2007 Montana Legislature

UNAPPROVED DRAFT BILL -- Subject to Change Without Notice!

BILL NO.

INTRODUCED BY

(Primary Sponsor)

A BILL FOR AN ACT ENTITLED: "AN ACT GENERALLY REVISING THE TAXATION OF INDIVIDUALS, CERTAIN MEMBERS OF PASS-THROUGH ENTITIES, AND TRUSTS AND ESTATES; ALLOWING INDIVIDUAL TAXPAYERS TO ELECT AN ALTERNATIVE METHOD OF DETERMINING TAX LIABILITY; PROVIDING THAT THE ELECTION IS IRREVOCABLE; GENERALLY REDUCING TAX LIABILITY UNDER THE ALTERNATIVE METHOD; PROVIDING ADDITIONAL INCOME TAX RATE REDUCTIONS UNDER THE ALTERNATIVE METHOD IF INDIVIDUAL INCOME TAX COLLECTIONS IN A FISCAL YEAR EXCEED THE AMOUNT ESTIMATED BY THE LEGISLATURE BY A CERTAIN PERCENTAGE; REQUIRING THE STATE TREASURER TO CERTIFY INCOME TAX COLLECTIONS FOR THE PURPOSE OF PROVIDING ADDITIONAL TAX RELIEF; ELIMINATING THE DEDUCTION FOR FEDERAL INCOME TAXES PAID FOR TAXPAYERS ELECTING THE ALTERNATIVE METHOD OF TAXATION; ELIMINATING CERTAIN TAX REDUCTIONS, DEDUCTIONS, AND CREDITS FOR TAXPAYERS ELECTING THE ALTERNATIVE METHOD OF TAXATION; DISALLOWING THE CARRYFORWARD AND CARRYBACK OF CERTAIN CREDITS FOR TAXPAYERS ELECTING THE ALTERNATIVE METHOD OF TAXATION; MAINTAINING THE TAX EXEMPTION OF AMOUNTS CONTAINED IN CERTAIN SAVINGS ACCOUNTS FOR TAXPAYERS ELECTING THE ALTERNATIVE METHOD OF TAXATION; ALLOWING MARRIED TAXPAYERS WHO ELECT THE ALTERNATIVE METHOD OF TAXATION AND WHO FILE SEPARATE MONTANA RETURNS TO USE FEDERAL DETERMINATIONS OF ADJUSTED GROSS INCOME IN DETERMINING MONTANA ADJUSTED GROSS INCOME FOR CERTAIN INCOME ITEMS; AMENDING SECTIONS 7-21-3710, 15-30-101, 15-30-103, 15-30-105, 15-30-111, 15-30-112, 15-30-121, 15-30-122, 15-30-125, 15-30-126, 15-30-128, 15-30-129, 15-30-130, 15-30-135, 15-30-137, 15-30-142, 15-30-154, 15-30-156, 15-30-163, 15-30-164, 15-30-166, 15-30-180, 15-30-182, 15-30-183, 15-30-184, 15-30-185, 15-30-186, 15-30-187, 15-30-189, 15-30-201, 15-30-313, 15-30-1112, 15-30-1113, 15-31-131, 15-31-133, 15-31-134, 15-31-137, 15-31-151, 15-31-162, 15-32-109, 15-32-115, 15-32-201, 15-32-202, 15-32-303, 15-32-402, 15-32-404, 15-32-602, 15-32-603, 15-32-610, 15-32-701, 15-32-702, 15-32-703, 15-61-202, 15-62-207, 15-62-208, 15-63-202, 17-6-316, 33-22-2007, 80-12-211, 90-8-202, AND 90-10-303, MCA; AND PROVIDING AN APPLICABILITY DATE."

WHEREAS, during the 2003 Legislative Session, the Montana Legislature, in Senate Bill No. 407 (Chapter 544, Laws of 2003), revised the individual income tax system by reducing marginal income tax rates and collapsing individual income tax brackets; and

WHEREAS, the intent of the revision, among other things, was to eliminate the perception that Montana was a high income tax state;

WHEREAS, the new top marginal tax rate applies to a low level of taxable income;

WHEREAS, Senate Bill No. 407 eliminated one-half of the deduction for federal income taxes paid;

WHEREAS, the actual effect of Senate Bill No. 407 is to maintain a relatively high progressive income tax system;

WHEREAS, individual income tax collections have exceeded the Legislature's expectations since the Legislature adjourned in April 2005; and

WHEREAS, individual income tax collections are expected to increase significantly during the 2009 biennium; and

WHEREAS, wages in Montana are still among the lowest in the nation; and

WHEREAS, numerous economic studies have shown that there is a strong correlation between highly progressive tax systems and low wage growth; and

WHEREAS, other economic studies have shown that highly progressive tax systems inhibit income growth; and

WHEREAS, the adverse relationship between high taxes and low-paying jobs is strong evidence that cutting taxes would be more significant for wage earners than it would be for the wealthy; and

WHEREAS, although Montana is sparsely populated, it has one of the most complicated income tax systems in the nation; and

WHEREAS, the Montana Legislature has continued to complicate the individual income tax system with new credits, deductions, and exclusions from income; and

WHEREAS, the goals of the Montana Legislature include promoting economic growth, creating better-paying jobs, and establishing a more equitable tax system; and

WHEREAS, the Montana Legislature firmly believes that general across-the-board tax reductions for all Montana citizens and simplification of the tax system are much more effective than targeted tax breaks in achieving those goals; and

WHEREAS, the Montana Legislature wants to ensure that taxes do not arbitrarily increase for any taxpayer in the process of simplifying and revitalizing the state's tax structure.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MONTANA:

NEW SECTION. Section 1. Alternative method for determining tax. (1) An individual, an estate, or a trust may elect to determine state income tax liability under the provisions of [sections 1 through 4]. Except as provided in [section 4] and subsections (2) through (4) of this section, taxable income is determined as provided in this chapter. A taxpayer who elects to determine the taxpayer's liability pursuant to this section is not eligible for adjustments or credits that are specifically referred to in this section.

(2) Except as provided in subsections (2)(a) through (2)(j), for a taxpayer who elects to be taxed under the provisions of [sections 1 through 4], adjusted gross income is the taxpayer's adjusted gross income determined under 15-30-111 and includes unemployment compensation. Notwithstanding the provisions of 15-30-111, the following items may not be used to reduce federal adjusted gross income in determining Montana adjusted gross income:

(a) interest income referred to in 15-30-111(2)(b) earned by a taxpayer 65 years of age or older;

(b) except as provided in 15-61-202, principal and income in a medical care savings account referred to in 15-30-111(2)(j);

(c) except as provided in 15-63-202, principal and income in a first-time home buyer savings account referred to in 15-30-111(2)(k);

(d) except as provided in 15-62-207, contributions and earnings withdrawn from a family education savings account referred to in 15-30-111(2)(l);

(e) deposits in a Montana farm and ranch risk management account referred to in 15-30-111(2)(o);

(f) retirement disability benefits referred to in 15-30-111(6);

(g) contributions to a family education savings program referred to in 15-30-111(7) and 15-62-207;

(h) the loan payment received by a health care professional referred to in 15-30-111(8);

(i) the additional deduction for expenditures for the purchase of recycled material under 15-32-610; and

(j) the deduction for a land sale to a beginning farmer under 80-12-211.

