SENATE BILL NO. 5
INTRODUCED BY K. GILLAN
A BILL FOR AN ACT ENTITLED: "AN ACT REVISING THE LAWS RELATING TO TAXATION; INCREASING THE BUSINESS EQUIPMENT TAX EXEMPTION TO THE FIRST $80,000 OF MARKET VALUE OF PROPERTY; PROHIBITING THE CLASS EIGHT PROPERTY FROM BEING SEPARATED INTO DIFFERENT BUSINESS ENTITIES FOR DETERMINING WHETHER THE $80,000 EXEMPTION IS EXCEEDED; PROVIDING FOR THE ALLOCATION OF EXEMPT CLASS EIGHT PROPERTY BY LOCATION; PROVIDING A REIMBURSEMENT TO LOCAL GOVERNMENTS AND TAX INCREMENT FINANCING DISTRICTS UNDER THE ENTITLEMENT SHARE PAYMENT AND TO SCHOOL DISTRICTS THROUGH GUARANTEED TAX BASE FUNDING FOR THE LOSS OF CLASS EIGHT PROPERTY TAX REVENUE; EXEMPTING FROM TAXATION ITEMS OF PERSONAL PROPERTY WITH A MARKET VALUE OF LESS THAN $100; CONFORMING STATE WITHHOLDING PROVISIONS TO FEDERAL WITHHOLDING PROVISIONS FOR PENSIONS, ANNUITIES, AND CERTAIN OTHER DEFERRED INCOME; REQUIRING WITHHOLDING AT 30 PERCENT OF THE AMOUNT WITHHELD FOR FEDERAL TAX PURPOSES; PROVIDING A REFUNDABLE RENTERS' INCOME TAX CREDIT; LIMITING THE CREDIT TO INDIVIDUALS WITH INCOME BELOW A CERTAIN LEVEL; PROHIBITING THE PRACTICE COMMONLY KNOWN AS INSURANCE STUFFING BY SPECIFYING WHEN CORPORATIONS MAY PROPERLY TAKE A DIVIDENDS-RECEIVED DEDUCTION FOR DIVIDENDS RECEIVED FROM INSURANCE COMPANIES; SPECIFYING HOW TO CALCULATE THE APPROPRIATE DIVIDENDS-RECEIVED DEDUCTION IN THOSE CIRCUMSTANCES; DISREGARDING THE PERMANENT DEFERRAL OF GAIN RECOGNITION FOR CERTAIN TRANSACTIONS; AUTHORIZING THE DEPARTMENT OF REVENUE TO INCLUDE IN THE GROSS INCOME THE TAXPAYER'S PRO RATA SHARE OF ANY OF THOSE INSURERS' CURRENT EARNINGS AND PROFITS IN THAT TAX YEAR; INCLUDING A GRANTOR TRUST AS A DISREGARDED ENTITY; TREATING GRANTOR TRUSTS AS PASS-THROUGH ENTITIES FOR WITHHOLDING AND REPORTING PURPOSES; DEFINING "GRANTOR TRUST"; DIRECTING THE DEPARTMENT OF REVENUE TO WAIVE REPORTING REQUIREMENTS FOR GRANTOR TRUSTS THAT ESTABLISH THAT THEIR MONTANA SOURCE INCOME WILL BE FULLY ACCOUNTED FOR IN INDIVIDUAL INCOME TAX RETURNS, CORPORATION LICENSE TAX RETURNS, OR CORPORATION INCOME TAX RETURNS FILED WITH THE STATE; ADOPTING PROVISIONS OF THE MULTISTATE TAX COMMISSION MODEL ACT ON LISTED TRANSACTIONS AND THE MODEL ACT FOR A TAX EVASION TRANSACTION VOLUNTARY COMPLIANCE PROGRAM; REQUIRING TAXPAYERS TO DISCLOSE CERTAIN TRANSACTIONS; REQUIRING MATERIAL ADVISERS TO DISCLOSE CERTAIN TRANSACTIONS; REQUIRING TAX SHELTER PROMOTERS TO DISCLOSE CERTAIN TRANSACTIONS; PROVIDING A REFUND OF UP TO A TOTAL OF $400 OF 2006 MONTANA PROPERTY TAXES PAID BY A TAXPAYER OR TAXPAYERS ON THE RESIDENCE THAT THEY OWNED AND OCCUPIED AS THEIR PRINCIPAL RESIDENCE FOR AT LEAST 7 MONTHS DURING 2006 AND OF CERTAIN 2005 AND 2004 MONTANA PROPERTY TAXES PAID ON THE PRINCIPAL RESIDENCE; PROVIDING THE PROCEDURE FOR ESTABLISHING ENTITLEMENT TO THE REFUND AND THE PERIOD WITHIN WHICH THE ENTITLEMENT MUST BE ESTABLISHED; AMENDING SECTIONS 15-1-121, 15-6-138, 15-6-219, 15-8-301, 15-10-420, 15-30-101, AND 20-9-366, MCA; AND PROVIDING EFFECTIVE DATES AND APPLICABILITY DATES."
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MONTANA:
NEW SECTION. Section 1. Reimbursement for class eight exemption -- distribution. (1) For the exemption amount in 15-6-138, effective January 1, 2008, the department shall, by June 1, 2008, for calendar year 2008 estimate for each local government, as defined in 15-1-121(4), and each tax increment financing district the difference between property tax collections under 15-6-138 and the property tax revenue that would have been collected under 15-6-138. The difference is the reimbursable amount for each local government and tax increment financing district.
(2) (a) The department shall distribute the reimbursement to local governments with the entitlement distributions for fiscal year 2009 to local governments under 15-1-121(6). Local government reimbursements for subsequent years are made pursuant to the entitlement share recomputation as provided in 15-1-121(6).
(b) For fiscal year 2008, the department shall determine from the amount calculated under subsection (1) the amount that is attributable to personal property taxes that are not a lien on real property for each local government. By June 15, 2008, the department shall distribute the amount determined under this subsection (2)(b) for local governments as provided in 15-1-121(5)(a).
