A property tax relief measure touted by Gov. Greg Gianforte as his signature response to widespread public angst over rising residential tax bills would lower taxes on primary residences by raising them on second homes and Airbnb-style short-term vacation rentals.

Heard before the House Taxation Committee Wednesday, the proposal drew praise from members of Gianforte’s tax task force but opposition from large businesses worried it would raise their taxes and progressive groups that want lawmakers to adopt tax measures that provide more relief to lower-income taxpayers by leaning harder on wealthier residents.

House Bill 231, sponsored by Rep. Llew Jones, R-Conrad, would also offer tax savings to landlords with long-term tenants and to smaller businesses that own commercial properties.

Specifically, the bill would divide the state’s existing residential property category into a bifurcated system, lowering rates used to calculate taxes for owner-occupied homes and long-term rentals while raising them for other residential properties.

The measure would also split the state’s commercial property category into two rate brackets, offering a lower rate to approximately the first $2 million of business value.

The Montana Department of Revenue would be responsible for tracking which residential properties qualify for the lower rates, starting with the list of properties that were granted one-off homeowner property tax rebates the past two years and shifting to an application program over time.

Jones argued Wednesday that the proposal represents a reasonable effort to provide tax relief without shifting an undue amount of tax burden onto non-residential properties. He also said he’s deliberately trying to raise property tax bills for part-time residents who use public services while living in Montana but file their income taxes elsewhere.

“Without a sales tax, it’s fairly difficult to have those folks participate in this economy,” he said.

Part of the challenge facing the state’s tax system, Jones said, is that Montana’s gradual transformation from a natural resource-heavy economy to one increasingly driven by destination tourism has eroded much of the property tax base that once paid much of the bill for local services like law enforcement and education.

Jones presented the tax committee with data indicating that the fraction of the Montana property value contained in residential properties has grown dramatically in recent decades, up to 76% in 2023 versus 29% in 1985. In contrast, the share of the tax base represented by major industrial properties has declined dramatically, down to 5% in 2023 from 23% in 1985.

By raising taxes on second homes such as Yellowstone Club mansions, the bill would in effect try to use them as a replacement for the state’s historic industrial tax base. Jones also said Wednesday that he believes offering preferential tax treatment to long-term rentals over Airbnb-style short term rentals could encourage property owners to make more housing available to permanent residents. 

Jones said he estimates his bill would reduce property taxes for about 230,000 primary residences by an estimated 17%. He also estimates that 130,000 rental properties and 32,000 small businesses would see similar reductions. MTFP estimated previously that the median residential property tax bill increased by 21% between 2022 and 2023.

The proposal drew support at Wednesday’s hearing from Gianforte’s budget office, as well as public education advocates, the National Federation of Independent Business, AARP Montana and the Montana Farm Bureau Federation.

“Ultimately it’s a solution that keeps property taxes inside the property tax system. It doesn’t require a personal income tax bailout into the property tax system,” said Ryan Evans, the assistant director of the governor’s budget office.

The bill was opposed by the Montana Chamber of Commerce and other business advocates, who worried that lower taxes on residences and small businesses would end up forcing larger businesses to pick up the tab.

Bob Story, the executive director of the Montana Taxpayers Association, testified that the bill would mean a property tax increase of at least $1,000 for more than 900 Montana companies, with several facing increases of more than $100,000.

“They’re large companies, sure, but that doesn’t mean they have all kinds of money to pay additional taxes,” Story said.

Some advocates for a more progressive tax system also spoke in opposition.

Rose Bender, a researcher with the Montana Budget and Policy Center, said she believes the bill is too generous to higher-value homes and not generous enough to less valuable ones.

“This bill needs to better target relief to low- and moderate-value homes,” Bender said.

Like other property tax relief bills heard by legislative committees this week — among them a bill that would divert bed tax dollars from tourism promotion to property tax relief and another that would offset property taxes with a state income tax credit — Jones’ bill faces a committee vote and potential amendments as the first of several hurdles it must clear en route to the governor’s desk.

Gianforte said during his Jan. 13 State of the State address that he wants to be able to sign the measure into law by mid-February so the state Department of Revenue can implement its provisions this year, a timeframe that would require it to advance rapidly through the Montana House and Senate.