Gianforte Pitches Further Business Equipment Tax Reduction In State

A bill implementing Republican Gov. Greg Gianforte’s push to further reduce Montana’s business equipment tax saw its initial hearing Thursday, drawing support from business and agricultural groups.

The proposal, Senate Bill 322, would raise an existing $1 million exemption threshold to $3 million. That means businesses with less than $3 million worth of equipment such as tractors or industrial machinery would be entirely excused from paying taxes on their equipment and businesses with more property would be exempt from the tax for the first $3 million of their holdings.

“The business equipment tax forces businesses, including family farms and ranches, to take resources which they would’ve otherwise used to invest in their operations and create jobs, to pay an annual tax on all of their equipment and machinery they need to operate,” Gianforte said at a March 20 press conference.

The business equipment tax is structured as a property tax, meaning equipment is fed into the same tax system that’s used for homes and commercial buildings, with most of the collections going to fund local services such as schools and law enforcement.

The equipment tax has, however, been scaled back repeatedly over the past several decades, with Legislatures during both Democratic and Republican governor administrations cutting the effective tax rate and ratcheting up the exemption threshold.

A bill signed by Democratic Gov. Steve Bullock in 2013, for example, raised the exemption threshold to $100,000. According to a news report from the time, that shift exempted between 10,000 and 11,000 of the 17,000 businesses then subject to the equipment tax. Gianforte has signed further exemption increases out of each of the state’s last two legislative sessions, increasing the threshold to $300,000 in 2021 and to $1 million in 2023.

While business equipment was about 13 percent of the state’s property tax base in 1996, according to archival figures from the Montana Department of Revenue, it was reduced to 4.8 percent as of 2023. (Over that same time period, the residential share of the tax base grew from 35 percent to 58 percent).

When touting the 2023 threshold increase, Gianforte’s office said it would exempt 5,000 additional businesses from the equipment tax. He says this year’s proposal would exempt an additional 700 businesses.

A fiscal analysis of this year’s equipment tax bill developed by the governor’s budget office indicates it would reduce the equipment portion of the statewide tax base by about 9%. The bill would use state dollars to backfill the resulting hit to city and county collections at a cost of about $5.6 million a year, but it won’t offset the difference for school taxes. As a result, the analysis estimates the measure would push some school taxes onto homes and other non-equipment property, producing an average increase estimated at 0.35 percent.

SB 322 sponsor Sen. Josh Kassmier, R-Fort Benton, argued at Thursday’s bill hearing before the Senate Taxation Committee that the business equipment tax is unduly burdensome for farmers given that agricultural equipment now commonly costs as much as $1 million dollars for a combine. “It’s kind of an annual sales tax,” Kassmier said.

Other supporters who testified at the hearing included Revenue Department Director Brendan Beatty, who appeared on behalf of the governor’s office, as well as the Montana Grain Growers Association, the Montana Taxpayers Association, the Montana Stockgrowers Association and the Montana Chamber of Commerce.

An opponent, Rose Bender with the Montana Budget and Policy Center, argued that the bill isn’t fair to homeowners given how their tax bills have grown relative to business equipment taxes over the past quarter-century.

“The vast majority of businesses are already exempt from business equipment tax — and this bill serves to provide yet another tax cut for large businesses at a cost to the state and local property taxpayers,” Bender said.

Gianforte, for his part, argued at the March 20 press conference that the equipment tax is bad for businesses in part because the tax comes due regardless of whether the equipment is currently in profitable use. He also said the task of inventorying equipment to calculate their tax bill is an undue administrative burden on many businesses.

“This is a really, really bad one,” he said.

Gianforte did, however, say that he doesn’t envision eliminating the tax entirely, as opposed to bumping up the exemption threshold to a point where the remaining taxpayers are larger companies such as major industrial operations.

“The goal is to get all the small businesses off this tax,” he said.