(3) In determining net income under 15-30-121 and under other provisions of law, a taxpayer who elects to be taxed under [sections 1 through 4] may not deduct:

(a) federal income tax paid during the tax year under 15-30-121;

(b) political contributions under 15-30-121;

(d) a donation of a computer or other technological equipment or apparatus to a school under 15-30-126;

(e) a donation to the veterans' services account under 15-30-154; and

(f) contributions to the child abuse and neglect prevention program under 15-30-156.

(4) A taxpayer who elects to be taxed under the provisions of [sections 1 through 4] may not claim the following tax credits:

(a) the credit for energy-conserving investments or expenditures as provided in 15-30-125 and 15-32-109;

(b) the credit for the expense of caring for certain elderly family members under 15-30-128;

(d) the credit for day-care facilities under 15-30-130;

(e) the credit for alternative fuel motor vehicle conversion under 15-30-164;

(f) the credit for preservation of historic buildings under 15-30-180, including any carryforward of the credit;

(g) the credit for each new employee at a business in an empowerment zone under Title 7, chapter 21, part 37, and 15-30-182, including any carryback or carryforward of the credit;

(h) the equity capital tax credit under 15-30-184 and Title 90, chapter 10, including any carryforward of the credit;

(i) the credit for dependent care assistance and referral services under 15-30-186, including any carryforward of the credit;

(j) the credit for contributions to the developmental disability services account under 15-30-187;

(k) the credit for a physician practicing in a rural area under 15-30-188 through 15-30-191;

(l) the credit for a geothermal system allowed under 15-32-115;

(m) the credit for the installation of an energy system under 15-32-201, including any carryforward of the credit as allowed under 15-32-202;

(n) the commercial or net metering investment credit under 15-32-401 through 15-32-406, including any carryforward of the credit as allowed under 15-32-404;

(o) the credit for investment in depreciable property to collect or process reclaimable material or to manufacture a product from reclaimed material under 15-32-601 through 15-32-604;

(p) the oilseed crush facility credit under 15-32-701;

(q) the biodiesel production facility credit under 15-32-702;

(r) the biodiesel blending and storage credit under 15-32-703;

(s) the infrastructure credit under the provisions of 17-6-316, including any carryback or carryover of the credit; and

(t) the tax credit for a capital investment in a qualified Montana capital company or a qualified Montana small business investment capital company under the provisions of Title 90, chapter 8, part 2, including any carryback or carryover of the credit.

NEW SECTION. Section 2. Election to determine tax liability under alternative method -- effect of election -- rules. (1) On or before the due date, including extensions, of a return for a tax year beginning after December 31, 2007, a taxpayer may, on forms that the department prescribes, file an election to be taxed under the provisions of [sections 1 through 4].

(2) In order to make an election under this section, married taxpayers shall make the election jointly.

(3) An election made under this section is a one-time irrevocable election.

(4) The department shall adopt rules that it considers necessary to administer the alternative method of taxation provided in [sections 1 through 4].

NEW SECTION. Section 3. Alternative method rate of tax -- reduction in tax rates under certain conditions. (1) In lieu of the tax rates imposed under 15-30-103 and subject to subsection (2) of this section, the taxable income, as adjusted in subsection (3) of this section, of a taxpayer who elects to determine tax liability under [sections 1 through 4] is taxed for each tax year beginning after December 31, 2007, according to the following schedule:

(a) on the first $2,300 of taxable income or any part of that income, 0.9%;

(b) on the next $1,800 of taxable income or any part of that income, 1.8%;

(d) on the next $2,200 of taxable income or any part of that income, 3.6%;

(e) on the next $5,600 of taxable income or any part of that income, 4.5%;

(f) on the next $30,000 of taxable income or any part of that income, 5.7%;

(g) on any taxable income in excess of $44,000 or any part of that income, 6.2%.

(2) If, in any fiscal year beginning with fiscal year 2009, individual income tax collections, excluding amended returns and audit collections attributable to a tax year that began before the tax year in which the fiscal year began, are at least 3% more than estimated by the legislature, exclusive of the amount attributable to audit collections, as provided in 5-5-227, and adjusted as provided in [section 66] for individual income tax legislation in effect for that fiscal year, then beginning January 1 of the calendar year immediately following the end of that fiscal year, the tax rates in effect under subsection (1) during the prior tax year must be reduced by the percentage amount that individual income tax collections for that fiscal year exceeded the amount estimated by the legislature.

(3) By November 1 of each year, the department shall multiply the bracket amounts contained in subsection (1) by the inflation factor, as defined in 15-30-101(11)(b), for that tax year and round the cumulative brackets to the nearest $100. The resulting adjusted brackets are effective for that tax year and must be used as the basis for imposition of the tax in subsection (1) or (2).

NEW SECTION. Section 4. Adjustments related to federal filing status in determining tax liability under alternative method. Notwithstanding other provisions of law, the following adjustments are allowed in determining tax liability under [sections 1 through 4]:

(1) Married taxpayers filing a joint federal return who are allowed a deduction for a capital loss under section 1211 of the Internal Revenue Code, 26 U.S.C. 1211, and who file separate Montana tax returns may claim the same amount of the capital loss deduction that is allowed on the federal return. If the allowable capital loss is clearly attributable to one spouse, then the loss must be shown on that spouse's return; otherwise, the loss must be split equally on each Montana return.

(2) In the case of passive activity and rental income losses, married taxpayers filing a joint federal return and who file separate Montana tax returns are not required to recompute allowable passive losses according to the federal passive activity rules for married filing separately under section 469 of the Internal Revenue Code, 26 U.S.C. 469. If the allowable passive loss is clearly attributable to one spouse, then the loss must be shown on that spouse's return; otherwise, the loss must be split equally on each Montana return.

(3) Married taxpayers filing a joint federal return in which one or both of the taxpayers are allowed a deduction for an individual retirement contribution under section 219 of the Internal Revenue Code, 26 U.S.C. 219, and who file separate Montana income tax returns may claim the same amount of the deduction that is allowed on the federal return. The deduction must be attributed to the spouse who made the contribution.

(4) Married taxpayers filing a joint federal return who are required to include part of their social security benefits in federal adjusted gross income may use the amount calculated for federal taxable social security benefits when they file separate Montana income tax returns. If the federal taxable amount of social security benefits is clearly attributable to one spouse, then the amount attributable to that spouse must be shown as taxable income for that spouse's return; otherwise, the federal taxable amount of social security benefits must be split equally on each Montana return.

(5) Married taxpayers filing a joint federal return who are allowed a deduction for interest paid for a qualified education loan under section 221 of the Internal Revenue Code, 26 U.S.C. 221, and who file separate Montana income tax returns may claim the same amount of the deduction that is allowed on the federal return. The deduction must be split equally on each Montana return.

Section 5. Section 7-21-3710, MCA, is amended to read:

"7-21-3710. Tax credits for employers in empowerment zone. (1) There Except as provided in [section 1], there is allowed to an employer a credit against taxes imposed under 15-30-103, 15-31-121, 15-31-122, or 33-2-705 for an increase in net employees as provided in this section.

(2) To be eligible for a credit under this section, the owner of a business located in an empowerment zone:

(a) shall conduct a business in a facility within the empowerment zone in which retail sales of tangible personal property, other than that manufactured in the business facility, are not in excess of 10% of the business conducted in the facility, whether measured by number of employees doing retail sales, by square footage, or by dollar volume; and

(b) shall increase employment in the empowerment zone with employees:

(i) who are employed for at least 1,750 hours a year in permanent employment intended to last at least 3 years;

(ii) who were not employed by the business in the preceding 12 months;

(iii) at least 35% of whom were residents of the county in which the empowerment zone is located at the time they were hired by the business;

(iv) who are provided a health benefit plan for employees in accordance with 33-22-1811(3)(d) of which at least 50% of the premium is paid by the business; and

(v) who are paid for job duties performed at the empowerment zone location of the business.

