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MINUTES MONTANA HOUSE OF REPRESENTATIVES 54th LEGISLATURE - REGULAR SESSION COMMITTEE ON TAXATION Call to Order: By CHAIRMAN CHASE HIBBARD, on March 9, 1995, at 8:00 a.m. ROLL CALL Members Present: Rep. Chase Hibbard, Chairman (R) Rep. Marian W. Hanson, Vice Chairman (Majority) (R) Rep. Robert R. "Bob" Ream, Vice Chairman (Minority) (D) Rep. Peggy Arnott (R) Rep. John C. Bohlinger (R) Rep. Jim Elliott (D) Rep. Daniel C. Fuchs (R) Rep. Hal Harper (D) Rep. Rick Jore (R) Rep. Judy Murdock (R) Rep. Thomas E. Nelson (R) Rep. Scott J. Orr (R) Rep. Bob Raney (D) Rep. John "Sam" Rose (R) Rep. William M. "Bill" Ryan (D) Rep. Roger Somerville (R) Rep. Robert R. Story, Jr. (R) Rep. Emily Swanson (D) Rep. Jack Wells (R) Rep. Kenneth Wennemar (D) Members Excused: None. Members Absent: None. Staff Present: Lee Heiman, Legislative Council Donna Grace, Committee Secretary Please Note: These are summary minutes. Testimony and discussion are paraphrased and condensed. Committee Business Summary: Hearing: HB 582 Executive Action: HB 506 - Tabled HB 265/497 - Discussion Only 950309TA.HM1 HOUSE TAXATION COMMITTEE March 9, 1995 Page 2 of 16 EXECUTIVE ACTION ON HB .506 Motion: REP. NELSON MOVED THAT HB 506 DO PASS. Discussion: REP. NELSON said HB 506 was a complicated issue and had been well-discussed during the hearing. REP. ELLIOTT said he was opposed to the motion because the arguments brought forward by the rental car companies cloud the real issue. They spoke about the competition with other states and he thought they could compete with other states. The talked about the price of their rental cars being higher because Montana's motor vehicle fees are higher but the price of the rental car could very well offset the pricE~ of an airline ticket in and out of Montana. They also said they could get a wider range of cars because they could pass the t:ax through to the consumer. REP. ELLIOTT said that if a customer wishes to rent a Lincoln Town Car, the customer can afford the added cost of the car. He said he had been approached by a lobbyist on the bill who indicated the main reason for supporting the bill was to be in compliance with the International Registration Program (IRP). REP. ELLIOTT said that if that was the main reason, it should have been brought up before the Committee. He said he thought this was a way to pass the cost of doing business on to the customer in a sneaky way and, on that basis, he would oppose the bill. REP. WELLS said he liked the aspect of putting companies in a more competitive position but he also suspE~cted there was profit motive buried in the rhetoric. He said he recognized that the profit would result in added tax money for the state but he didn't feel the arguments were totally valid and, therefore, he would not support the bill. REP. ORR said he had talked with Steve Galt of the Department of Transportation (DOT) who had advised him that the bill would not solve the problem they have. He said the problem is that the rental agencies have to license a certain amount of cars in Montana so they license the cheap cars in l~ontana and the expensive ones in other states. The DOT is working on a formula so more of the expensive cars will be licensed in Montana. REP. ORR said he would oppose the bill. REP. SOMERVILLE spoke in opposition to the bill because he did not like the idea of adding fees that the customers are not informed of at the time a reservation is ma.de. He said the practice was deceptive. 950309TA.HMl HOUSE TAXATION COMMITTEE March 9, 1995 Page 3 of 16 REP. RYAN spoke in favor of the bill. He said the cars are rented by tourists and would help the industry in Montana. It would also add some tax money for infrastructure. REP. REAM said he had prepared an amendment to the bill because he was concerned about the distribution of the revenue. The amendment would put 100% of the revenues into the county road fund. If the county road fund levies could be lowered, property tax could be reduced. EXHIBIT 1. Motion/Vote: REP. REAM MOVED THE AMENDMENT BE ADOPTED. Discussion: REP. REAM said the only way he could support the bill would be with the amendment. REP. NELSON agreed that the amendment would make the bill better. REP. RYAN spoke in favor of the amendment. REP. BOHLINGER said he was concerned about the distribution because the revenue would be insignificant He WOUld' support the amendrnen t . REP. ROSE said he would rather see the funds placed in the state secondary road fund instead of being returned to the county of registration. REP. ELLIOTT said only counties having rental car agencies would receive