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Montana collects $2.1 billion in property tax, with allocations as follows: 56% to schools, 28% to counties, 11% to cities/towns, and 5% to special districts. The 6 statewide university mills stay at the state, while the 95 statewide school mills are redistributed to local community schools, accounting for 35-40% of the $1.1 billion annual state school funding distribution.
According to the latest Department of Revenue (DOR) appraisal, Montana properties have a total market value of $259 billion, spread across 18 tax and rate classes. Residential is the largest class at 76%, or $198 billion. Other significant classes include commercial properties (121,000 businesses, 92% employ 10 or fewer people), agriculture, centrally assessed, and business equipment.
The legislature sets the tax rate for each class. For instance, a $100,000 property with a levy of 500 mills would generate different taxes depending on its class: $675 for a residential home (1.35% tax rate), $945 for a small business (1.89%), $1,080 for agricultural land (2.16%), and $6,000 for centrally assessed properties like powerlines and railroads (12%).
Montana’s growing popularity as a place to vacation and live has fueled a substantial increase in home values and construction activities. Conversely, certain industries, such as timber mills and coal generation, have decreased in value, some even closed. Consequently, from 2003 to 2023, the proportion of residential properties in the total state market value rose from 57% to 76%. Subsequently, the tax share residential pays of total property taxes grew from 46% to 58%.
The number of mills levied (voted and permissive) are mainly set by local governments and schools within legal limits, factoring in newly taxable growth. From 2001 to 2022, average county property taxes increased by 6.2% per year and average school district taxes by 4.4% per year. The number of levied mills varies significantly across Montana. resulting in widely varying tax bills. For instance, a $375,000 home in Missoula pays $5,100 in taxes, whereas a similarly valued home in Ennis pays $2,400. The growth of property tax collections is a contentious issue.
Recently, some counties reduced the 95 school mills requested by the DOR to 78 mills. Schools have challenged this decision in the Supreme Court, arguing these mills have been essential for adequate and equitable school funding for 30 years. Mathematically, this reduction notably benefits large utilities and industries more than local homeowners. For example, Northwestern Energy saves $4.6 million in taxes, OneOk saves $2 million, BNSF saves $1.2 million, and a $20 million vacation home saves $5,800. In contrast, the median Montana home saves $77, in Toole County $24, and in Pondera $37, but only through 2025.
Contrary to political soundbites, Republicans did not increase the residential tax rate in 2023.
Republicans focused on property tax relief for low-income residential properties, small businesses, small agricultural operations, and reducing taxes in lower-tax-value high-student population school districts.
Lower-income homeowners now qualify for up to a 70% reduction in property taxes on the first $350,000 of home value. Small businesses and agriculture operations now receive a tax exemption on the first $1 million of business equipment. Residential property tax rebates were also authorized to more than fully offset property tax increase on most homes over the next two years. Overall, the 2023 legislature reduced taxes by over $1 billion.
There are different basic approaches: Republicans prioritize controlling government spending growth first, while Democrats propose “shifting” taxes to” big businesses” or the “wealthy.” However, most “shift” proposals I have reviewed transfer significant impact to small main street business and ag.
The complexity of Montana’s property tax system requires data-driven solutions over partisan finger-pointing. Montanans deserve better than the vitriol and chaos that paralyzes DC. A real long-term solution must begin with controlling government spending at both the state and local levels. I am committed to discussing solutions that benefit all Montanans.
