Tribal tax exemption bills work way through Legislature

Missoulian and Fairfield Sun Times

A state tax break for some tribally owned property remains under scrutiny in the Legislature.

Since 2012, the temporary tribal tax exemption has applied to tribally owned properties that the federal government is reviewing for placement into trust status. The process can take years, and the exemption’s backers maintain that the policy prevents an inefficient transfer of funds from tribal to non-tribal governments.

But other local government leaders, including the Lake County commissioners, hold that the exemption has been mismanaged by the Montana Department of Revenue and has had a far greater-than-expected impact on local coffers, shifting a tax burden worth hundreds of thousands of dollars onto other taxpayers.

House Speaker Greg Hertz, R-Polson, has brought these disputes to the state Legislature this session. He first introduced a bill that would repeal the exemption entirely. The House Taxation Committee tabled the first bill, but passed another one altering the program on Tuesday.

Both pieces of legislation have raised thorny issues in the relationship between Montana’s tribes, state government and the federal government.

When the bill repealing the exemption came up for a hearing March 13, Eric Bryson with the Montana Association of Counties cast the measure as a tightly focused one.

“This has nothing to do with tax exempt status of tribal lands,” he said. “This is a process issue and you’ll see that the process is broken.”

Lake County Commissioners Gale Decker and Bill Barron, and Roosevelt County Commissioner Gordon Oelkers, spoke in support of the measure, arguing that the exemption, and the Department of Revenue’s handling of it, came at a cost to county taxpayers. The Fort Peck Reservation is located in Roosevelt County.

But Shelly Fyant, a Confederated Salish and Kootenai Tribal Council member, argued that the trust land process, and the state exemption that complements it, aims to right a decades-old wrong.

“I don’t think I need to go into the irony here of the tribes having to pay state taxes on land that was reserved by the tribes in perpetuity for our exclusive use and benefit by the (1855) Hellgate Treaty only to be given away in violation of that treaty by the federal government, which we are now buying back from willing sellers.”

Fyant was referring to the 1910 Allotment Act, which opened up the Flathead Indian Reservation to non-tribal homesteaders and greatly disrupted the tribes’ economy and society. Decades later, the U.S. Court of Claims ruled that this act had violated the Hellgate Treaty and awarded compensation.

“It is the tribe’s opinion that the over 20 million acres we ceded to reserve our permanent homeland on the Flathead Indian Reservation, and then the federal government’s unilateral opening up of the reservation for non-Indian settlement on over half of the best lands on the reservation, fully prepaid any taxes that anyone thinks the tribes might owe,” Fyant said.

Representatives from the Fort Peck Tribal Council, the Blackfeet Nation, Montana Native Vote and the Montana Human Rights Network also spoke in opposition.

At the hearing’s end, the commission voted to table the bill, and Hertz said he was working on a bill to address both sides’ concerns.

On Friday, Hertz introduced that proposal. It kept the program in place, with revisions. It would have:

  • allowed county governments to request that the state tax appeal board review temporary tribal property tax exemptions;
  • required the department to provide annual certification to the relevant county that the property is still under consideration for a tax exemption;
  • subjected property whose trust application was denied to a “recapture” of property taxes,
  • and required the department to continue appraising property for purposes of that recapture.

The Montana Association of Counties’ Eric Bryson supported the new measure. “I think this is a really good and reasonable compromise,” he said. “I think this bill puts appropriate sideboards on it.”

But Jordan Thompson, an attorney with the Confederated Salish and Kootenai Tribes, said the CSKT also opposed this new measure.

“We certainly appreciate the olive branch the sponsor has made here by not getting rid of the exemption altogether,” he said. “But again, we note that this is still a situation where one government is suggesting to exert its tax authority from another government, from resources that would otherwise go into essential government services.”

Thompson suggested amending the bill to eliminate recapture of property taxes when a federal agency or court was hearing an appeal of trust placement, so as to not give counties an incentive to extend the already-long trust placement process. (Although Thompson did not mention this in the hearing, the Lake County Commissioners have appealed the tribes’ Big Arm Marina trust application to the Bureau of Indian Affairs.)

He also suggested restricting the “recapture” to only new exemptions filed after July 1 of this year.

“The tribes are the ones that stand to take the hit with this bill,” he said. “The CSKT is happy to work with the sponsor on any changes and we can review that with Tribal Council, but for now we oppose HB 733.”

Heather O’Laughlin with the Montana Budget and Policy Center also spoke in opposition, citing the exemption’s support and the historical impacts of allotment.

Gordy Conn with the Montana Department of Revenue, meanwhile, voiced concern about the bill’s requiring the Department of Revenue to collect recaptured property taxes. Typically, he noted, the work of tax collection falls to counties and other local jurisdictions.

Despite these objections, Hertz described the bill as “a fair proposal for everybody.”

A majority of fellow House Taxation Committee members agreed Tuesday, voting to pass the bill out of committee — but not before yet another dispute over this exemption, and the long, troubled history behind it.

“We’re talking about lands that were reserved for the tribes … and then were given away to other people or made available to other people, and as they’re trying to get them back from willing sellers, they’re being asked to pay taxes on them,” said Rep. Marilyn Marler, D-Missoula. “The whole thing seems wrong, and I’ll go so far as to say immoral.”

But Rep. John Fuller, R-Kalispell, held that “property taxes should be paid by the owner until the title changes, and in this case title hasn’t been changing for years.”

The committee passed Hertz’s bill on a straight party-line vote, with all 11 Republicans supporting it and all seven Democrats opposing it. The most recent version available on the Legislature’s website did not contain any of the amendments suggested by Thompson or Conn.