Issue is sound policy, not 'cheaters'

The halls of the Capitol and the press have been abuzz over cracking down on "tax cheaters." On its face, this is a no-brainer that everyone should support. And indeed, all legislators we know do support the idea that all tax payers should pay the amount they owe, and pay it promptly. The trouble is that the definition of "tax cheater" is so broad in this legislation that it could include you!

As advocates for Montana's thousands of tax payers, it's been increasingly frustrating for us to be constantly criticized for our opposition to the "tax cheater" legislation. All we are trying to do is stand up for sound tax policy in Montana.

We're not alone. Thirty five major employer and business associations in Montana oppose these bills. Contrary to the characterizations you may have heard, we're in no way a consortium of out-of-state, corporate interests. We're a representation of Montana businesses and taxpayers that employ Montanans. These groups have studied this issue since the last legislative session and are not influenced by out-of-state interests. Rather our concern is to keep Montana's tax system fair and to prevent the Department of Revenue from becoming a "super IRS."

The deparment's director has claimed that 70 percent of non-residents do not file taxes when due. If such a shocking figure were true, we would throw our whole-hearted support behind any effort of DOR to aggressively track down out-of-state shirkers and make them pay. However, these figures are based on a very limited study of real estate sales in only five municipalities, four of which have had an above-average influx of non-resident homeowners. The study also ignored the effects of real estate exchanges where no tax is owed. In simple terms, the 70 percent problem is based on a biased study with incomplete data. That's no way to make tax policy that affects all Montanans.

The Montana Land Title Association recently completed an independent study of 8,600 real estate transactions in 17 representative counties statewide to estimate the potential problem. This study showed that only 1.7 percent of those transactions might be out-of-state owners who could possibly owe a tax. Taking this one step further, DOR has admitted that compliance is increased by 80 percent by simply mailing a letter to the nonresidents they suspect could have tax liability. In other words, the problem isn't underhanded tax evasion; it's just that most non-residents don't know they owe tax!

When you take the 80 percent increase in compliance into account, you whittle the noncompliance potential down to one-tenth of a percent, or only 12 transactions out of 8,600. The problem that DOR has attributed to nonresidents is grossly overstated.

The conclusion from the independent study shows that there is not a problem with nonresident owners selling property and not paying taxes. The tax cheater label is simply a myth concocted by the DOR director to create a smokescreen to hide his attempt to expand his own scope and power.

DOR is seeking a 53 percent budget increase and 102 new employees. Their legislation would implement 56 new sections to our tax code and 100 changes to existing law. These are laws that all Montanans must live with. Some of these changes are not part of the federal tax code or the tax codes of any other state. Not only is it irresponsible for the DOR to be so eager to make Montana the test tube for experimental tax policy, it's also dangerous to the tax payers who may find themselves harmed by an overzealous agency on a power trip.

There are no "tax cheaters" bills before the Legislature this session. These bills are simply an outrageous attempt to carve out a fiefdom at the Department of Revenue. If they get their way, many Montanans will discover that they suddenly fit the description of a "tax cheater" and will suffer the consequences. We see through the façade they've created, and we'll continue to fight to preserve your rights.

Jane Egan and Mary Whittinghill are, respectively, the Executive Director of the Montana Society of CPAs and the President of the Montana Taxpayers Association.