(c) The market value of class eight property exempted under 15-6-138 must be subtracted from the fiscal year 2008 total market value of class eight property when the department computes the value of newly taxable property for fiscal year 2009 under 15-10-420.
(3) (a) For each fiscal year beginning after June 30, 2008, the amount determined under subsection (1) for each tax increment financing district must be added to the entitlement share amount for the tax increment financing district as provided in 15-1-121(7)(b) if the tax increment financing district is still in existence. If a tax increment financing district that is entitled to a reimbursement under this section is not listed under 15-1-121(7), the reimbursement must be made to that tax increment financing district at the same time as other districts.
(b) For fiscal year 2008, the department shall determine from the amount calculated under subsection (1) the amount that is attributable to personal property taxes that are not a lien on real property for each tax increment financing district. By June 15, 2008, the department shall distribute the amount determined under this subsection (3)(b) to each tax increment financing district as provided in 15-1-121(7)(b) and to any other tax increment financing district that is entitled to a reimbursement under this section.
Section 2. Section 15-1-121, MCA, is amended to read:
"15-1-121. Entitlement share payment -- appropriation. (1) As described in 15-1-120(3), each local government is entitled to an annual amount that is the replacement for revenue received by local governments for diminishment of the property tax base and various earmarked fees and other revenue that, pursuant to Chapter 574, Laws of 2001, amended by section 4, Chapter 13, Special Laws of August 2002, and later enactments, was consolidated to provide aggregation of certain reimbursements, fees, tax collections, and other revenue in the state treasury with each local government's share. The reimbursement under this section is provided by direct payment from the state treasury rather than the ad hoc system that offset certain state payments with local government collections due the state and reimbursements made by percentage splits, with a local government remitting a portion of collections to the state, retaining a portion, and in some cases sending a portion to other local governments. The amount calculated pursuant to this subsection, as adjusted pursuant to subsection (3)(a)(i), is each local government's base entitlement share. The department shall estimate the total amount of revenue that each local government received from the following sources for the fiscal year ending June 30, 2001:
(a) personal property tax reimbursements pursuant to sections 167(1) through (5) and 169(6), Chapter 584, Laws of 1999;
(b) vehicle, boat, and aircraft taxes and fees pursuant to:
(i) Title 23, chapter 2, part 5;
(ii) Title 23, chapter 2, part 6;
(iii) Title 23, chapter 2, part 8;
(iv) 61-3-317;
(v) 61-3-321;
(vi) Title 61, chapter 3, part 5, except for 61-3-509(3), as that subsection read prior to the amendment of 61-3-509 in 2001;
(vii) Title 61, chapter 3, part 7;
(viii) 5% of the fees collected under 61-10-122;
(ix) 61-10-130;
(x) 61-10-148; and
(xi) 67-3-205;
(c) gaming revenue pursuant to Title 23, chapter 5, part 6, except for the permit fee in 23-5-612(2)(a);
(d) district court fees pursuant to:
(i) 25-1-201, except those fees in 25-1-201(1)(d), (1)(g), and (1)(j);
(ii) 25-1-202;
(iii) 25-1-1103;
(iv) 25-9-506; and
(v) 27-9-103;
(e) certificate of title fees for manufactured homes pursuant to 15-1-116;
(f) financial institution taxes collected pursuant to the former provisions of Title 15, chapter 31, part 7;
(g) all beer, liquor, and wine taxes pursuant to:
(i) 16-1-404;
(ii) 16-1-406; and
(iii) 16-1-411;
(h) late filing fees pursuant to 61-3-220;
(i) title and registration fees pursuant to 61-3-203;
(j) veterans' cemetery license plate fees pursuant to 61-3-459;
(k) county personalized license plate fees pursuant to 61-3-406;
(l) special mobile equipment fees pursuant to 61-3-431;
(m) single movement permit fees pursuant to 61-4-310;
(n) state aeronautics fees pursuant to 67-3-101; and
(o) department of natural resources and conservation payments in lieu of taxes pursuant to Title 77, chapter 1, part 5.
(2) (a) From the amounts estimated in subsection (1) for each county government, the department shall deduct fiscal year 2001 county government expenditures for district courts, less reimbursements for district court expenses, and fiscal year 2001 county government expenditures for public welfare programs to be assumed by the state in fiscal year 2002.
(b)(2) The total amount estimated pursuant to subsections (1) and (2)(a) received in fiscal year 2007 as an entitlement share payment under this section is the base component for the fiscal year 2008 distribution, and in each subsequent year, the prior year entitlement share payment, including any reimbursement payments received pursuant to subsection (6), is each local government's base year component. The sum of all local governments' base year components is the base fiscal year entitlement share pool. For the purpose of calculating the sum of all local governments' base year components, the base year component for a local government may not be less than zero.