funds. He said he would vote against the amendment. Vote: On a roll call vote, the amendment failed, 12 - 6. Motion/Vote REP. STORY MOVED TO TABLE HB 506. The motion passed 11 - 7. EXECUTIVE ACTION ON HB 265/497 Motion: REP. BOHLINGER AND REP. SWANSON MOVED THAT HB 265/497 DO PASS. Discussion: REP. BOHLINGER said that he and Rep. Swanson had both sensed a need to address property tax concerns of low income and elderly people and had, independently, put together similar bills. He 950309TA.HM1 HOUSE TAXATION COMM:ITTEE March 9, 1995 Page 4 of 16 said that in an effort to simplify the effort, they had decided to bring the two bills together. REP. SWANSON said they would like to discuss the conceptual framework of the two bills and have Mr. Heiman prepare one bill for the Committee's consideration. REP. BOHLINGER said the section of HB 497 ,~hich would delay any tax increases to the second installment because it would cause problems for county officials would be omitted. He said he had asked Mary Whittinghill of the Department of Revenue (DOR) to redesign the assessment notice to make it lnore understandable and let the taxpayer know far enough in advanc.~ to plan for how to pay the increase. REP. SWANSON distributed a document which compared the two bills and discussed the differences. EXHIBIT 2. She said the bills give a broader range in each category so that more people can apply for slightly greater tax reductions. (Tape: 2; Side: 2.) REP. BOHLINGER said it is estimated that with the expansion of the program, 69,982 people would be eligible to apply. Presently 62,621 are eligible. The fiscal impact would be $1.3 million. REP. SWANSON said that through the assessment notice an effort will be made to educate people about the low income tax program. She said the bill would provide that a notice must appear on the assessment notice advising the taxpayer that they may be eligible for one of the programs and provides information on how to apply. Currently 23% of eligible taxpayers take advantage of the present program and she would like to see the percentage increased. A discussion ensued on how the schedules in the bill could be developed, taking into consideration income levels and whether the taxpayer is single, married or head-of-household. Several alternatives were suggested. REP. SWANSON said she appreciated all input from Committee Members. REP. REAM said he would like to see some data on the fiscal impact of the new bill. CHAIRMAN HIBBARD said a single bill combining HB 265 and HB 497 would be prepared and will be presented to the Committee for executive action early in the next week. The Chairman appointed Rep. Wells to work with Rep. Bohlinger and. Rep. Swanson. 950309TA.HM1 HOUSE TAXATION COMMITTEE March 9, 1995 Page 5 of 16 HEARING ON HB 582 Opening Statement by Sponsor: REP. BILL BOHARSKI, House District 79, Kalispell, said he was bringing HB 582 before the Committee for numerous reasons. The most important reason is that the Legislature, during this session, is facing a $25 million increase in spending in the public education system due to increased enrollment. Because of the passage of HB 667 in the last session, education has become a formula-driven expenditure. This bill has the potential, without cutting any services, of saving $8.5 million that could be used to reduce property taxes or for anyone of many other services. REP. BOHARSKI explained how the equalization formula works. There are approximately 8,500 parents in Montana who send their children to private schools. The bill provides that parents would receive a $1,000 tax credit against income tax, refundable if the tax liability is not that much, to help offset the cost of tuition to a private school or a public school other than the school in the district of residency. He reminded the Committee that a child sent to a public school outside the district must pay tuition and this is a very important point in insuring that the bill is constitutional. REP. BOHARSKI added that not only would the state save money, but the need for additional space in the public schools would be reduced, saving construction costs for local school districts. He explained that, under the equalization formula, $1,912 from the general fund is paid to local school districts for each student attending school in that district. If the parent receives $1,000, there would still be a net savings of $912. {Tape: 2; Side: A.} In addition to the fiscal reasons for the bill, REP. BOHARSKI said he had a philosophical belief that parents, poor as well as the rich, should have the opportunity to send their children to the academic institution of choice.