Montana Individual Tax Structure

BY CHARLES S. JOHNSONGazette State Bureau

Some nearby states such as Wyoming and Washington have no state income tax but impose a sales tax. Oregon's system mirrors Montana's with income and property taxes but no sales taxes.

Montana also has a number of selective sales or excise taxes on products such as cigarettes, alcoholic beverages, gasoline and hotel and motel rooms.

Here, using reference documents from the Montana Legislative Fiscal Division and the Department of Revenue, is a look at the main taxes paid by most individual Montanans.
Individual income taxes. Montanans pay at rates ranging from 2 to 11 percent of their Montana taxable income. The higher their income, the higher the tax rate. Taxable income is calculated by taking total income, minus adjustments, plus various additions and subtractions, to yield Montana adjusted gross income. This adjusted gross income is reduced by personal exemptions and either itemized deductions or the standard deduction to come up with the final Montana taxable income figure.

Montana is one of four states that allow individual taxpayers to fully deduct their federal income taxes from their adjusted income as they compute their taxes.

This tax is projected to raise $556.8 million in fiscal 2004 and $594.3 million in fiscal 2005 for the state general fund. Individual income taxes make up 45.4 percent of Montana's projected general fund revenue pie.

• Property taxes on homes. For this example provided by the Revenue Department, let's take a home with a market value of $100,000. A 31 percent homestead exemption is applied to reduce the net assessed value to $69,000 in tax year 2002. The $69,000 is multiplied times the tax rate of 3.46 percent, which yields a taxable value of $2,387. The $2,387 is multiplied times the local and mill levy, which is measured in mills. In this example, let's assume it's a total of 400 mills, which would provide for property taxes of $955 for tax year 2002. (Multiply $2,387 by .400.)
       Some of the property-tax levy goes to local governments and school districts, while other parts go to the state. Cities, counties, school districts and other districts, such as fire districts, issue property-tax levies. Counties are required to levy a county equalization levy of 55 mills against all taxable value of property. In addition, state law requires counties to levy a 40-mill state equalization levy against all taxable value in the state. In addition, Montana has a statewide 6-mill levy that helps fund the Montana University System.
       These levies are applied against all classifications of property, including agricultural and forest lands, business equipment and other categories. The calculations of these taxes vary by classification.
       In tax year 2000, state and local governments and school districts collected $795 million in property taxes from all classifications of property. Of that total, $305.6 million came from residential property, $125.7 million from commercial land and the balance from other sources. 
       In addition, individual Montanans pay a variety of excise taxes.

  Here's a look at a few of them:
  

• Lodging or bed tax. Montana imposes a 4 percent bed tax on the cost of hotel and motel rooms. This tax is expected to bring in $13 million in fiscal 2004 and $13.6 million in fiscal 2005.
  
• Cigarette taxes. Montana charges a tax of 18 cents per pack of 20 cigarettes, with wholesalers paying a $50 license fee and each retailer paying a $5 license fee. This tax is expected to raise $10.8 million in fiscal 2004 and $10.7 million in 2005.
  
• Gasoline tax. Montana charges a tax of 27 cents a gallon of gasoline that is expected to yield $133.2 million in fiscal 2004 and $133.9 in fiscal 2005. In all, 98.4 percent of this revenue goes for highway purposes, primarily construction and administrative costs.
  

  Montana also charges a corporate income tax of 6.75 percent times the Montana adjusted corporate taxable income. That tax will raise an estimated $65.8 million in 2004 and $71.4 million in 2005.

  The state also has a variety of natural resource taxes, including the coal-severance tax, electrical-energy tax, federal forest receipts, metalliferous-mines tax, oil- and natural-gas production tax, resource-indemnity tax, U.S. mineral royalty and wholesale energy tax.