BISMARCK – The North Dakota State Legislature has combined all the tax relief ideas into one bill which passed the House Wednesday afternoon and the Senate Wednesday evening. Much debate was had on both floors with both Republicans and Democrats expressing dissatisfaction in the final package, though most still voted for it.
House Bill 1158 originally left the House as a one and a half percent flat income tax. The Senate amended it to be more comprehensive, adding two components of property tax relief, which were a 20-mill levy buy down and a Homestead Tax Credit increase. The bill is $515 million of direct taxpayer relief.
Section two is effective for the first two taxable years beginning after December 31, 2023. Sections one and four are effective for taxable years beginning after December 31, 2022. Section three becomes effective on April 1, 2024 and is effective through June 30, 2026.
Section one deals with the HTC which is for those 65 years old and older and those who are disabled. The conference committee on the bill, made up of members from the House and Senate, changed the HTC from five different income brackets to two. If an eligible senior or person with a disability makes less than $40,000 a year, they will receive a reduction of 100% or a maximum of $9,000 in their taxable value. For income levels between $40,000 and $70,000, eligible taxpayers will receive a reduction of 50%, max $4,500, in their taxable value.
In section two of the bill, the conference committee created the Primary Resident Tax Credit, which would provide a credit of up to $500 for every primary resident in the state.
The conference committee compressed North Dakota’s current five brackets down to three, with a zero-tax up front for incomes up to $44,725 for a single person and $74,750 for a married couple filing jointly. Those in the second bracket, between $44,725 and $225,975 for single filers and $74,750 and $275,100 for married filers, would be taxed at 1.95%. For those over $275,100, the tax rate is 2.5% on the dollars over $250,000.
“I’ve got to tell you, this was not an easy process to walk through and it’s evident by the 13 meetings that it took for us to come to an agreement on this package,” said the Chairman of the House Finance and Taxation committee, Rep. Craig Headland, R-Dis. 29, Montpelier. “The more I dig into this package, the more I learn about it. This is a really good bill.”
Headland said the House has primarily focused on income tax relief and the Senate property tax relief, which he said he understands since property tax is a far more prominent complaint from taxpayers than income tax. The committee added a study to look into all the data to decide what is the right way to do tax relief.
“It’s difficult, unless you work with it, to really understand what you’re looking at, if you’re not looking at it on a regular basis,” said Headland.
Headland added that if you’re 65 years old or older and qualify for the HTC in Bismarck with a $400,000 home, the current property tax would be $4,575. Under HB1158, that same home’s property tax would be $1,787. For those in the next income bracket in the same home, the bill would provide a reduction of about $1,600 in property tax. The new HTC would cover about 21,000 homes, 10% of primary residents in the state. Headland said the income tax relief in the bill wipes out the taxes for over 150,000 tax filers in the state.
“Now that’s real tax relief,” said Headland. “Does this bill have areas that we can improve upon? Absolutely. We’re going to find out what those are during the interim. There’s only so much that you can do in the last days of the session.”
Rep. Larry Bellew, R-Dis. 38, Minot, expressed dissatisfaction with the bill, saying the state received a $2.7 billion surplus in the last two years.
“I was excited when I heard that number,” said Bellew. “Not because of how much we can grow government, but because we now have the ability to let the wonderful citizens of our great state keep more of their hard-earned money.”
Bellew said the legislature originally started with a little over $1.2 billion in both income and property tax relief.
“Now on day 72, we are presented with a package of $515 million, which is a mere 19% of the surplus, and 81% to grow the government,” said Bellew. “I am saddened that we are letting our citizens keep so little of the surplus.”
Bellew said the income tax relief in the bill amounts to $358 million of the tax relief. He said the property tax relief in the bill is temporary and amounts to $157 million.
“To me this is anti-family,” said Bellew. “The marriage penalty in this bill makes the income tax reduction part of this bill unacceptable to me.”
Bellew said the people of the state and his district want property tax relief, not income tax relief.
“We have not accomplished that this session,” said Bellew. “Nobody in my district has asked for income tax relief. But I’ve had numerous requests for property tax help. Yet 70% of this bill is income tax relief.”
As far as property tax relief for everyone goes, Bellew said it’s “a mere $500” and there is none for businesses. He added that the application process for it is complicated.
Sen. Tim Mathern. D-Dis. 11, Fargo, said on the Senate floor that he appreciates some of what the committees did in the package but hoped it would be sent back to the conference committee. One of his concerns was that he felt the package is relying too heavily on the inflow the state receives from oil tax.
“If a church receives a really big gift, they feel there’s less money they need to take from the churchgoers, but when that big gift is gone, they’ve all learned not to give regularly,” said Mathern. “I’m a little bit concerned that this income tax piece does this for us.”
Mathern repeated Bellew’s concern that hardly anyone asked for income tax relief, but most want property tax relief.
HB1158 passed the House 84 to 6, and the Senate 45 to 2. The bill will be sent to Gov. Doug Burgum who has expressed his support for the tax relief.