(3) (a) For the purposes of subsection (2)(b)(i), an employee hired in the last 90 days of a year is considered to be an employee beginning employment in the following year. If an employee terminates employment, a replacement employee may be hired and the credit for the combined length of time may be claimed.

(b) For the purposes of subsection (2)(b)(iii), if an employee for whom a credit was claimed and who counted as an empowerment zone county resident for credit eligibility in either of the immediate 2 preceding years terminates employment, the replacement employee must have been a resident of the county in which the empowerment zone is located at the time the replacement employee is hired.

(4) An employer shall apply for certification to claim a credit under the provisions of this section. The department shall require a report that contains detailed information to determine whether an employer qualifies under subsections (2) and (3). The information must be detailed enough for auditing purposes. The department is authorized to inspect employers applying for certification or who have obtained certification.

(5) The department shall certify to the department of revenue or the state auditor's office, as applicable, whether a business may claim a credit under the provisions of this section as well as how many additional employees qualify and the year of initial employment of qualifying employees."

Section 6. Section 15-30-101, MCA, is amended to read:

"15-30-101. Definitions. For the purpose purposes of this chapter, including the purposes of the alternative method of determining tax liability under [sections 1 through 4], unless otherwise required by the context, the following definitions apply:

(1) "Base year structure" means the following elements of the income tax structure:

(a) (i) the tax brackets established in 15-30-103, but unadjusted by 15-30-103(2), in effect on June 30 of the taxable tax year; or

(ii) the tax brackets established in [section 3(1)], but unadjusted by [section 3(3)], in effect on June 30 of the tax year;

(b) the exemptions contained in 15-30-112, but unadjusted by 15-30-112(6), in effect on June 30 of the taxable tax year;

(c) the maximum standard deduction provided in 15-30-122, but unadjusted by 15-30-122(2), in effect on June 30 of the taxable tax year.

(2) "Consumer price index" means the consumer price index, United States city average, for all items, for all urban consumers (CPI-U), using the 1982-84 base of 100, as published by the bureau of labor statistics of the U.S. department of labor.

(3) "Corporation" or "C. corporation" means a corporation, limited liability company, or other entity:

(a) that is treated as an association for federal income tax purposes;

(b) for which a valid election under section 1362 of the Internal Revenue Code, (26 U.S.C. 1362) 26 U.S.C. 1362, is not in effect; and

(4) "Department" means the department of revenue.

(5) "Disregarded entity" means a business entity that is:

(a) that is disregarded as an entity separate from its owner for federal tax purposes, as provided in United States treasury regulations 301.7701-2 or 301.7701-3, 26 CFR 301.7701-2 or 26 CFR 301.7701-3, or as those regulations may be labeled or amended; or

(b) that is a qualified subchapter S. subsidiary that is not treated as a separate corporation, as provided in section 1361(b)(3) of the Internal Revenue Code, (26 U.S.C. 1361(b)(3)) 26 U.S.C. 1361(b)(3).

(6) "Dividend" means:

(a) any distribution made by a C. corporation out of its earnings and profits to its shareholders or members, whether in cash or in other property or in stock of the corporation, other than stock dividends; and

(b) any distribution made by an S. corporation treated as a dividend for federal income tax purposes.

(7) "Fiduciary" means a guardian, trustee, executor, administrator, receiver, conservator, or any person, whether individual or corporate, acting in any fiduciary capacity for any person, trust, or estate.

(8) "Foreign C. corporation" means a corporation that is not engaged in or doing business in Montana, as provided in 15-31-101.

(9) "Foreign government" means any jurisdiction other than the one embraced within the United States, its territories, and its possessions.

(10) (a) "Gross income", except as provided in subsection (10)(b), means the taxpayer's gross income for federal income tax purposes as defined in section 61 of the Internal Revenue Code, (26 U.S.C. 61) 26 U.S.C. 61, or as that section may be labeled or amended, excluding unemployment compensation included in federal gross income under the provisions of section 85 of the Internal Revenue Code, (26 U.S.C. 85) as amended 26 U.S.C. 85.

(b) For a taxpayer who elects the alternative method of taxation under [sections 1 through 4], gross income includes unemployment compensation referred to in subsection (10)(a).

(11) (a) "Inflation factor", except as provided in subsection (11)(b), means a number determined for each tax year by dividing the consumer price index for June of the tax year by the consumer price index for June 2005.

(b) For the purposes of [section 3], inflation factor means a number determined for each tax year by dividing the consumer price index for June of the tax year by the consumer price index for June 2008.

(12) "Information agents" includes all individuals and entities acting in whatever capacity, including lessees or mortgagors of real or personal property, fiduciaries, brokers, real estate brokers, employers, and all officers and employees of the state or of any municipal corporation or political subdivision of the state, having the control, receipt, custody, disposal, or payment of interest, rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits, and income with respect to which any person or fiduciary is taxable under this chapter.

(13) "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended, or as it may be labeled or further amended. References to specific provisions of the Internal Revenue Code mean those provisions as they may be otherwise labeled or further amended.

(14) "Knowingly" is as defined has the meaning provided in 45-2-101.

(15) "Limited liability company" means a limited liability company, domestic limited liability company, or a foreign limited liability company as defined in 35-8-102.

(16) "Limited liability partnership" means a limited liability partnership as defined has the meaning provided in 35-10-102.

(17) "Lottery winnings" means income paid either in lump sum or in periodic payments to:

(a) a resident taxpayer on a lottery ticket; or

(b) a nonresident taxpayer on a lottery ticket purchased in Montana.

(18) (a) "Montana source income" means:

(i) wages, salary, tips, and other compensation for services performed in the state or while a resident of the state;

(ii) gain attributable to the sale or other transfer of tangible property located in the state, sold or otherwise transferred while a resident of the state, or used or held in connection with a trade, business, or occupation carried on in the state;

(iii) gain attributable to the sale or other transfer of intangible property received or accrued while a resident of the state;

(iv) interest received or accrued while a resident of the state or from an installment sale of real property or tangible commercial or business personal property located in the state;

(v) dividends received or accrued while a resident of the state;

(vi) net income or loss derived from a trade, business, profession, or occupation carried on in the state or while a resident of the state;

(vii) net income or loss derived from farming activities carried on in the state or while a resident of the state;

(viii) net rents from real property and tangible personal property located in the state or received or accrued while a resident of the state;

(ix) net royalties from real property and from tangible real property to the extent the property is used in the state or the net royalties are received or accrued while a resident of the state. The extent of use in the state is determined by multiplying the royalties by a fraction, the numerator of which is the number of days of physical location of the property in the state during the royalty period in the tax year and the denominator of which is the number of days of physical location of the property everywhere during all royalty periods in the tax year. If the physical location is unknown or unascertainable by the taxpayer, the property is considered used in the state in which it was located at the time the person paying the royalty obtained possession.

