(The Center Square) – Montana state government adopted three bills that "represent a transition to a simpler, more pro-growth tax regime," the nonprofit Tax Foundation said Monday in a new analysis of the reform measures.
Senate Bill 159 reduces the top marginal income tax rate from 6.9% to 6.75%. Because the state's top marginal rate kicks in at annual income of $18,700 for both individual and joint filers, most taxpayers in Montana will benefit.
Senate Bill 399 simplifies the state's seven-bracket income tax system into two brackets, with the lower bracket increasing to 4.7%, and conforms with federal tax policy in determining taxable income by incorporating the federal standard deduction.
"Although the lowest rate rises to 4.7 percent, up from 1.0 percent, conforming to the federal standard deduction ($12,400 last year, compared to Montana’s current standard deduction of $4,790) yields tax savings for low-income taxpayers as well," the Tax Foundation concluded. "For instance, a taxpayer making $20,500 a year – the point at which the new second bracket would kick in – would have paid $783 in taxes last year under the current system, but only $381 under S.B. 399 had it been in effect that year. Savings would be magnified for dual earning families since the legislation also eliminates the state’s marriage penalty."
Senate Bill 399 also eliminates 16 income tax credits, "indicating a move away from a more complex system to a simpler one featuring lower rates," the foundation says.
And Senate Bill 376 "replaces the state’s equally weighted three-factor apportionment formula for corporate income tax with a double-weighted sales factor apportionment formula, following a trend of states weighting sales more heavily for apportionment purposes."
This will reduce the tax burden for companies whose operations mostly are within the state, according to the foundation.
"Taken together, these three bills represent a transition to a simpler, more pro-growth tax regime," the Tax Foundation concludes. "The combined annual revenue loss will be about $60 million, about 1 percent of the state budget and about 2.3 percent of general fund revenues. The state’s general fund revenues grew modestly in FY 2020 despite the pandemic and is running substantially higher in FY 2021 with forecasts showing additional growth in subsequent years, which should provide fiscal space for these tax cuts to be implemented out of revenue growth."