(3) (a) The base fiscal year entitlement share pool must be increased annually by a growth rate as provided for in this subsection (3). The amount determined through the application of annual growth rates is the entitlement share pool for each fiscal year. By October 1 of each even-numbered year, the department shall calculate the growth rate of the entitlement share pool for each year of the next biennium in the following manner:
(i) Before applying the growth rate for fiscal year 2007 to determine the fiscal year 2007 entitlement share payments, the department shall subtract from the fiscal year 2006 entitlement share payments the following amounts:
Beaverhead $6,972
Big Horn $52,551
Blaine $13,625
Broadwater $2,564
Carbon $11,537
Carter $407
Cascade $157,151
Chouteau $3,536
Custer $7,011
Daniels $143
Dawson $3,893
Fallon $1,803
Fergus $9,324
Flathead $33,655
Gallatin $222,029
Garfield $91
Glacier $3,035
Golden Valley $2,282
Granite $4,554
Hill $31,740
Jefferson $5,700
Judith Basin $1,487
Lake $38,314
Lewis and Clark $247,886
Liberty $152
Lincoln $3,759
Madison $8,805
McCone $1,651
Meagher $2,722
Mineral $2,361
Missoula $172,600
Musselshell $23,275
Park $6,582
Petroleum $36
Phillips $653
Pondera $10,270
Powder River $848
Powell $5,146
Prairie $717
Ravalli $93,090
Richland $3,833
Roosevelt $9,526
Rosebud $19,971
Sanders $30,712
Sheridan $271
Stillwater $12,117
Sweet Grass $2,463
Teton $5,560
Toole $7,113
Treasure $54
Valley $6,899
Wheatland $918
Wibaux $72
Yellowstone $266,644
Anaconda-Deer Lodge $20,707
Butte-Silver Bow $53,057
Alberton $675
Bainville $258
Baker $2,828
Bearcreek $143
Belgrade $11,704
Belt $1,056
Big Sandy $1,130
Big Timber $2,910
Billings $163,499
Boulder $2,340
Bozeman $52,805
Bridger $1,303
Broadus $766
Broadview $258
Brockton $414
Browning $1,830
Cascade $1,374
Chester $1,430
Chinook $2,275
Choteau $3,050
Circle $1,018
Clyde Park $572
Colstrip $4,090
Columbia Falls $6,805
Columbus $3,245
Conrad $4,562
Culbertson $1,216
Cut Bank $5,316
Darby $1,348
Deer Lodge $5,708
Denton $503
Dillon $6,928
Dodson $194
Drummond $561
Dutton $661
East Helena $2,888
Ekalaka $689
Ennis $1,518
Eureka $1,733
Fairfield $1,120
Fairview $1,152
Flaxville $143
Forsyth $3,286
Fort Benton $2,579
Fort Peck $393
Froid $328
Fromberg $855
Geraldine $457
Glasgow $5,361
Glendive $8,099
Grass Range $254
Great Falls $96,422
Hamilton $7,148
Hardin $5,920
Harlem $1,422
Harlowton $1,678
Havre $16,223
Helena $45,877
Hingham $263
Hobson $397
Hot Springs $912
Hysham $482
Ismay $43
Joliet $1,006
Jordan $606
Judith Gap $263
Kalispell $28,144
Kevin $304
Laurel $10,804
Lavina $361
Lewistown $10,170
Libby $4,475
Lima $397
Livingston $12,145
Lodge Grass $889
Malta $3,389
Manhattan $2,485
Medicine Lake $410
Melstone $234
Miles City $14,152
Missoula $104,264
Moore $319
Nashua $536
Neihart $149
Opheim $180
Outlook $125
Philipsburg $1,612
Pinesdale $1,413
Plains $2,007
Plentywood $3,185
Plevna $225
Polson $7,722
Poplar $1,544
Red Lodge $3,903
Rexford $263
Richey $309
Ronan $3,262
Roundup $3,280
Ryegate $465
Saco $354
Scobey $1,798
Shelby $5,677
Sheridan $1,150
Sidney $7,747
Stanford $737
Stevensville $3,063
St. Ignatius $1,367
Sunburst $709
Superior $1,521
Terry $1,011
Thompson Falls $2,272
Three Forks $3,130
Townsend $3,286
Troy $1,654
Twin Bridges $695
Valier $817
Virginia City $223
Walkerville $1,183
West Yellowstone $2,083
Westby $263
White Sulphur Springs $1,734
Whitefish $9,932
Whitehall $1,889
Wibaux $893
Winifred $259
Winnett $314
Wolf Point $4,497
(ii)(i) The department shall calculate the average annual growth rate of the Montana gross state product, as published by the bureau of economic analysis of the United States department of commerce, for the following periods:
(A) the last 4 calendar years for which the information has been published; and
(B) the 4 calendar years beginning with the year before the first year in the period referred to in subsection (3)(a)(ii)(A) (3)(a)(i)(A).
(iii)(ii) The department shall calculate the average annual growth rate of Montana personal income, as published by the bureau of economic analysis of the United States department of commerce, for the following periods:
(A) the last 4 calendar years for which the information has been published; and
(B) the 4 calendar years beginning with the year before the first year in the period referred to in subsection (3)(a)(iii)(A) (3)(a)(ii)(A).
(b) (i) The entitlement share pool growth rate for the first each year of the biennium must be the following percentage of the average of the growth rates calculated in subsections (3)(a)(ii)(B) (3)(a)(i)(B) and (3)(a)(iii)(B) (3)(a)(ii)(B):
(A)(i) for counties, 54%;
(B)(ii) for consolidated local governments, 62%; and
(C)(iii) for incorporated cities and towns, 70%.
(ii) The entitlement share pool growth rate for the second year of the biennium must be the following percentage of the average of the growth rates calculated in subsections (3)(a)(ii)(A) and (3)(a)(iii)(A):
(A) for counties, 54%;
(B) for consolidated local governments, 62%; and
(C) for incorporated cities and towns, 70%.
(4) As used in this section, "local government" means a county, a consolidated local government, an incorporated city, and an incorporated town. A local government does not include a tax increment financing district provided for in subsection (6) (7). For purposes of calculating the base year component for a county or consolidated local government, the department shall include the revenue listed in subsection (1) for all special districts within the county or consolidated local government. The county or consolidated local government is responsible for making an allocation from the county's or consolidated local government's share of the entitlement share pool to each special district within the county or consolidated local government in a manner that reasonably reflects each special district's loss of revenue sources listed in subsection (1) for which reimbursement is provided in this section.
(5) (a) The entitlement share pools calculated in this section, the amounts determined under [section 1(2)(b)] for local governments, and the block grants funding provided for in subsection (6) (7), including the amounts determined under [section 1(3)(b)], are statutorily appropriated, as provided in 17-7-502, from the general fund to the department for distribution to local governments. Each local government is entitled to a pro rata share of each year's entitlement share pool based on the local government's base component in relation to the base year entitlement share pool. The Except for the distribution made under [section 1(2)(b)], the distributions must be made on a quarterly basis.
