State sales tax rejected again

Montana State Roundup

Published July 1, 1993  | July 1993 issue

For the second time in 22 years, Montana voters, by a 3 to 1 margin, said no to a state sales tax, crushing the governor's plan for an across-the-board state tax reform package.

Despite assurances that the sales tax was not an add-on to the present tax structure, but part of a total tax restructure, Montana remains one of five states without a sales tax (the others are Alaska, Delaware, Oregon and New Hampshire).

Governor Marc Racicot had hoped to raise an extra $47 million through the sales tax. Other changes in the tax law were aimed at broadening the state's tax base and creating a more competitive business environment by cutting property and income taxes.

Now that the sales tax is dead, a new battle looms over the Legislature's fallback plan to raise an additional $32.4 million from income taxes to meet projected budget needs in fiscal 1994. The income tax plan goes into effect July 1 and includes a flat income tax rate of 6.7 percent instead of a graduated rate; it eliminates itemizing, increases standard deductions and personal exemptions for dual earners and includes some easing of corporate tax and a reduction in property tax.

But even that plan isn't a sure bet. Rob Natelson, a University of Montana law professor and chairman of the Missoula-based Montanans for Better Government, heads a petition campaign to suspend the new income tax plan until it can be voted upon in November 1994. Natelson claims that increased taxes have destroyed jobs and reduced wealth.

If the petition drive is successful and the state reverts to pre-1993 legislation, a special legislative session will be called to cut roughly $72 million in spending to balance the upcoming biennium's budget.

But some say balancing the budget is not enough. "Business as usual just won't work any more," says Stanley Nicholson, formerly with the Brookings Institution in Washington, D.C. As director for the Montana Community Fiscal Discussion Project, Nicholson travels the state to help city and county officials increase their understanding of fiscal responsibility at the local level. Any serious changes in state taxes and funding of government operations, Nicholson says, must begin with better understanding at the local level.

Kathy Cobb