Bozeman is again pushing for a seemingly all-but doomed proposal to establish a local option sales tax this legislative session.
A bill including a local option sales tax — which would allow municipalities like Bozeman to hold a vote on whether to establish such a tax — was introduced in the House, and a bill is expected to be carried in the Senate on the issue soon. Despite what Bozeman sees as a need for property tax relief and increased infrastructure funding, other local option sales tax proposals have consistently failed in the Legislature in recent sessions.
A familiar scene is expected to play out in Helena this year.
Current Gallatin County commissioner and former state representative Zach Brown said he has little optimism “about the prospects of the Legislature seeing the light on this one.” Rep. Jim Hamilton, D-Bozeman, said he would be surprised if a bill gets out of committee.
Rep. Dave Fern, D-Whitefish, who introduced a local option bill earlier this month, acknowledged doing so might be a sign he is a “glutton for punishment.”
During a committee hearing Wednesday on Fern’s bill, Rep. Mary Ann Dunwell, D- Helena, said she was at her “wits end” on the issue, and Darryl James with the Montana Infrastructure Coalition joked that a snowball in his hand “had a better chance of making it to mid-February” than the bill being discussed.
The bill was tabled on Friday.
General anti-tax sentiment from many lawmakers, concerns that the tax would disproportionately affect lower-income people or force rural Montanans and Native American residents to pay taxes when they go into town to shop without getting any of the benefits, have all sunk similar efforts in the past, several people said.
Brown, James and others said despite the low odds that a local option sales tax bill will even come to a vote on the floor this session, they feel it is essential to “continue the conversation” on the issue.
“The folks up here in Helena, and around the state need to hear that the economic engines of the state have got a problem,” Hamilton said.
A local option sales tax bill would allow municipalities like Bozeman to hold a vote on whether to establish a local sales tax. Proponents say property taxes aren’t enough to cover growing infrastructure needs, partially due to the pressure tourists put on their roads, bridges and public services.
A local option sales tax, some supporters said, would provide property tax relief and make the city’s tax structure more equitable between property owners and visitors.
“Bozeman residents, they bear an undue burden,” Bozeman Mayor Cyndy Andrus said. “When you think about the impact, particularly on infrastructure, where you have people driving on our roads daily, using our water and sewer, people that are coming in and out of town, they are not paying for the use of that infrastructure. And the citizens, the residents of Bozeman are paying for that.”
Despite the odds, Bozeman officials are working directly with Sen. Chris Pope, D-Bozeman, on a bill draft, city manager Jeff Mihelich said. Acknowledging similar efforts in the past, Mihelich emphasized that they are making a new proposal.
Bozeman is looking for half the revenue from a local option tax to go to infrastructure and affordable housing funding. The remaining half would be split between property tax relief and a “rural revenue fund” which would kick money back to rural places who may rely on bigger population centers for shopping.
Bozeman Deputy Mayor Terry Cunningham, who suggested the rural revenue fund idea, views it as a way to address oft-cited concerns from opponents that a local option tax would force rural residents to subsidize local governments spending in cities.
“It essentially says we as municipalities are willing to address the disparity issue of urban versus rural by creating a new revenue source for rural funding of infrastructure and other key projects,” Cunningham said.
Mihelich said they would want the tax to only apply to non-essential items, leaving out things like groceries or medicine.
“This is about if someone buys a very nice bottle of wine that we ask them to pay an extra 50 cents or an extra buck, to help pay for things that right now this city is extremely challenged to pay,” Pope said. “We’re stuck in a legacy rural agricultural tax structure …These are wonderful communities, and they’re providing a huge tax base to state government for our various important state services. They’re fun places to visit. But we can’t do this on the back of property taxpayers.”
Fern’s bill, HB 187, included a local option tax proposal but isn’t the same as Bozeman’s proposal.
During the hearing on that bill, elected officials from Billings and Missoula County spoke in support of local option sales taxes, but representatives from the Montana Farm Bureau Federation, the Montana Budget and Policy Center and the Montana Taxpayers Association cited familiar concerns in opposing the bill.