(b) (i) The growth amount is the difference between the entitlement share pool in the current fiscal year and the entitlement share pool in the previous fiscal year. For the purposes of subsection (5)(b)(ii)(A), a county with a negative base year component has a base year component of zero. The growth factor in the entitlement share must be calculated separately for:
(A) counties;
(B) consolidated local governments; and
(C) incorporated cities and towns.
(ii) In each fiscal year, the growth amount for counties must be allocated as follows:
(A) 50% of the growth amount must be allocated based upon each county's percentage of the base prior fiscal year entitlement share pool for all counties; and
(B) 50% of the growth amount must be allocated based upon the percentage that each county's population bears to the state population not residing within consolidated local governments as determined by the latest interim year population estimates from the Montana department of commerce as supplied by the United States bureau of the census.
(iii) In each fiscal year, the growth amount for consolidated local governments must be allocated as follows:
(A) 50% of the growth amount must be allocated based upon each consolidated local government's percentage of the base prior fiscal year entitlement share pool for all consolidated local governments; and
(B) 50% of the growth amount must be allocated based upon the percentage that each consolidated local government's population bears to the state's total population residing within consolidated local governments as determined by the latest interim year population estimates from the Montana department of commerce as supplied by the United States bureau of the census.
(iv) In each fiscal year, the growth amount for incorporated cities and towns must be allocated as follows:
(A) 50% of the growth amount must be allocated based upon each incorporated city's or town's percentage of the base prior fiscal year entitlement share pool for all incorporated cities and towns; and
(B) 50% of the growth amount must be allocated based upon the percentage that each city's or town's population bears to the state's total population residing within incorporated cities and towns as determined by the latest interim year population estimates from the Montana department of commerce as supplied by the United States bureau of the census.
(v) In each fiscal year, the amount of the entitlement share pool not represented by before the growth amount or adjustments are made under subsection (6) are applied is to be distributed to each local government in the same manner as the entitlement share pool was distributed in the prior fiscal year.
(6) If the legislature enacts a reimbursement provision that is to be distributed pursuant to this section, the department shall determine the reimbursement amount as provided in the enactment and add the appropriate amount to the entitlement share distribution under this section. The total entitlement share distributions in a fiscal year, including distributions made pursuant to this subsection, equal the local fiscal year entitlement share pool. The ratio of each local government's distribution from the entitlement share pool must be recomputed to determine each local government's ratio to be used in the subsequent year's distribution determination under subsections (5)(b)(ii)(A), (5)(b)(iii)(A), and (5)(b)(iv)(A).
(6)(7) (a) If a tax increment financing district was not in existence during the fiscal year ending June 30, 2000, then the tax increment financing district is not entitled to any block grant funding. If a tax increment financing district referred to in subsection (6)(b) (7)(b) terminates, then the block grant funding for the district provided for in subsection (6)(b) (7)(b) terminates.
(b) One-half Except for the reimbursement made under [section 1(3)(b)], one-half of the payments provided for in this subsection (6)(b) (7)(b) must be made by November 30 and the other half by May 31 of each year. Subject to subsection (6)(a) (7)(a), the entitlement share for tax increment financing districts is as follows:
Cascade Great Falls - downtown $468,966
Deer Lodge TIF District 1 3,148
Deer Lodge TIF District 2 3,126
Flathead Kalispell - District 1 758,359
Flathead Kalispell - District 2 5,153
Flathead Kalispell - District 3 41,368
Flathead Whitefish District 164,660
Gallatin Bozeman - downtown 34,620
Lewis and Clark Helena - #2 731,614
Missoula Missoula - 1-1B & 1-1C 1,100,507 250,279
Missoula Missoula - 4-1C 33,343
Silver Bow Butte - uptown 283,801
Yellowstone Billings 436,815
(7)(8) The estimated base fiscal year entitlement share pool and any subsequent entitlement share pool for local governments do not include revenue received from tax increment financing districts, from countywide transportation block grants, or from countywide retirement block grants.
(8) (a) If revenue that is included in the sources listed in subsections (1)(b) through (1)(o) is significantly reduced, except through legislative action, the department shall deduct the amount of revenue loss from the entitlement share pool beginning in the succeeding fiscal year and the department shall work with local governments to propose legislation to adjust the entitlement share pool to reflect an allocation of the loss of revenue.
(b) For the purposes of subsection (8)(a), a significant reduction is a loss that causes the amount of revenue received in the current year to be less than 95% of the amount of revenue received in the base year.
(9) A three-fifths vote of each house is required to reduce the amount of the entitlement share calculated pursuant to subsections (1) through (3).
(10) When there has been an underpayment of a local government's share of the entitlement share pool, the department shall distribute the difference between the underpayment and the correct amount of the entitlement share. When there has been an overpayment of a local government's entitlement share, the local government shall remit the overpaid amount to the department.
(11) A local government may appeal the department's estimation of the base year component, the entitlement share pool growth rate, or a local government's allocation of the entitlement share pool, according to the uniform dispute review procedure in 15-1-211.
(12) A payment required pursuant to this section may not be offset by a debt owed to a state agency by a local government in accordance with Title 17, chapter 4, part 1."
