What you need to know about the Business Equipment Tax debate

bull dozer

There are a number of bills before the Montana Legislature looking to lower the Business Equipment Tax in some way.

And the key words to remember are threshold and exemption.

Community News Service Reporter Amy Sisk and I talk through it:

Wednesday the House Taxation Committee heard Governor Steve Bullock’s proposal. It would increase the tax’s threshold from $20 thousand to $100 thousand. That means a company would not have to pay tax on the equipment they buy until they cross over that $100 thousand mark. (The definition of what constitutes business equipment is quite broad, pretty much everything except livestock and real estate.)

“We believe this bill is a keystone to creating jobs across the state of Montana,” Governor Bullock’s Budget Director Dan Villa told the committee. He says the measure would eliminate the tax for about 11-thousand small businesses.

Big Dipper Ice Cream in Helena is one of the businesses that pays Business Equipment Tax now but would not have to with the higher proposed threshold. Owner Anna Doran says she would put that extra money toward “expanding my wholesale business and paying my Seniors (more) who are starting college next fall.”

Several business groups like the Montana Chamber of Commerce also spoke in favor of the Governor’s Proposal, calling it a “step in the right direction.” Yet, they also said they would support Business Equipment Tax bills put forth by Republicans which create a tax exemption.

So, what’s the difference?

If a taxpayer crosses a threshold, they would need to pay tax on their full amount of business equipment.  as skeptical Representative Brian Hoven (R-Great Falls) put it, “If we have $99,900 in business equipment…we will pay no tax, but if we have $100,001 we will pay tax on $100,001.”

With an exemptionsay of $100-thousand again, the company would only pay tax on the business equipment purchased after crossing the $100-thousand mark. In the scenario put forth by Rep. Hoven, the business owner would pay tax on that $1 of the $100,001.  Representative Jerry Bennett (R-Libby) has a bill in the works to create an exemption on equipment purchased up to $250-thousand. Republicans argue this method would help more businesses.

Representative Mary McNally (D-Billings) is sponsoring the bill containing the Governor’s proposal. She says raising the threshold more fiscally responsible. Lawmakers  have lowered the amount of the Business Equipment Tax the past few Legislative Sessions. It will lower again from 2-percent to 1.5-percent this year. “We have been steadily decreasing this tax and increasing the amount we are taking out of other sources to make governments and schools whole.”

In the mid-90, the Business Equipment tax was 9-percent with no threshold.

In 2012, the Business Equipment Tax brought in more than $88 million to state government. It goes mostly to schools and local governments.

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