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Racicot urged to switch support to sales tax

Racicot urged to switch support to sales tax

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'We need to develop some kind of critical mass that can support some concept, whether it's the governor's value-added tax or the general sales tax.' - Bob Anderson, executive director School Boards AssociationHELENA - The Montana Tax Policy Coalition wants to meet with Gov. Marc Racicot soon to see if it can persuade him to drop his proposed value-added consumption tax in favor of a general sales tax, members decided Tuesday.

However, the coalition generally liked how Racicot proposed to distribute the money raised by the value-added tax to reduce residential and business property taxes and income taxes and believe it also could be used in conjunction with a sales tax. It will seek figures from the Revenue Department to see how much a 4 percent general sales tax will raise.

Yet there was virtually no backing for the value-added tax among the members of the coalition. Its members included representatives of the Montana Stockgrowers Association, Taxpayers Association, Innkeepers Association, Association of Counties, Education Association, Association of Realtors, School Boards Association, Chamber of Commerce, Wood Products Association, Contractors Association, Grain Growers Association and Farm Bureau Federation.

Racicot has proposed raising $376 million a year through a value-added or business consumption tax.

Unlike tagging a 4 percent sales tax on the retail price of goods and services, under Racicot's plan, every business will pay a 4 percent value-added tax on the total of labor costs, depreciation, interest and profit and in theory would be able to pass on the tax to consumers. Critics say many Montana businesses like farmers and ranchers won't be able to pass along the tax because their prices are set by international markets.

"I don't see support for a value-added tax," said Dennis Burr, president of the Montana Taxpayers Association. "It's not a consumption tax; it's a business tax."

Unlike a value-added tax, the retail sales tax is "an up-front, open proposal that Montanans are familiar with," even though "they may not be enamored of it."

Jim Peterson, executive vice president of the Montana Stockgrowers Association and coalition spokesman, said he heard Racicot and Revenue Director Mary Bryson talk about the value-added tax at the cattle group's convention last week.

"I got the distinct feeling from the governor that he's keeping the door open, but he's not quite ready to give up," Peterson said of the value-added tax.

Gordon Morris, executive director of the Montana Association of Counties, said the group must find out if Racicot is open to discussion and "whether the value-added tax is negotiable." Morris said there are some good elements in Racicot's distribution plan, and wondered if he would be agreeable to replacing the value-added tax with a sales tax.

Bob Anderson, executive director of the School Boards Association, said, "We need to develop some kind of critical mass that can support some concept, whether it's the governor's value-added tax or the general sales tax."

The coalition and Racicot need to reach some agreement on a common tax plan, Anderson said: "Otherwise, I don't see much chance of getting anything passed."

Cary Hegreberg, executive director of the Wood Products Association, said the businesses he represents add value to wood products. Racicot's economic development plan seeks to spur adding more value to Montana products, he said, yet the governor also wants to tax that added value.

"On the face of it, it seems suspicious to try to be taxing something you're trying to encourage," Hegreberg said.

Rep. Robert Story, R-Park City, vice chairman of the House Taxation Committee, said he has heard two administration presentations on the value-added tax and they change each time, unlike a sales tax that has 20 years of work behind it.

"It's a good concept if it were a national tax or in a state that had a value-added economy," Story said, but it would reduce any incentive to add value in Montana.

He encouraged the group to keep working on a sales tax, saying it would win far more support from lawmakers than a value-added tax.

Montana Education Association President Eric Feaver said his group will back a consumption tax, noting it has been behind a broad-based sa

les tax for at least a decade.

Anderson said he was somewhat surprised the administration was still pushing the value-added tax. After the coalition raised similar criticism at a meeting last month, Revenue Director Bryson said she needed to go back to the drawing board, yet is still promoting the value-added tax, he said.

"Maybe it's pride of authorship," Peterson said.

There was some debate among coalition members on whether a sales tax should be on both goods and services. Mike Foster, executive director of the Contractors Association, suggested a sales tax on goods only. Margaret Morgan, executive director of the Association of Realtors, said group supports a sales tax on goods, but was uncertain whether it would back a sales tax on services.

But Tom Bilodeau, MEA research director, said taxing goods only would cut in half the amount of revenue raised by a tax on both goods and services.

Wednesday - 12/16/98
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