Section 3. Section 15-6-138, MCA, is amended to read:
"15-6-138. Class eight property -- description -- taxable percentage. (1) Class eight property includes:
(a) all agricultural implements and equipment that are not exempt under 15-6-207 or 15-6-220;
(b) all mining machinery, fixtures, equipment, tools that are not exempt under 15-6-219, and supplies except those included in class five;
(c) all oil and gas production machinery, fixtures, equipment, including pumping units, oil field storage tanks, water storage tanks, water disposal injection pumps, gas compressor and dehydrator units, communication towers, gas metering shacks, treaters, gas separators, water flood units, gas boosters, and similar equipment that is skidable, portable, or movable, tools that are not exempt under 15-6-219, and supplies except those included in class five;
(d) all manufacturing machinery, fixtures, equipment, tools, except a certain value of hand-held tools and personal property related to space vehicles, ethanol manufacturing, and industrial dairies and milk processors as provided in 15-6-220, and supplies except those included in class five;
(e) all goods and equipment that are intended for rent or lease, except goods and equipment that are specifically included and taxed in another class;
(f) special mobile equipment as defined in 61-1-101;
(g) furniture, fixtures, and equipment, except that specifically included in another class, used in commercial establishments as defined in this section;
(h) x-ray and medical and dental equipment;
(i) citizens' band radios and mobile telephones;
(j) radio and television broadcasting and transmitting equipment;
(k) cable television systems;
(l) coal and ore haulers;
(m) theater projectors and sound equipment; and
(n) all other property that is not included in any other class in this part, except that property that is subject to a fee in lieu of a property tax.
(2) As used in this section, "coal and ore haulers" means nonhighway vehicles that exceed 18,000 pounds an axle and that are primarily designed and used to transport coal, ore, or other earthen material in a mining or quarrying environment.
(3) "Commercial establishment" includes any hotel, motel, office, petroleum marketing station, or service, wholesale, retail, or food-handling business.
(4) Class eight property is taxed at 3% of its market value.
(5) (a) The first $80,000 of market value of class eight property of a person owned by an individual or business entity that owns an aggregate of $20,000 or less in market value of class eight property is exempt from taxation.
(b) (i) The department shall, by rule, establish reporting requirements that will not allow multiple business identities to be formed to obtain multiple exemption thresholds for what are functionally single businesses. The rules may require individual and taxpayer identification numbers for pass-through entities, as defined in 15-30-101, and their owners, partners, and officers to allow the department to track exemptions through the entities.
(ii) Whenever one member of a firm or one of the proper officers of a corporation has made a statement showing the property of the firm or corporation, another member of the firm or another officer is not required to include the property in that person's statement but the statement must show the name of the person or officer who made the statement in which the property is included.
(iii) The fact that a statement is not required or that a person has not made a statement, under oath or otherwise, does not relieve the person's property from taxation."
Section 4. Section 15-6-219, MCA, is amended to read:
"15-6-219. Personal and other property exemptions -- allocation of certain exemptions. (1) The following categories of property are exempt from taxation:
(1)(a) harness, saddlery, and other tack equipment;
(2)(b) the first $15,000 or less of market value of tools owned by the taxpayer that are customarily hand-held and that are used to:
(a)(i) construct, repair, and maintain improvements to real property; or
(b)(ii) repair and maintain machinery, equipment, appliances, or other personal property;
(3)(c) all household goods and furniture, including but not limited to clocks, musical instruments, sewing machines, and wearing apparel of members of the family, used by the owner for personal and domestic purposes or for furnishing or equipping the family residence;
(4)(d) a bicycle, as defined in 61-8-102, used by the owner for personal transportation purposes;
(5)(e) items of personal property intended for rent or lease in the ordinary course of business if each item of personal property satisfies all of the following:
(a)(i) the acquired cost of the personal property is less than $15,000;
(b)(ii) the personal property is owned by a business whose primary business income is from rental or lease of personal property to individuals and no one customer of the business accounts for more than 10% of the total rentals or leases during a calendar year; and
(c)(iii) the lease of the personal property is generally on an hourly, daily, or weekly basis;
(f) the specified amount or less of market value of class eight property exempt under 15-6-138(5) not otherwise exempt from property taxation owned by an individual or business entity that is identified by a unique taxpayer identification number;
(g) items of personal property with a market value of less than $100;
(6)(h) space vehicles and all machinery, fixtures, equipment, and tools used in the design, manufacture, launch, repair, and maintenance of space vehicles that are owned by businesses engaged in manufacturing and launching space vehicles in the state or that are owned by a contractor or subcontractor of that business and that are directly used for space vehicle design, manufacture, launch, repair, and maintenance;
and
(7)(i) a title plant owned by a title insurer or a title insurance producer, as those terms are defined in 33-25-105.
(2) (a) For determining the amount of a taxpayer's class eight property that is subject to taxation, the department shall allocate the market value of class eight business equipment that is exempt from taxation under subsection (1)(f) as provided in this subsection (2).
(b) If the class eight business equipment of the taxpayer is used in a single location, the market value of the exempt property is allocated to that location.
(c) If the class eight business equipment of the taxpayer is used in more than one location, the market value of the exempt property must be allocated to each location in the ratio that the total market value of class eight property at that location bears to the total market value of class eight property of the taxpayer at all locations.
(d) The allocations determined under subsections (2)(b) and (2)(c) must be converted to taxable value using the tax rate under 15-6-138 and must be reported to counties for the purpose of determining county classification under 7-1-2111."
Section 5. Section 15-8-301, MCA, is amended to read:
"15-8-301. Statement -- what to contain. (1) The department may require from a person a statement under oath setting forth specifically all the real and personal property owned by, in possession of, or under the control of the person at midnight on January 1. The statement must be in writing, showing separately:
(a) all property belonging to, claimed by, or in the possession or under the control or management of the person;
(b) all property belonging to, claimed by, or in the possession or under the control or management of any firm of which the person is a member;
(c) all property belonging to, claimed by, or in the possession or under the control or management of any corporation of which the person is president, secretary, cashier, or managing agent;
(d) the county in which the property is situated or in which the property is liable to taxation and, if liable to taxation in the county in which the statement is made, also the city, town, school district, road district, or other revenue districts in which the property is situated;
(e) an exact description of all lands, improvements, and personal property;
(f) all depots, shops, stations, buildings, and other structures erected on the space covered by the right-of-way and all other property owned by any person owning or operating any railroad within the county.
