To help address concerns about increasing property taxes, Montana policymakers are actively considering adopting “Truth in Taxation.” Mountain States Policy Center had the opportunity to meet with Governor Gianforte last year and recommended to him that Truth in Taxation would be a good property tax reform for the Treasure State to adopt. Based on the agenda for the August 16 meeting of the Montana Revenue Interim Committee, it looks like Montana policymakers agree.
According to the draft report for the Governor's Property Tax Advisory Committee:
Property taxes are an important part of the tax base for school districts, local governments, and many states. Though based on a relatively straightforward calculation, they are among the least understood taxes by taxpayers. Although there are variations in each state, the general formula for property taxes is the value of the property multiplied by the tax rate.
Too often taxpayers focus on assessed values instead of the spending decisions made by government officials when considering their property tax burden. With record property tax assessment increases occurring in states like Idaho, Montana, and Wyoming, homeowners are concerned about the potential impact on their property tax bills.
First, taxpayers need to know that assessments are just a part of the calculation. The main driver of property taxes is spending increases approved by policymakers and voters themselves through levies. This is why efforts to restrict property assessments are often misplaced and lead to other problems. The better way to control property tax increases is on the spending side and/or with levy restrictions. One way to help bring greater transparency to the fact spending is the main cause of property tax increases is with a reform called Truth in Taxation.
To bring more transparency to property tax increases, Utah was the first to adopt Truth in Taxation in 1985. Here is how the Utah Legislature describes the tax transparency process:
“The basic concept of the system is that taxing entities may only budget the same amount of property tax each year, unless they have ‘new growth’ (not just change in value on existing properties) or go through a very public process of notifying the public and holding a public hearing on the proposed revenue increase. To achieve this, as taxable values change, the tax rate automatically adjusts to provide a constant amount of revenue. When values increase, the tax rate adjusts down to provide the taxing entity the same amount of revenue as it received in the prior year. When values decrease, the tax rate adjusts up to provide the same amount of revenue.”
Utah’s Property Tax Division further explains:
“Property Tax increases require a Truth in Taxation process of public disclosure. Taxing entities are required to follow a series of date specific steps, including notification to the county, newspaper advertisements, parcel specific notices, and a public hearing, before adopting a property tax rate above a calculated certified tax rate. The timeline is different for a fiscal year taxing entity (budget cycle July 1 to June 30) and a calendar year entity (budget cycle Jan 1 to Dec 31).”
Before moving forward with property tax increases, government officials in Utah need to first fill out a “Tax Increase Checklist” and comply with the “Tax Increase Requirements” details under Truth in Taxation.
It is very encouraging to see that Truth in Taxation is now one of the formal recommendations in the Governor's Property Tax Advisory Committee’s draft report. Hopefully, this property tax reform will make it across the finish line in Montana. States like Idaho and Wyoming should also consider Truth in Taxation to help improve transparency and voter engagement on property taxes.