(x) patent royalties to the extent the person paying them employs the patent in production, fabrication, manufacturing, or other processing in the state, a patented product is produced in the state, or the royalties are received or accrued while a resident of the state;

(xi) net copyright royalties to the extent printing or other publication originates in the state or the royalties are received or accrued while a resident of the state;

(xii) partnership income, gain, loss, deduction, or credit or item of income, gain, loss, deduction, or credit:

(A) derived from a trade, business, occupation, or profession carried on in the state;

(B) derived from the sale or other transfer or the rental, lease, or other commercial exploitation of property located in the state; or

(xiii) an S. corporation's separately and nonseparately stated income, gain, loss, deduction, or credit or item of income, gain, loss, deduction, or credit:

(A) derived from a trade, business, occupation, or profession carried on in the state;

(B) derived from the sale or other transfer or the rental, lease, or other commercial exploitation of property located in the state; or

(xiv) social security benefits received or accrued while a resident of the state;

(xv) taxable individual retirement account distributions, annuities, pensions, and other retirement benefits received while a resident of the state; and

(xvi) any other income attributable to the state, including but not limited to lottery winnings, state and federal tax refunds, nonemployee compensation, recapture of tax benefits, and capital loss addbacks.

(b) The term does not include:

(i) compensation for military service of members of the armed services of the United States who are not Montana residents and who are residing in Montana solely by reason of compliance with military orders and does not include income derived from their personal property located in the state except with respect to personal property used in or arising from a trade or business carried on in Montana; or

(ii) interest paid on loans held by out-of-state financial institutions recognized as such in the state of their domicile, secured by mortgages, trust indentures, or other security interests on real or personal property located in the state, if the loan is originated by a lender doing business in Montana and assigned out-of-state and there is no activity conducted by the out-of-state lender in Montana except periodic inspection of the security.

(19) "Net income" means the adjusted gross income of a taxpayer less the deductions allowed by this chapter.

(20) "Nonresident" means a natural person who is not a resident.

(21) "Paid", for the purposes of the deductions and credits under this chapter, means paid or accrued or paid or incurred, and the terms "paid or accrued" and "paid or incurred" must be construed according to the method of accounting upon the basis of which the taxable income is computed under this chapter.

(22) "Partner" means a member of a partnership or a manager or member of any other entity, if treated as a partner for federal income tax purposes.

(23) "Partnership" means a general or limited partnership, limited liability partnership, limited liability company, or other entity, if treated as a partnership for federal income tax purposes.

(24) "Pass-through entity" means a partnership, an S. corporation, or a disregarded entity.

(25) "Pension and annuity income" means:

(a) systematic payments of a definitely determinable amount from a qualified pension plan, as that term is used in section 401 of the Internal Revenue Code, (26 U.S.C. 401) 26 U.S.C. 401, or systematic payments received as the result of contributions made to a qualified pension plan that are paid to the recipient or recipient's beneficiary upon the cessation of employment;

(b) payments received as the result of past service and cessation of employment in the uniformed services of the United States;

(c) lump-sum distributions from pension or profit-sharing plans to the extent that the distributions are included in federal adjusted gross income;

(d) distributions from individual retirement, deferred compensation, and self-employed retirement plans recognized under sections 401 through 408 of the Internal Revenue Code, (26 U.S.C. 401 through 408) 26 U.S.C. 401 through 408, to the extent that the distributions are not considered to be premature distributions for federal income tax purposes; or

(e) amounts received from fully matured, privately purchased annuity contracts after cessation of regular employment.

(26) "Purposely" is as defined has the meaning provided in 45-2-101.

(27) "Received", for the purpose of computation of taxable income under this chapter, means received or accrued, and the term "received or accrued" must be construed according to the method of accounting upon the basis of which the taxable income is computed under this chapter.

(28) "Resident" applies only to means a natural persons person and includes, for the purpose of determining liability to the tax imposed by this chapter with reference to the income of any taxable tax year, any person domiciled in the state of Montana and any other person who maintains a permanent place of abode residence within the state even though temporarily absent from the state and who has not established a residence elsewhere.

(29) "S. corporation" means an incorporated entity for which a valid election under section 1362 of the Internal Revenue Code, (26 U.S.C. 1362) 26 U.S.C. 1362, is in effect.

(30) "Stock dividends" means new stock issued, for surplus or profits capitalized, to shareholders in proportion to their previous holdings.

(31) "Tax year" means the taxpayer's taxable year for federal income tax purposes.

(32) (a) "Taxable income", except as provided in subsection (32)(b), means the adjusted gross income of a taxpayer less the deductions and exemptions provided for in this chapter.

(b) For a taxpayer who elects to determine tax liability under [sections 1 through 4], taxable income means the adjusted gross income of the taxpayer less the deductions and exemptions provided for in this chapter, computed in accordance with the modifications specified in [sections 1 and 4].

(33) (a) "Taxpayer" includes any person, entity, or fiduciary, resident or nonresident, subject to a tax or other obligation imposed by this chapter.

(b) and unless otherwise specifically provided The term does not include a C. corporation unless specifically provided by this chapter."

Section 7. Section 15-30-103, MCA, is amended to read:

"15-30-103. Rate of tax. (1) There Except as provided in [section 3], there must be levied, collected, and paid for each tax year upon the taxable income of each taxpayer subject to this tax, after making allowance for exemptions and deductions as provided in this chapter, a tax on the brackets of taxable income as follows:

(a) on the first $2,300 of taxable income or any part of that income, 1%;

(b) on the next $1,800 of taxable income or any part of that income, 2%;

(d) on the next $2,200 of taxable income or any part of that income, 4%;

(e) on the next $2,400 of taxable income or any part of that income, 5%;

(f) on the next $3,100 of taxable income or any part of that income, 6%;

(g) on any taxable income in excess of $13,900 or any part of that income, 6.9%.

(2) By November 1 of each year, the department shall multiply the bracket amount contained in subsection (1) by the inflation factor for that tax year and round the cumulative brackets to the nearest $100. The resulting adjusted brackets are effective for that tax year and must be used as the basis for imposition of the tax in subsection (1) of this section."

Section 8. Section 15-30-105, MCA, is amended to read:

"15-30-105. Tax on nonresident. (1) (a) A tax is imposed upon each nonresident equal to the tax computed under 15-30-103 or [section 3] as if the nonresident were a resident during the entire tax year, multiplied by the ratio of Montana source income to total income from all sources.

(b) This subsection (1) does not permit any items of income, gain, loss, deduction, expense, or credit to be counted more than once in determining the amount of Montana source income, and the department may adopt rules that are reasonably necessary to prevent duplication or to provide for allocation of particular items of income, gain, loss, deduction, expense, or credit.

(2) Pursuant to the provisions of Article III, section 2, of the Multistate Tax Compact, each nonresident taxpayer required to file a return and whose only activity in Montana consists of making sales and who does not own or rent real estate or tangible personal property within Montana and whose annual gross volume of sales made in Montana during the taxable year does not exceed $100,000 may elect to pay an income tax of 1/2 of 1% of the dollar volume of gross sales made in Montana during the taxable year. The tax is in lieu of the tax imposed under 15-30-103, [section 3], and subsection (1)(a) of this section. The gross volume of sales made in Montana during the tax year must be determined according to the provisions of Article IV, sections 16 and 17, of the Multistate Tax Compact."