(2) The department shall notify the taxpayer in the statement for reporting personal property owned by a business or used in a business that the statement is for reporting business equipment and other business personal property described in Title 15, chapter 6, part 1. A Except as provided in subsection (3), a taxpayer owning exempt business equipment is subject to limited reporting requirements; however. However, all new businesses shall report their class eight property so that the department can determine the market value of the property. The department shall by rule develop reporting requirements for business equipment to limit the annual reporting of exempt business equipment to the extent feasible.
(3) In the reporting of exempt business equipment under 15-6-219(1)(f), the department shall, by rule, establish reporting requirements that will prevent the use of multiple business identities to obtain multiple exemptions for what are functionally single businesses. The rules must require a unique taxpayer identification number for an individual and business entity to allow the department to track exemptions of all individuals and business entities. The department shall use the information obtained under this subsection to allocate the market value of exempt business equipment as provided in 15-6-219(2).
(3)(4) Whenever one member of a firm or one of the proper officers of a corporation has made a statement showing the property of the firm or corporation, another member of the firm or another officer is not required to include the property in that person's statement but the statement must show the name of the person or officer who made the statement in which the property is included.
(4)(5) The fact that a statement is not required or that a person has not made a statement, under oath or otherwise, does not relieve the person's property from taxation."
Section 6. Section 15-10-420, MCA, is amended to read:
"15-10-420. Procedure for calculating levy. (1) (a) Subject to the provisions of this section, a governmental entity that is authorized to impose mills may impose a mill levy sufficient to generate the amount of property taxes actually assessed in the prior year plus one-half of the average rate of inflation for the prior 3 years. The maximum number of mills that a governmental entity may impose is established by calculating the number of mills required to generate the amount of property tax actually assessed in the governmental unit in the prior year based on the current year taxable value, less the current year's value of newly taxable property, plus one-half of the average rate of inflation for the prior 3 years.
(b) A governmental entity that does not impose the maximum number of mills authorized under subsection (1)(a) may carry forward the authority to impose the number of mills equal to the difference between the actual number of mills imposed and the maximum number of mills authorized to be imposed. The mill authority carried forward may be imposed in a subsequent tax year.
(c) For the purposes of subsection (1)(a), the department shall calculate one-half of the average rate of inflation for the prior 3 years by using the consumer price index, U.S. city average, all urban consumers, using the 1982-84 base of 100, as published by the bureau of labor statistics of the United States department of labor.
(2) A governmental entity may apply the levy calculated pursuant to subsection (1)(a) plus any additional levies authorized by the voters, as provided in 15-10-425, to all property in the governmental unit, including newly taxable property.
(3) (a) For purposes of this section, newly taxable property includes:
(i) annexation of real property and improvements into a taxing unit;
(ii) construction, expansion, or remodeling of improvements;
(iii) transfer of property into a taxing unit;
(iv) subdivision of real property; and
(v) transfer of property from tax-exempt to taxable status.
(b) Newly taxable property does not include an increase in value that arises because of an increase in the incremental value within a tax increment financing district.
(4) (a) For the purposes of subsection (1), the taxable value of newly taxable property includes the release of taxable value from the incremental taxable value of a tax increment financing district because of:
(i) a change in the boundary of a tax increment financing district;
(ii) an increase in the base value of the tax increment financing district pursuant to 7-15-4287; or
(iii) the termination of a tax increment financing district.
(b) If a tax increment financing district terminates prior to the certification of taxable values as required in 15-10-202, the increment value is reported as newly taxable property in the year in which the tax increment financing district terminates. If a tax increment financing district terminates after the certification of taxable values as required in 15-10-202, the increment value is reported as newly taxable property in the following tax year.
(c) For the purpose of subsection (3)(a)(iv), the subdivision of real property includes the first sale of real property that results in the property being taxable as class four property or as nonqualified agricultural land as described in 15-6-133(1)(c).
(5) Subject to subsection (8), subsection (1)(a) does not apply to:
(a) school district levies established in Title 20; or
(b) the portion of a governmental entity's property tax levy for premium contributions for group benefits excluded under 2-9-212 or 2-18-703.
(6) For purposes of subsection (1)(a), taxes imposed do not include net or gross proceeds taxes received under 15-6-131 and 15-6-132.
(7) In determining the maximum number of mills in subsection (1)(a), the governmental entity:
(a) may increase the number of mills to account for a decrease in reimbursements;
(b) may not increase the number of mills to account for a loss of tax base because of legislative action that is reimbursed under the provisions of 15-1-121(6).
(8) The department shall calculate, on a statewide basis, the number of mills to be imposed for purposes of 15-10-107, 20-9-331, 20-9-333, 20-9-360, 20-25-423, and 20-25-439. However, the number of mills calculated by the department may not exceed the mill levy limits established in those sections. The mill calculation must be established in whole mills. If the mill levy calculation does not result in a whole number of mills, then the calculation must be rounded up to the nearest whole mill.
(9) (a) The provisions of subsection (1) do not prevent or restrict:
(i) a judgment levy under 2-9-316, 7-6-4015, or 7-7-2202;
(ii) a levy to repay taxes paid under protest as provided in 15-1-402; or
(iii) an emergency levy authorized under 10-3-405, 20-9-168, or 20-15-326.
(b) A levy authorized under subsection (9)(a) may not be included in the amount of property taxes actually assessed in a subsequent year.
(10) A governmental entity may levy mills for the support of airports as authorized in 67-10-402, 67-11-301, or 67-11-302 even though the governmental entity has not imposed a levy for the airport or the airport authority in either of the previous 2 years and the airport or airport authority has not been appropriated operating funds by a county or municipality during that time.
(11) The department may adopt rules to implement this section. The rules may include a method for calculating the percentage of change in valuation for purposes of determining the elimination of property, new improvements, or newly taxable property in a governmental unit."