“Unfortunately we just see this as a transfer of rural dollars into larger communities in the form of taxes,” Nicole Rolf, Montana Farm Bureau Federation governmental affairs senior director said during the hearing.
Fern said he wants to get more tax revenue out of a huge part of Montana’s economy: tourism.
The tourism dollars spent in Gallatin County are staggering. According to the Institute for Tourism and Recreation Research out of the University of Montana, direct spending from nonresidents in 2019 totaled to an estimated $948.9 million.
Though some of that was on things that would not fall under the proposed local option tax, like groceries, 18% was spent at restaurants and bars and 16% was spent on outfitters and guides, according to the institute.
The institute’s director, Jeremy Sage, noted that tourists do pay some direct taxes, like the lodging tax and gas taxes. Sage also argued that while tourists aren’t taxed directly on other things, their spending spurs jobs and keeps businesses open, which does result in revenue from income or property taxes.
But, proponents of a local option sales tax say local governments need to be able to tap more into tourism money, which they don’t anticipate will be negatively impacted by a sales tax.
“Our nearly 4 million visitors who come through … they are used to paying the 3 or 4% tax they are looking at proposing. They are used to paying 8, 10, 12, even 15%” Bozeman Chamber of Commerce president Daryl Schliem said.
Montana already has a resort tax, which is available to tourist towns under 5,500 in population and is used by a slew of local governments throughout the state.
Whitefish, which is in Fern’s district, has used this tax since the 1990s, city manager Dana Smith said. In the most recent fiscal year, Whitefish’s resort tax netted the city $4.2 million in revenue, Smith said.
Previous proposals to lift the population cap on the resort tax or expand a local option tax to “gateway” towns near major tourism areas, like Bozeman, have failed.
“If we can justify Big Sky having a resort tax, where some of the richest people in the world live, and they subsidize their sewer and water services, why can’t we empower the voters of Billings or Sidney or Missoula to make the same decision?” said Tim Burton, executive director of the Montana League of Cities and Towns, during a House Taxation Committee hearing.
But Bozeman isn’t Big Sky. As Sage points out, tourists to Big Sky every year dwarf its residential population. Bozeman is a big population center already, which Sage said means a local tax might impact residents and in-state visitors more than a typical resort tax.
And unlike other places, proposals coming out of Bozeman often face an uphill battle in the Legislature not related to the language of a bill.
Cunningham said that the city’s record growth may lead some to believe it has “everything we could possibly need,” and Pope said he thinks people have a misconception that Bozeman has a “silver spoon.”
Hamilton said he was so concerned about that perception during the last Legislative session that he didn’t put his name on any of the local option bills he helped workshop.
Andrus, who has testified at the Legislature on local option tax bills, said she has noticed that dynamic from lawmakers in the past.
“When people say, ‘Oh it’s Bozeman,’ I think there’s the other side of that is that, yes, it is Bozeman, and we are growing… That’s good for a lot of other areas, not just Bozeman,” Andrus said. “One size doesn’t fit all, and that is why what we’re asking (for) is permission for our community to enact a local option tax. We’re not asking for every community to do it.”
While some may feel Bozeman’s growth has made lawmakers from elsewhere a bit short on empathy for the city, Andrus, Cunningham and their colleague City Commissioner Michael Wallner said growth brings its own challenges.
The city’s rapid growth is stressing the city’s infrastructure, several said, and the city’s housing crisis is pushing home prices to unthinkable levels.
“The property taxes keep going up, everything keeps going up in the city of Bozeman, except for the average household median income,” Wallner said. “We can’t just keep expecting the middle class to pay more for the cost of living here in Bozeman.”
The city is hoping the new proposal, with the rural revenue fund, focus on property tax relief and infrastructure and affordable housing, will find better favor this session.
If it doesn’t, several commissioners said they will be back next time.
“We have learned after every session where the points of friction are, and we try to eliminate those or address those,” Cunningham said. “If it doesn’t (pass), we will continue, as we do every legislative session, to try to find out what was the objection? How do we overcome that?”