Section 9. Section 15-30-111, MCA, is amended to read:

"15-30-111. Adjusted gross income. (1) Adjusted gross income is the taxpayer's federal adjusted gross income as defined in section 62 of the Internal Revenue Code, 26 U.S.C. 62, and in addition includes the following:

(a) (i) interest received on obligations of another state or territory or county, municipality, district, or other political subdivision of another state, except to the extent that the interest is exempt from taxation by Montana under federal law;

(ii) exempt-interest dividends as defined in section 852(b)(5) of the Internal Revenue Code, 26 U.S.C. 852(b)(5), that are attributable to the interest referred to in subsection (1)(a)(i);

(b) refunds received of federal income tax, to the extent that the deduction of the tax resulted in a reduction of Montana income tax liability;

(c) that portion of a shareholder's income under subchapter S. of Chapter 1 of the Internal Revenue Code that has been reduced by any federal taxes paid by the subchapter S. corporation on the income;

(d) depreciation or amortization taken on a title plant as defined in 33-25-105;

(e) the recovery during the tax year of an amount deducted in any prior tax year to the extent that the amount recovered reduced the taxpayer's Montana income tax in the year deducted;

(f) if the state taxable distribution of an estate or trust is greater than the federal taxable distribution of the same estate or trust, the difference between the state taxable distribution and the federal taxable distribution of the same estate or trust for the same tax period; and

(g) except for exempt-interest dividends described in subsection (2)(a)(ii), for tax years commencing after December 31, 2002, the amount of any dividend to the extent that the dividend is not included in federal adjusted gross income.

(2) Notwithstanding the provisions of the Internal Revenue Code, adjusted gross income does not include the following, which are exempt from taxation under this chapter:

(a) (i) all interest income from obligations of the United States government, the state of Montana, or a county, municipality, district, or other political subdivision of the state and any other interest income that is exempt from taxation by Montana under federal law;

(ii) exempt-interest dividends as defined in section 852(b)(5) of the Internal Revenue Code, 26 U.S.C. 852(b)(5), that are attributable to the interest referred to in subsection (2)(a)(i);

(b) except as provided in [section 1], interest income earned by a taxpayer who is 65 years of age or older in a tax year up to and including $800 for a taxpayer filing a separate return and $1,600 for each joint return;

(c) (i) except as provided in subsection (2)(c)(ii), the first $3,600 of all pension and annuity income received as defined in 15-30-101;

(ii) for pension and annuity income described under subsection (2)(c)(i), as follows:

(A) each taxpayer filing singly, head of household, or married filing separately shall reduce the total amount of the exclusion provided in subsection (2)(c)(i) by $2 for every $1 of federal adjusted gross income in excess of $30,000 as shown on the taxpayer's return;

(B) in the case of married taxpayers filing jointly, if both taxpayers are receiving pension or annuity income or if only one taxpayer is receiving pension or annuity income, the exclusion claimed as provided in subsection (2)(c)(i) must be reduced by $2 for every $1 of federal adjusted gross income in excess of $30,000 as shown on their joint return;

(d) all Montana income tax refunds or tax refund credits;

(e) gain required to be recognized by a liquidating corporation under 15-31-113(1)(a)(ii);

(f) all tips or gratuities that are covered by section 3402(k) or service charges that are covered by section 3401 of the Internal Revenue Code of 1954, 26 U.S.C. 3402(k) or 3401, as amended and applicable on January 1, 1983, received by persons a person for rendering services rendered by them to patrons of premises licensed to provide food, beverage, or lodging;

(g) all benefits received under the workers' compensation laws;

(h) all health insurance premiums paid by an employer for an employee if attributed as income to the employee under federal law;

(i) all money received because of a settlement agreement or judgment in a lawsuit brought against a manufacturer or distributor of "agent orange" for damages resulting from exposure to "agent orange";

(j) except as provided in [section 1], principal and income in a medical care savings account established in accordance with 15-61-201 or withdrawn from an account for eligible medical expenses, as defined in 15-61-102, of the taxpayer or a dependent of the taxpayer or for the long-term care of the taxpayer or a dependent of the taxpayer;

(k) except as provided in [section 1], principal and income in a first-time home buyer savings account established in accordance with 15-63-201 or withdrawn from an account for eligible costs, as provided in 15-63-202(7), for the first-time purchase of a single-family residence;

(l) except as provided in [section 1], contributions withdrawn from a family education savings account or earnings withdrawn from a family education savings account for qualified higher education expenses, as defined in 15-62-103, of a designated beneficiary;

(m) the recovery during the tax year of any amount deducted in any prior tax year to the extent that the recovered amount did not reduce the taxpayer's Montana income tax in the year deducted;

(n) if the federal taxable distribution of an estate or trust is greater than the state taxable distribution of the same estate or trust, the difference between the federal taxable distribution and the state taxable distribution of the same estate or trust for the same tax period;

(o) except as provided in [section 1], deposits, not exceeding the amount set forth in 15-30-603, deposited in a Montana farm and ranch risk management account, as provided in 15-30-601 through 15-30-605, in any tax year for which a deduction is not provided for federal income tax purposes;

(p) income of a dependent child that is included in the taxpayer's federal adjusted gross income pursuant to the Internal Revenue Code. The child is required to file a Montana personal income tax return if the child and taxpayer meet the filing requirements in 15-30-142.

(q) principal and income deposited in a health care expense trust account, as defined in 2-18-1303, or withdrawn from the account for payment of qualified health care expenses as defined in 2-18-1303; and

(r) that part of the refundable credit provided in 33-22-2006 that reduces Montana tax below zero.

(3) A shareholder of a DISC that is exempt from the corporation license tax under 15-31-102(1)(l) shall include in the shareholder's adjusted gross income the earnings and profits of the DISC in the same manner as provided by section 995 of the Internal Revenue Code, 26 U.S.C. 995, for all periods for which the DISC election is effective.

(4) A taxpayer who, in determining federal adjusted gross income, has reduced the taxpayer's business deductions by an amount for wages and salaries for which a federal tax credit was elected under sections 38 and 51(a) of the Internal Revenue Code, 26 U.S.C. 38 and 51(a), is allowed to deduct the amount of the wages and salaries paid regardless of the credit taken. The deduction must be made in the year that the wages and salaries were used to compute the credit. In the case of a partnership or small business corporation, the deduction must be made to determine the amount of income or loss of the partnership or small business corporation.

(5) Married taxpayers filing a joint federal return who are required to include part of their social security benefits or part of their tier 1 railroad retirement benefits in federal adjusted gross income may split the federal base used in calculation of federal taxable social security benefits or federal taxable tier 1 railroad retirement benefits when they file separate Montana income tax returns. The federal base must be split equally on the Montana return.

(6) A Except as provided in [section 1], a taxpayer receiving retirement disability benefits who has not attained 65 years of age by the end of the tax year and who has retired as permanently and totally disabled may exclude from adjusted gross income up to $100 a week received as wages or payments in lieu of wages for a period during which the employee is absent from work due to the disability. If the adjusted gross income before this exclusion exceeds $15,000, the excess reduces the exclusion by an equal amount. This limitation affects the amount of exclusion, but not the taxpayer's eligibility for the exclusion. If eligible, married individuals shall apply the exclusion separately, but the limitation for income exceeding $15,000 is determined with respect to the spouses on their combined adjusted gross income. For the purpose of this subsection, "permanently and totally disabled" means unable to engage in any substantial gainful activity by reason of any medically determined physical or mental impairment lasting or expected to last at least 12 months.

(7) Married taxpayers who file a joint federal return and who make an election on the federal return to defer income ratably for 4 tax years because of a conversion from an IRA other than a Roth IRA to a Roth IRA, pursuant to section 408A(d)(3) of the Internal Revenue Code, 26 U.S.C. 408A(d)(3), may file separate Montana income tax returns to defer the full taxable conversion amount from Montana adjusted gross income for the same time period. The deferred amount must be attributed to the taxpayer making the conversion.