Section 7. Section 15-30-101, MCA, is amended to read:
"15-30-101. Definitions. For the purpose of this chapter, unless otherwise required by the context, the following definitions apply:
(1) "Base year structure" means the following elements of the income tax structure:
(a) 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;
(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 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) is not in effect; and
(c) that is not a disregarded entity.
(4) "Department" means the department of revenue.
(5) "Disregarded entity" means a business entity:
(a) a business entity 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)); or
(c) a grantor trust.
(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) "Grantor trust" means a trust any portion for which the grantor or another person is treated as owner as provided in Chapter 1, Subchapter J, Part I, Subpart E, of the Internal Revenue Code, 26 U.S.C. 671, et seq.
(10)(11) "Gross income" 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), 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.
(11)(12) "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 2005.
(12)(13) "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)(14) "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)(15) "Knowingly" is as defined in 45-2-101.
(15)(16) "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)(17) "Limited liability partnership" means a limited liability partnership as defined in 35-10-102.
(17)(18) "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)(19) (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
(C) taken into account while a resident of the state;
(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
(C) taken into account while a resident of the state;
(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)(20) "Net income" means the adjusted gross income of a taxpayer less the deductions allowed by this chapter.
(20)(21) "Nonresident" means a natural person who is not a resident.
(21)(22) "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)(23) "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)(24) "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)(25) "Pass-through entity" means a partnership, an S. corporation, or a disregarded entity.
(25)(26) "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), 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), 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)(27) "Purposely" is as defined in 45-2-101.
(27)(28) "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)(29) "Resident" applies only to natural persons 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 within the state even though temporarily absent from the state and who has not established a residence elsewhere.
(29)(30) "S. corporation" means an incorporated entity for which a valid election under section 1362 of the Internal Revenue Code, (26 U.S.C. 1362), is in effect.
(30)(31) "Stock dividends" means new stock issued, for surplus or profits capitalized, to shareholders in proportion to their previous holdings.
(31)(32) "Tax year" means the taxpayer's taxable year for federal income tax purposes.
(32)(33) "Taxable income" means the adjusted gross income of a taxpayer less the deductions and exemptions provided for in this chapter.
(33)(34) "Taxpayer" includes any person, entity, or fiduciary, resident or nonresident, subject to a tax or other obligation imposed by this chapter and unless otherwise specifically provided does not include a C. corporation."
Section 8. Section 20-9-366, MCA, is amended to read:
"20-9-366. Definitions. As used in 20-9-366 through 20-9-371, the following definitions apply:
(1) "County retirement mill value per elementary ANB" or "county retirement mill value per high school ANB" means the sum of the taxable valuation in the previous year of all property in the county divided by 1,000, with the quotient divided by the total county elementary ANB count or the total county high school ANB count used to calculate the elementary school districts' and high school districts' current year total per-ANB entitlement amounts.
(2) (a) "District guaranteed tax base ratio" for guaranteed tax base funding for the BASE budget of an eligible district means the taxable valuation in the previous year of all property in the district divided by the sum of the district's current year BASE budget amount less direct state aid and the state special education allowable cost payment.
(b) "District mill value per ANB", for school facility entitlement purposes, means the taxable valuation in the previous year of all property in the district divided by 1,000, with the quotient divided by the ANB count of the district used to calculate the district's current year total per-ANB entitlement amount.
(3) "Facility guaranteed mill value per ANB", for school facility entitlement guaranteed tax base purposes, means the sum of the taxable valuation in the previous year of all property in the state, multiplied by 140% and divided by 1,000, with the quotient divided by the total state elementary ANB count or the total state high school ANB count used to calculate the elementary school districts' and high school districts' current year total per-ANB entitlement amounts.
(4) (a) "Statewide elementary guaranteed tax base ratio" or "statewide high school guaranteed tax base ratio", for guaranteed tax base funding for the BASE budget of an eligible district, means the sum of the taxable valuation in the previous year of all property in the state, multiplied by 175% 184% and divided by the total sum of either the state elementary school districts' or the high school districts' current year BASE budget amounts less total direct state aid.
(b) "Statewide mill value per elementary ANB" or "statewide mill value per high school ANB", for school retirement guaranteed tax base purposes, means the sum of the taxable valuation in the previous year of all property in the state, multiplied by 121% 122% and divided by 1,000, with the quotient divided by the total state elementary ANB count or the total state high school ANB amount used to calculate the elementary school districts' and high school districts' current year total per-ANB entitlement amounts."
NEW SECTION. Section 9. Renter's tax credit -- eligibility -- requirements -- limitations -- refund -- penalty for false or fraudulent claim. (1) Except as provided in subsections (6) and (7) and subject to the provisions of this section, an individual required to file a return under this chapter is allowed a renter's credit in an amount equal to 3% of the gross rent paid by the taxpayer in the tax year that the taxpayer rented a dwelling or dwellings as the taxpayer's principal residence for at least 7 months during the tax year. The maximum credit allowed under this section is $120.
(2) In order to be eligible to make a claim for a credit under this section, the taxpayer must have:
(a) resided in Montana for at least 9 months of the tax year for which the claim is made; and
(b) occupied one or more dwellings in the state as a renter or lessee for at least 7 months of the tax year.
(3) A taxpayer is not disqualified from claiming the credit under this section because of a change of residence during the tax year if the taxpayer occupied one or more dwellings in Montana as a renter or lessee for at least 7 months during the tax year.
(4) (a) A receipt or other evidence of gross rent paid must be filed with the claim for a credit. In addition, each taxpayer shall, at the request of the department, supply all additional information to support the claim.
(b) If two or more individuals are sharing a dwelling, each individual may claim the credit based on the proportional share that the individual pays of the gross rent.
(5) If the amount of credit exceeds the taxpayers' tax liability under this chapter, the amount of the excess must be refunded to the taxpayer.
(6) A claim for a credit is not allowed under this section if the individual's adjusted gross income is greater than $45,000. For married taxpayers filing jointly or separately on the same form, the credit is not allowed under this section if the combined adjusted gross income is greater than $45,000.
