mission.  When this issue has been raised before, and with the BRAC (closure) looming past and present, Great Falls and Central Montana has not seen support from our sister communities, such as Missoula.  As a matter of fact, the Missoulian has been quite vocal in editorializing against the missiles and monies needed to save that mission and attract others.  While it is hopeful they will remain quiet and supportful now that a loss of the 50 missiles looks more likely, it is unlikely.

Opponents of the missiles include peace advocates.  Although I disagree, I can appreciate their position, and this post is not about them or any peace or anti-war movement.  As distasteful as it might sound to some, supporting the missions of Montana's Air Base is as much about economics as it is national defense.   It is no different than the prison to Deer Lodge or Shelby, the Universities to Missoula and Bozeman, or State Government operations to Helena.  Roads, schools, local government, and businesses have a stake in the vitality of Malmstrom.  That vitality includes maintaining current missions and operations, as well as adding new ones.  Additionally, Malmstrom provides statewide impact, from business dollars to fire suppression, to search & rescue. 

Montana's congressional delegation will stand together in a bi-partisan fashion in support for Malmstrom and current & future missions.  Communities around the state must also join with our delegation & central Montana and do the same. 

   

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