(8)(7) (a) An Except as provided in [section 1], an individual who contributes to one or more accounts established under the Montana family education savings program may reduce adjusted gross income by the lesser of $3,000 or the amount of the contribution. In the case of married taxpayers, each spouse is entitled to a reduction, not in excess of $3,000, for the spouses' contributions to the accounts. Spouses may jointly elect to treat half of the total contributions made by the spouses as being made by each spouse. The reduction in adjusted gross income under this subsection applies only with respect to contributions to an account of which the account owner, as defined in 15-62-103, is the taxpayer, the taxpayer's spouse, or the taxpayer's child or stepchild if the taxpayer's child or stepchild is a Montana resident. The provisions of subsection (1)(e) do not apply with respect to withdrawals of contributions that reduced adjusted gross income.

(b) If the account owner elects to determine the account owner's tax liability under [sections 1 through 4], the amount of contributions and earnings in the account before the tax year in which the election is effective may be retained tax-free and any unused portion of that amount withdrawn from the account for qualified higher education expenses is tax exempt. Nonqualified withdrawals are subject to 15-62-208.

(9)(8) (a) A Except as provided in [section 1], a taxpayer may exclude the amount of the loan payment received pursuant to subsection (9)(a)(iv) (8)(a)(iv), not to exceed $5,000, from the taxpayer's adjusted gross income if the taxpayer:

(i) is a health care professional licensed in Montana as provided in Title 37;

(ii) is serving a significant portion of a designated geographic area, special population, or facility population in a federally designated health professional shortage area, a medically underserved area or population, or a federal nursing shortage county as determined by the secretary of health and human services or by the governor;

(iii) has had a student loan incurred as a result of health-related education; and

(iv) has received a loan payment during the tax year made on the taxpayer's behalf by a loan repayment program described in subsection (9)(b) (8)(b) as an incentive to practice in Montana.

(b) For the purposes of subsection (9)(a) (8)(a), a loan repayment program includes a federal, state, or qualified private program. A qualified private loan repayment program includes a licensed health care facility, as defined in 50-5-101, that makes student loan payments on behalf of the person who is employed by the facility as a licensed health care professional. (Subsection (2)(f) terminates on occurrence of contingency--sec. 3, Ch. 634, L. 1983; subsection (2)(o) terminates on occurrence of contingency--sec. 9, Ch. 262, L. 2001.)"

Section 10. Section 15-30-112, MCA, is amended to read:

"15-30-112. Exemptions. (1) Except as provided in subsection (6), in the case of an individual, the exemptions provided by subsections (2) through (5) must be allowed as deductions in computing taxable income.

(2) (a) An exemption of $1,900 is allowed for all taxpayers.

(b) An additional exemption of $1,900 is allowed for the spouse of the taxpayer if a separate return is made by the taxpayer and if the spouse, for the calendar year in which the tax year of the taxpayer begins, does not have gross income and is not the dependent of another taxpayer.

(3) (a) An additional exemption of $1,900 is allowed for the taxpayer if the taxpayer has attained the age of 65 before the close of the taxpayer's tax year.

(b) An additional exemption of $1,900 is allowed for the spouse of the taxpayer if a separate return is made by the taxpayer and if the spouse has attained the age of 65 before the close of the tax year and, for the calendar year in which the tax year of the taxpayer begins, does not have gross income and is not the dependent of another taxpayer.

(4) (a) An additional exemption of $1,900 is allowed for the taxpayer if the taxpayer is blind at the close of the taxpayer's tax year.

(b) An additional exemption of $1,900 is allowed for the spouse of the taxpayer if a separate return is made by the taxpayer and if the spouse is blind and, for the calendar year in which the tax year of the taxpayer begins, does not have gross income and is not the dependent of another taxpayer. For the purposes of this subsection (4)(b), the determination of whether the spouse is blind must be made as of the close of the tax year of the taxpayer, except that if the spouse dies during the tax year, the determination must be made as of the time of death.

(c) For purposes of this subsection (4), an individual is blind only if the person's central visual acuity does not exceed 20/200 in the better eye with correcting lenses or if visual acuity is greater than 20/200 but is accompanied by a limitation in the fields of vision to an extent that the widest diameter of the visual field subtends an angle no greater than 20 degrees.

(5) (a) An exemption of $1,900 is allowed for each dependent:

(i) whose gross income for the calendar year in which the tax year of the taxpayer begins is less than $800; or

(ii) who is a child of the taxpayer and who:

(A) has not attained the age of 19 years at the close of the calendar year in which the tax year of the taxpayer begins; or

(B) is a student.

(b) An exemption is not allowed under this subsection for a dependent who has made a joint return with the dependent's spouse for the tax year beginning in the calendar year in which the tax year of the taxpayer begins.

(c) For purposes of subsection (5)(a)(ii), the term "child" means an individual who is a son, stepson, daughter, or stepdaughter of the taxpayer.

(d) For purposes of subsection (5)(a)(ii)(B), the term "student" means an individual who, during each of 5 calendar months during the calendar year in which the tax year of the taxpayer begins:

(i) is a full-time student at an educational institution; or

(ii) is pursuing a full-time course of institutional on-farm training under the supervision of an accredited agent of an educational institution or of a state or political subdivision of a state. For purposes of this subsection (5)(d)(ii), the term "educational institution" means only an educational institution that normally maintains a regular faculty and curriculum and normally has a regularly organized body of students in attendance at the place where its educational activities are carried on.

(6) The department, by November 1 of each year, shall multiply all the exemptions provided in this section by the inflation factor for that tax year and round the product to the nearest $10. The resulting adjusted exemptions are effective for that tax year and must be used in calculating the tax imposed in 15-30-103 or [section 3]."

Section 11. Section 15-30-121, MCA, is amended to read:

"15-30-121. Deductions allowed in computing net income. (1) In computing net income, there are allowed as deductions:

(a) the items referred to in sections 161, including the contributions referred to in 33-15-201(5)(b), and 211 of the Internal Revenue Code, 26 U.S.C. 161 and 211, subject to the following exceptions, which are not deductible:

(i) items provided for in 15-30-123;

(ii) state income tax paid;

(iii) premium payments for medical care as provided in subsection (1)(g)(i);

(iv) long-term care insurance premium payments as provided in subsection (1)(g)(ii); and

(v) a charitable contribution using a charitable gift annuity unless the annuity is a qualified charitable gift annuity as defined in 33-20-701;

(b) except as provided in [section 1], federal income tax paid within the tax year, not to exceed $5,000 for each taxpayer filing singly, head of household, or married filing separately or $10,000 if married and filing jointly;

(c) expenses of household and dependent care services as outlined in subsections (1)(c)(i) through (1)(c)(iii) and (2) and subject to the limitations and rules as set out in subsections (1)(c)(iv) through (1)(c)(vi), as follows:

(i) expenses for household and dependent care services necessary for gainful employment incurred for:

(A) a dependent under 15 years of age for whom an exemption can be claimed;

(B) a dependent as allowable under 15-30-112(5), except that the limitations for age and gross income do not apply, who is unable to provide self-care because of physical or mental illness; and

(ii) employment-related expenses incurred for the following services, but only if the expenses are incurred to enable the taxpayer to be gainfully employed:

(A) household services that are attributable to the care of the qualifying individual; and

(B) care of an individual who qualifies under subsection (1)(c)(i);

(iii) expenses incurred in maintaining a household if over half of the cost of maintaining the household is furnished by an individual or, if the individual is married during the applicable period, is furnished by the individual and the individual's spouse;

