Democrats says Republican candidate for governor Rick Hill supports implementing a sales tax in the state.

By Dustin Hurst | Watchdog.org

HELENA — Republican candidate for governor Rick Hill fervently denies he supports bringing a statewide sales tax to Montana, but Democrats say he does and they believe they have video evidence to back up their claim.

Hill’s campaign manager Brock Lowrance told Watchdog.org on Wednesday that Democrats pitch that line to scare voters. He added that there’s absolutely no legitimacy in the claim.

“Rick is not advocating for a sales tax for Montanans,” Lowrance said. “There’s nothing planned like that.”

But the Montana Democratic Party holds a video they say is concrete evidence Hill does, in fact, want to tax Treasure State purchases.

The grainy, wobbly video was purportedly taken June 2, 2011, and shows Hill talking tax policy with small group. He expresses he’s “often been an advocate for a sales tax as a substitute tax, not as a third rail” to the crowd.

Democrats also point to Hill’s work lobbying for a 4-percent sales tax on Gov. Marc Racicot’s behalf in 1993. The effort failed, but Democrats still finger Hill as leading the effort to bring the tax to the state.

Montana is one of five states — Alaska, Oregon, New Hampshire and Delaware  completing the group — without a statewide sales tax.

Of the video, Lowrance maintains that the boss was simply discussing policy ideas.

“Rick is not advocating for a sales tax, he is referring to the idea that if we were to have a sales tax, it would have to be a replacement tax because Rick does not believe that we should be adding another tax on Montanans,” he wrote in an email.

Lowrance took it a step further, providing an ironclad guarantee.

“If the legislature wants a sales tax, they would have to put it on the ballot, because Rick won’t sign it,” he wrote.

The Democrat attack leaves out a few important — if politically inconvenient — details. Substituting the sales tax for the income tax or property tax has real advantages, including collection efficiency and elimination of an artificially progressive tax structure. Exchange might also mean Montanans keep more cash in their pockets.

William Freeland, an economist for the Washington, D.C.-based Tax Foundation, said there might be tangible advantage for Montana to pivot from the income tax to the sales tax.

William Freeland, a Tax Foundation economist

“The sales tax is considered the most efficient tax,” Freeland said giving a nod the complexity and difficulty of collecting and properly enforcing the income tax. Businesses collect sales taxes and remit them directly to the state, a process typically needing less regulation and enforcement then income tax collection.

The sales tax, otherwise known as a consumption tax, is naturally progressive. The wealthy pay more because they have more money to spend on routine purchases and big-ticket items. Poor folks pay less because, well, they have less to spend.

The consumption tax, Freeland said, removes the artificially progressive nature of the income tax system where the wealthy pay more simply because bureaucrats and legislators say they should. Loopholes exist to re-install progressive ideals into a sales tax, but Freeland said it’s difficult.

Montana’s income tax is only slightly progressive, with all earners taking in more than $16,000 annually paying 6.9 percent, 15th highest nationally according to the Tax Foundation. Anyone earning less than $15,999 pays a smaller percentage on a sliding scale basis.

Dollars and center might dictate swap feasibility, as dropping the income tax for the sales tax would mean a sharp revenue decline for the state.

A 4-percent sales tax would generate about $400 million in revenue annually according to a 2005 fiscal note on a proposed bill to implement the tax. In 2011, the state collected $815 million in income taxes, according the Montana Legislative Fiscal Division.

Though Montanans might keep more money in their pocket through a tax swap, they just don’t have a taste for it.

In the past few years, Montana legislators rejected sales tax proposals, both local option and statewide, at least three times.

State Sen. Jeff Essman, R-Billings

The man behind the 2007 attempt to bring a sales tax to the state, Billings Republican Sen. Jeff Essmann, said his constituents living on fixed income asked him to push the law. Essmann’s bill sought a 4-percent sales tax combined with a property tax reduction.

In essence, his measure would have reduced one tax and increased another.

Freeland rejected that idea completely, instead advocating for tax replacement. Simply reducing one tax rate while rising another, the economist said, “makes it easier for government to grow.”

Essman has reversed course on the idea, aligning with Hill and Freeland. Though he isn’t interested in pursuing a sales tax anytime soon, he saod any measure to implement one in Montana would need to simultaneously eliminate the income tax.

“I don’t think the people of Montana will accept a sales tax unless it’s a replacement for the income tax,” Essmann said Wednesday. “My thinking has evolved on that.”

The Billing senator said he still believes the sales tax is a viable tool for capturing out-of-state money for Montana’s coffers. Tourists and travelers don’t pay property taxes or income taxes in the state, but they would pay a sales tax.

“Billings is a trade center,” Essmann explained. “We see a lot of out-of-state plates. People will drive a long way to trade here.”

Of course, many Billings visitors hail from nearby Wyoming, a state with a 4-percent sales tax. Those crossing the border would likely stay home if Montana implements its own 4-percent tax.

A few taxes already in place seek out-of-state bucks. A lodging fee on hotel rooms generated $17 million in 2010, while an accommodation tax brought in $12 million that year, according to the Montana Department of Revenue’s 2010 biennial report. A rental car tax brought just more than $2.8 million in 2010.

Essman said he doesn’t believe Hill would pursue a sales tax if elected.

“I don’t see them spending the political capital on that whatsoever,” the senator said.

He also said there’s no backroom whispers in the Capitol Halls about a sales tax. Essmann, a member of the Senate Taxation Committee, said if there was, “I’d have heard about it.”

Contact Dustin Hurst via email at at Dustin@Watchdog.org.