Tax Simplification and Senate Bill 171

By George Olsen, CPA-Retired
MSCPA Legislative Committee Chair

The following was written as an OpEd piece in response to an article published in the Helena Independent Record by Charles Johnson.

I want to thank Charles Johnson on his recent article about the tax simplification bill (SB171)

George Olsen, MSCPA Legislative Committee Chair

George Olsen, MSCPA Legislative Committee Chair

brought by Senator Bruce Tutvedt.  There are some points in this legislation that I think the public needs to better understand.

There are three important elements of simplification included in this proposed legislation:

    1. Montana income tax returns would start with Federal taxable income and use the same filing status as the Federal return. Currently Montana has nearly 50 separate line items that are additions to or reductions in Federal income to arrive at Montana taxable income that are explained in nearly 48 pages of instructions for just Montana returns.
    2. The bill includes the higher Federal personal exemption of $3,950 (for 2014) to replace the Montana exemption of $2,330 and Federal standard deduction of $12,400 compared to the maximum Montana standard deduction of $8,740. The result is a lower taxable income than under current Montana law particularly for those taxpayers who use the standard deduction. There are a few required additions to and deductions from that lower income but much fewer than presently. So under this proposed legislation the new income tax form would be reduced from the current four pages to just one or two. A separate form for itemized deductions for Montana will also be eliminated since the Federal itemized deductions are already used.
    3. This bill would introduce separate tax rate brackets for married taxpayers filing jointly, head of household and single or married filing separately. The new head of household rate bracket allows single parents or others qualifying as a head of household—like a grandparent raising a grandchild—a lower tax rate than the current one size fits all rate bracket. In fact, if the new law had been in effect in 2014 a single parent with one dependent would not pay tax on about $17,000 while under current Montana law that person would pay about $180 in tax. On incomes above that amount a single parent would pay less tax under the head of household tax rates than under the current single bracket. They would likely pay tax in the 6% bracket currently while the proposed bill would lower the rate to 4.7%. Montanans with lower incomes would see a reduction in their tax.

Some are concerned that the amendments to the bill in the House Tax Committee made the bill more complicated and defeats the goal of simplification.  The key elements of simplification are still intact under the amended bill: starting with Federal taxable income and using the same filing status as the Federal income tax return. Changes in the rates and brackets do not complicate the tax return.  They only change the numbers used to calculate tax.  Restoring some of the credits does seem to complicate the process but that only complicates the process for those limited taxpayers who use the credits.

The Montana Society of Certified Public Accountants believes that the current amended bill still gives Montana taxpayers much needed simplification of the preparation of their state income tax returns.  We encourage the Legislature and the Governor to give the Montana taxpayer the ease of preparation they deserve.

So why would MSCPA, an organization of Certified Public Accountants, be in favor of tax simplification? It’s simple: tax simplification is good for our economy. It’s good for the people and businesses of Montana.

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