Where credit is due: Montana lawmakers take first jabs at affordability with tax relief

HELENA – What Gov. Greg Gianforte called "the affordability crisis" in his State of the State address is taking center stage during the first few weeks of the 2025 Montana Legislature. Both the governor and lawmakers are leaning on tax reforms as a tool to keep more money in Montanans' pockets.

But taxpayer advocates and watchers of the state budget question whether tax breaks can do enough to address the issue.

One type of tax relief especially has been getting attention during the legislature's discussions on affordability – tax credits. And while using tax credits is not a new concept or a silver bullet, some lawmakers and state leaders believe it could provide needed relief.

These programs offer taxpayers options for paying less when it comes time to file their taxes. Credits are often used to influence taxpayer behavior, like House Bill 408, passed in 2023. The bill introduced two tax credits available to taxpayers who donated to scholarship funds or public school districts.

Three bills aimed at relief for the individual taxpayer, both in property and income tax, are scheduled to get their first hearings early in the 90-day session, which kicked off on Jan. 6:

• House Bill 154: The Housing Fairness Tax Credit, providing low-income households with property tax support and expand on the existing Elderly Homeowner and Renter credit.

• House Bill 163: A hand-up on income taxes for registered healthcare providers who teach medical students.

• House Bill 220: A proposed $1,200 income tax credit for families with children 5 years old and younger.

HB 154 and 163 are scheduled for committee hearings on Jan. 21. HB 220 has not yet been scheduled.

Much of the debate when it comes to affordability centers on the rising cost of housing. An April 2024 analysis by the National Association of Realtors ranked Montana as the most expensive place to buy a home across all incomes. According to the Montana Association of Realtors, the state's median home sale price rose from $266,473 in 2018 to $505,419 in 2023. And with higher home prices can come higher property taxes.

Heather O'Loughlin is the executive director of the Montana Budget and Policy Center. She said the existing Elderly Homeowner and Renter Credit, which HB 154 plans to expand, is a program the organization continues to support and will support this session.

But O'Loughlin said not all tax credits are as effective.

"We have really tried to look at who is benefiting and what tax brackets it's reaching," O'Loughlin said.

She said these programs can be an excellent mechanism to incentivize certain behavior, but should be tailored to groups who need it most.

Allen Lloyd, the Executive Director of the Montana Society of Certified Public Accountants, said more tax credits would just further complicate Montana's tax code.

Lloyd said his organization has always opposed tax credits and in 2021, lobbied for Senate Bill 399, which upon passing eliminated 15 tax credits.

"We'd love if taxpayers could complete their returns on their own," Lloyd said. "We're not against the state doing things for these issues. We just don't want to see it done in the tax code."

Tax credits aren't limited to individual taxpayers. House Bill 21, currently being discussed by the Senate, would provide support to developers building affordable housing.

Beyond complicated individual returns, Lloyd said housing development tax credit programs like HB 21 proposes often lose financial impact - developers aren't looking for a ten-year credit, but rather an up-front sum.

"If the state is sending out $1.5 million in credits, developers are selling those to banks at a discount," Lloyd said. "Instead of $1.5 million, maybe $1.3 million is actually being put into these projects."

Lloyd suggested that the state starts a grant program - money goes directly to the Board of Housing and then to developers.

Bob Story, Executive Director of the Montana Taxpayers Association, said while these initiatives can help bridge the gap, their help can be subjective and are not a valid long-term solution.

"I'd be surprised if homeowners think any of the proposals now, when put into effect, would be of any effect to them," Story said.

Story said the state needs to stop funding so many programs with property tax - the Montana Taxpayers Association has supported a sales tax for years.

"It'll someday come when someone gets a constitutional amendment to severely limit the level of property taxes," Story said.

That often radioactive idea of implementing sales tax is floating through the Capitol chambers, as it has for years. One bill is currently being drafted, but it is unclear whether this year's climate can push it over the finish line.

Clayton Murphy is a reporter with the UM Legislative News Service, a partnership of the University of Montana School of Journalism, the Montana Broadcasters Association, the Montana Newspaper Association and the Greater Montana Foundation. Murphy can be reached at [email protected].