(iv) the amounts deductible in subsections (1)(c)(i) through (1)(c)(iii), subject to the following limitations:

(A) a deduction is allowed under subsection (1)(c)(i) for employment-related expenses incurred during the year only to the extent that the expenses do not exceed $4,800;

(B) expenses for services in the household are deductible under subsection (1)(c)(i) for employment-related expenses only if they are incurred for services in the taxpayer's household, except that employment-related expenses incurred for services outside the taxpayer's household are deductible, but only if incurred for the care of a qualifying individual described in subsection (1)(c)(i)(A) and only to the extent that the expenses incurred during the year do not exceed:

(I) $2,400 in the case of one qualifying individual;

(II) $3,600 in the case of two qualifying individuals; and

(III) $4,800 in the case of three or more qualifying individuals;

(v) if the combined adjusted gross income of the taxpayers exceeds $18,000 for the tax year during which the expenses are incurred, the amount of the employment-related expenses incurred, to be reduced by one-half of the excess of the combined adjusted gross income over $18,000;

(vi) for purposes of this subsection (1)(c):

(A) married couples shall file a joint return or file separately on the same form;

(B) if the taxpayer is married during any period of the tax year, employment-related expenses incurred are deductible only if:

(I) both spouses are gainfully employed, in which case the expenses are deductible only to the extent that they are a direct result of the employment; or

(II) the spouse is a qualifying individual described in subsection (1)(c)(i)(C);

(C) an individual legally separated from the individual's spouse under a decree of divorce or of separate maintenance may not be considered as married;

(D) the deduction for employment-related expenses must be divided equally between the spouses when filing separately on the same form;

(E) payment made to a child of the taxpayer who is under 19 years of age at the close of the tax year and payments made to an individual with respect to whom a deduction is allowable under 15-30-112(5) are not deductible as employment-related expenses;

(d) in the case of an individual, political contributions determined in accordance with the provisions of section 218(a) and (b) of the Internal Revenue Code of 1954 (now repealed) that were in effect for the tax year that ended December 31, 1978;

(e) except as provided in [section 1], that portion of expenses for organic fertilizer and inorganic fertilizer produced as a byproduct allowed as a deduction under 15-32-303 that was not otherwise deducted in computing taxable income;

(f) except as provided in [section 1], contributions to the child abuse and neglect prevention program provided for in 52-7-101, subject to the conditions set forth in 15-30-156;

(g) the entire amount of premium payments made by the taxpayer, except premiums deducted in determining Montana adjusted gross income, or for which a credit was claimed under 15-30-128, for:

(i) insurance for medical care, as defined in 26 U.S.C. 213(d), for coverage of the taxpayer, the taxpayer's dependents, and the parents and grandparents of the taxpayer; and

(ii) long-term care insurance policies or certificates that provide coverage primarily for any qualified long-term care services, as defined in 26 U.S.C. 7702B(c), for:

(A) the benefit of the taxpayer for tax years beginning after December 31, 1994; or

(B) the benefit of the taxpayer, the taxpayer's dependents, and the parents and grandparents of the taxpayer for tax years beginning after December 31, 1996;

(h) light vehicle registration fees, as provided for in 61-3-321(2) and 61-3-562, paid during the tax year; and

(i) per capita livestock fees imposed pursuant to 15-24-921, 15-24-922, 81-6-104, 81-6-204, 81-6-209, 81-7-118, or 81-7-201.

(2) (a) Subject to the conditions of subsection (1)(c), a taxpayer who operates a family day-care home or a group day-care home, as these terms are defined in 52-2-703, and who cares for the taxpayer's own child and at least one unrelated child in the ordinary course of business may deduct employment-related expenses considered to have been paid for the care of the child.

(b) The amount of employment-related expenses considered to have been paid by the taxpayer is equal to the amount that the taxpayer charges for the care of a child of the same age for the same number of hours of care. The employment-related expenses apply regardless of whether any expenses actually have been paid. Employment-related expenses may not exceed the amounts specified in subsection (1)(c)(iv)(B).

(c) Only a day-care operator who is licensed and registered as required in 52-2-721 is allowed the deduction under this subsection (2)."

Section 12. Section 15-30-122, MCA, is amended to read:

"15-30-122. Standard deduction. (1) A standard deduction equal to 20% of adjusted gross income is allowed if elected by the taxpayer on a return. The standard deduction is in lieu of all deductions allowed under 15-30-121. The minimum standard deduction is $1,580, as adjusted under the provisions of subsection (2), or 20% of adjusted gross income, whichever is greater, to a maximum standard deduction of $3,560, as adjusted under the provisions of subsection (2). However, in the case of a single joint return of husband and wife or in the case of a single individual who qualifies to file as a head of household on the federal income tax return, the minimum standard deduction is twice the amount of the minimum standard deduction for a single return, as adjusted under the provisions of subsection (2), or 20% of adjusted gross income, whichever is greater, to a maximum standard deduction of twice the amount of the maximum standard deduction for a single return, as adjusted under the provisions of subsection (2). The standard deduction may not be allowed to either the husband or the wife if the tax of one of the spouses is determined without regard to the standard deduction. For purposes of this section, the determination of whether an individual is married must be made as of the last day of the tax year unless one of the spouses dies during the tax year, in which case the determination must be made as of the date of death.

(2) By November 1 of each year, the department shall multiply both the minimum and the maximum standard deduction for single returns by the inflation factor for that tax year and round the product to the nearest $10. The resulting adjusted deductions are effective for that tax year and must be used in calculating the tax imposed in 15-30-103 or [section 3]."

Section 13. Section 15-30-125, MCA, is amended to read:

"15-30-125. Credit for energy-conserving investments. There Except as provided in [section 1], there is a credit against tax liability under this chapter as provided in 15-32-109."

Section 14. Section 15-30-126, MCA, is amended to read:

"15-30-126. Small business corporation -- deduction for donation of computer equipment to schools. A Except as provided in [section 1], a small business corporation, as defined in 15-30-1101, is allowed a deduction equal to the fair market value, not to exceed 30% of the small business corporation's net income, of a computer or other sophisticated technological equipment or apparatus intended for use with the computer donated to an elementary, secondary, or accredited postsecondary school located in Montana if:

(1) the contribution is made no later than 5 years after the manufacture of the donated property is substantially completed;

(2) the property is not transferred by the donee in exchange for money, other property, or services;

(3) the electing small business corporation receives a written statement from the donee in which the donee agrees to accept the property and representing that the use and disposition of the property will be in accordance with the provisions of subsection (2); and

(4) the deduction allowed in this section is in lieu of the deduction allowed under 15-30-121 for charitable contributions."

Section 15. Section 15-30-128, MCA, is amended to read:

"15-30-128. Credit for expense of caring for certain elderly family members. (1) There Except as provided in [section 1], there is a credit against the tax imposed by this chapter for qualified elderly care expenses paid by an individual for the care of a qualifying family member during the taxable tax year.

(2) A qualifying family member is an individual who:

(a) is related to the taxpayer by blood or marriage;

(b) (i) is at least 65 years of age; or

(ii) has been determined to be disabled by the social security administration; and

(c) has a family income of $15,000 or less for an unmarried individual and $30,000 or less for a married individual for the taxable tax year.

(3) For purposes of this section, "family income" means, in the case of an individual who is not married, the gross income, including all nontaxable income, of the individual or, in the case of a married individual, the gross income, including all nontaxable income, of the individual and the individual's spouse.

(4) Qualified elderly care expenses include:

(a) payments by the taxpayer for home health agency services, personal-care attendant services and care in a long-term care facility, as defined in 50-5-101, that is licensed by the department of public health and human services, homemaker services, adult day care, respite care, or health care equipment and supplies:

(i) provided to the qualifying family member;

(ii) provided by an organization or individual not related to the taxpayer or the qualifying family member; and

(iii) not compensated for by insurance or otherwise;

(b) premiums paid for long-term care insurance coverage for a qualifying family member.

(5) The percentage amount of credit allowable under this section is:

(a) for a taxpayer whose adjusted gross income does not exceed $25,000, 30% of qualified elderly care expenses; or

(b) for a taxpayer whose adjusted gross income exceeds $25,000, the greater of:

(i) 20% of qualified elderly care expenses; or

(ii) 30% of qualified elderly care expenses, less 1% for each $2,000 or fraction of $2,000 by which the adjusted gross income of the taxpayer for the taxable tax year exceeds $25,000.

(6) The dollar amount of credit allowable under this section is:

(a) reduced by $1 for each dollar of the adjusted gross income over $50,000 for a taxpayer whose adjusted gross income exceeds $50,000;

(b) limited to $5,000 per qualifying family member in a taxable tax year and to $10,000 total for two or more family members in a taxable tax year;

(c) prorated among multiple taxpayers who each contribute to qualified elderly care expenses of the same qualified family member in a taxable tax year in the same proportion that their contributions bear to the total qualified elderly care expenses paid by those taxpayers for that qualified family member.

(7) A deduction or credit is not allowed under any other provision of this chapter with respect to any amount for which a credit is allowed under this section. The credit allowed under this section may not be claimed as a carryback or carryforward and may not be refunded if the taxpayer has no tax liability.

(8) In the case of a married individual filing a separate return, the percentage amount of credit under subsection (5) and the dollar amount of credit under subsection (6) are limited to one-half of the figures indicated in those subsections."

Section 16. Section 15-30-129, MCA, is amended to read:

"15-30-129. Tax credit for providing disability insurance for employees. There Except as provided in [section 1], there is a credit against the taxes otherwise due under this chapter allowable to an employer for the amount of premiums for disability insurance paid by the employer for his employees. The tax credit must be computed in accordance with the provisions of 15-31-132."

Section 17. Section 15-30-130, MCA, is amended to read:

"15-30-130. Credit for day-care facilities. There Except as provided in [section 1], there is a credit against the taxes otherwise due under this chapter allowable to an employer based on the amounts paid or incurred during the tax year by the employer to acquire, construct, reconstruct, renovate, or otherwise improve real property to be used primarily as a day-care facility. The credit must be computed in accordance with the provisions of 15-31-133."

Section 18. Section 15-30-135, MCA, is amended to read:

"15-30-135. Tax on beneficiaries or fiduciaries of estates or trusts. (1) A tax shall be is imposed upon either the fiduciaries or the beneficiaries of estates and trusts as hereinafter provided in this section, except to the extent such that the estates and trusts shall be are held for educational, charitable, or religious purposes,. which The tax shall must be levied, collected, and paid annually with respect to the income of estates or of any kind of property held in trust, including:

(a) income received by estates of deceased persons during the period of administration or settlement of the estate;

(b) income accumulated in trust for the benefit of unborn or unascertained persons or persons with contingent interests;

(d) income which that is to be distributed to the beneficiaries periodically, whether or not at regular intervals, and the income collected by a guardian of a minor, to be held or distributed as the court may direct.

(2) The fiduciary or beneficiary responsible for payment of the tax imposed by this section may elect to determine the tax liability of the estate or trust as provided in [sections 1 through 4].

(3) The fiduciary shall be is responsible for making the return of income for the estate or trust for which he the fiduciary acts, whether the fiduciary or the beneficiaries are taxable responsible for the payment of the tax with reference to the income of such the estate or trust. In cases under subsections (a) and (d) of subsection (1) (1)(a) and (1)(d), the fiduciary shall include in the return a statement of each beneficiary's distributive share of net income, whether or not distributed before the close of the taxable tax year for which the return is made.

(3)(4) In cases under subsections (a), (b), and (c) of subsection (1) (1)(a), (1)(b), and (1)(c), the tax shall must be imposed upon the fiduciary of the estate or trust with respect to the net income of the estate or trust and shall must be paid by the fiduciary. If the taxpayer's net income for the taxable tax year of the estate or trust is computed upon the basis of a period different from that upon the basis of which the net income of the estate or trust is computed, then his the taxpayer's distributive share of the net income of the estate or trust for any accounting period of such the estate or trust ending within the fiscal or calendar year shall must be computed upon the basis on which such the beneficiary's net income is computed. In such those cases, a nonresident beneficiary not a resident shall be is taxable with respect to his the beneficiary's income derived through such the estate or trust only to the extent provided in 15-30-131 for individuals other than residents nonresidents.

(4)(5) The fiduciary of a trust created by an employer as a part of a stock bonus, pension, or profit-sharing plan for the exclusive benefit of some or all of his the employer's employees, to which contributions are made by such the employer or employees, or both, for the purpose of distributing to such the employees the earnings and principal of the fund accumulated by the trust in accordance with such the plan, shall are not be taxable under this section,. but However, any amount contributed to such the fund by the employer and all earnings of such the fund shall must be included in computing the income of the distributee in the year in which distributed or made available to him distributee.

(5)(6) Where If any part of the income of a trust other than a testamentary trust is or may be applied to the payment of premiums upon policies of insurance on the life of the grantor, (except policies of insurance irrevocably payable for the purposes and in the manner specified relating to the so-called "charitable contribution" deduction), or to the payment of premiums upon policies of life insurance under which the grantor is the beneficiary, such then that part of the income of the trust shall must be included in computing the net income of the grantor."

Section 19. Section 15-30-137, MCA, is amended to read:

"15-30-137. Determination of tax of estates and trusts. The amount of tax must be determined from taxable income of an estate or trust in the same manner as the tax on taxable income of individuals, by applying the rates contained in 15-30-103 or [section 3]. Credits Except as provided in [section 1], credits allowed individuals under Title 15, chapter 30, also apply to estates and trusts when applicable."

Section 20. Section 15-30-142, MCA, is amended to read:

"15-30-142. Returns and payment of tax -- penalty and interest -- refunds -- credits. (1) For both resident and nonresident taxpayers, each single individual and each married individual not filing a joint return with a spouse and having a gross income for the tax year of more than $3,560, as adjusted under the provisions of subsection (6), and married individuals not filing separate returns and having a combined gross income for the tax year of more than $7,120, as adjusted under the provisions of subsection (6), are liable for a return to be filed on forms and according to rules that the department may prescribe. The gross income amounts referred to in the preceding sentence must be increased by $1,900, as adjusted under the provisions of 15-30-112(6), for each additional personal exemption allowance that the taxpayer is entitled to claim for the taxpayer and the taxpayer's spouse under 15-30-112(3) and (4).

(2) In accordance with instructions set forth by the department, each taxpayer who is married and living with husband or wife and is required to file a return may, at the taxpayer's option, file a joint return with husband or wife even though one of the spouses has neither gross income nor deductions. If a joint return is made, the tax must be computed on the aggregate taxable income and the liability with respect to the tax is joint and several. If a joint return has been filed for a tax year, the spouses may not file separate returns after the time for filing the return of either has expired unless the department consents.

(3) If a taxpayer is unable to make the taxpayer's own return, the return must be made by an authorized agent or by a guardian or other person charged with