(7) A taxpayer who receives a residential property tax credit for the elderly under 15-30-171 through 15-30-179 may not claim the credit under this section for the tax year.
(8) For the purposes of this section, the following definitions apply:
(a) "Dwelling" means:
(i) a single-family dwelling or unit of a multiple-unit dwelling and as much of the surrounding land, but not in excess of 1 acre, as is reasonably necessary for its use as a dwelling;
(ii) a single-family dwelling or unit of a multiple-unit dwelling that is rented from a county or municipal housing authority as provided in Title 7, chapter 15; or
(iii) a single-family dwelling or unit of a multiple-unit dwelling in which any portion of the individual's rent payment is derived from rent equivalent payments or from a public rent or tax subsidy program.
(b) "Gross rent" has the meaning provided in 15-30-171.
(c) "Rent equivalent" means a rental payment paid by a governmental agency to a lessor or landlord.
(9) A person who files a false or fraudulent claim for a renter's credit under this section is subject to criminal prosecution under the provisions of 45-7-202. If a false or fraudulent claim has been paid, the amount paid may be recovered as any other tax owed the state, together with a penalty of 25% and interest on the amount of the refund at the rate of 12% a year, until paid.
NEW SECTION. Section 10. Withholding from pensions, annuities, and certain other deferred income. (1) In conformity with section 3405 of the Internal Revenue Code, 26 U.S.C. 3405, the payor of any periodic payment, nonperiodic distribution, or designated distribution, as defined in that section, shall:
(a) withhold from the payment 30% of the amount, if any, withheld for federal tax purposes; and
(b) withhold the amount in subsection (1)(a) and is liable for payment of the tax when required to withhold the amount for federal purposes.
(2) If a periodic payment, nonperiodic distribution, or designated distribution is not subject to federal withholding because a federal election of no withholding was made under section 3405 of the Internal Revenue Code, 26 U.S.C. 3405, then state withholding is not required and the amount withheld is considered zero.
NEW SECTION. Section 11. Definitions. For the purposes of [sections 11 through 17], unless otherwise required by the context, the following definitions apply:
(1) "Capitalization percentage" means the appropriate percentage established in [section 12].
(2) "Combined reporting group" means those corporations whose income is required to be included in the same combined report pursuant to 15-31-301 or 15-31-322.
(3) "Commonly controlled group" means a parent corporation and any one or more corporations or chains of corporations connected through stock ownership or constructive ownership with the parent if:
(a) the parent owns stock with more than 50% of the voting power of at least one corporation; and
(b) stock cumulatively representing more than 50% of the voting power of each of the corporations, except the parent, is owned by the parent, one or more corporations described in subsection (3)(a), or one or more other corporations that satisfy the conditions of this subsection (3)(b), if applicable.
(4) "Direct written premiums" means amounts written by an insurance company in consideration for insurance and annuity contracts issued to policyholders.
(5) "Dividend" means, for purposes of calculating the dividends-received deduction for any tax year described in [section 12], the total amount of qualified dividends allowed as a deduction for federal income tax purposes received by the corporation from the insurer corporation.
(6) "Five-year average" means the aggregate net written premiums or total income, as the case may be, over the 5 immediately preceding calendar or fiscal years, divided by five. If an insurance company in the commonly controlled group has been in existence for fewer than 5 years, its aggregate net written premiums and total income must each be multiplied by five and divided by the number of years of its existence. If an insurance company does not have a regulatory filing requirement, the period covered is the fiscal year used for the insurance company's financial statements. The use of either the calendar year or fiscal year that is used for the determination of the first tax year 5-year average is considered an accounting method under [sections 11 through 17] and may be changed in subsequent tax years only with the written consent of the department.
(7) (a) "Investment income" means an insurance company's earnings from its investment portfolio, including interest, dividends, realized gains or losses, and rent, that, unless otherwise provided in subsections (7)(b) through (7)(d), is required to be reported in an insurer's statutory annual statement in accordance with the annual statement instructions and accounting practices and procedures manual promulgated by the national association of insurance commissioners.
(b) Except for reinsurance transactions, realized gains or losses do not include losses incurred in transactions with a person that is a member of the taxpayer's or the insurance company's commonly controlled group.
(c) Investment income does not include dividends from a person that is a member of the commonly controlled group. Intercompany dividends that have been eliminated from investment income as would be required to be reported in the statutory annual statement in accordance with the annual statement instructions and accounting practices and procedures manual promulgated by the national association of insurance commissioners may not again be eliminated for this purpose.
(d) Investment income does not include income included in the taxpayer's combined report filed in accordance with this chapter.
(8) "Insurer" has the meaning provided in 33-1-201.
(9) (a) "Net income attributable to investment income" means net income of the insurer multiplied by a ratio, the numerator of which is the insurer's gross investment income from interest, dividends (other than dividends from members of the taxpayer's commonly controlled group), rent, and realized gains or losses, and the denominator of which is the insurer's gross income (other than dividends from members of the taxpayer's commonly controlled group) from all sources.
(b) For the purposes of this definition, if an insurer is required to file a statutory annual statement pursuant to the annual statement instructions and accounting practices and procedures manual promulgated by the national association of insurance commissioners, "net income" means net income required to be reported in the insurer's statutory annual statement.
(10) (a) "Net written premiums" means direct written premiums plus premiums from reinsurance assumed, less premiums ceded to a reinsurance company, as would be required to be reported in an insurer's statutory annual statement in accordance with the annual statement instructions and accounting practices and procedures manual promulgated by the national association of insurance commissioners.
(b) Net written premiums from life insurance contracts are determined by multiplying the net written premiums received, assumed, or ceded by 1.3.
(c) Net written premiums from financial guaranty insurance contracts are determined by multiplying the net written premiums received, assumed, or ceded by the lesser of 2.3 or an amount that would cause the ratio of the 5-year average net written premiums for all financial guaranty insurance companies in the commonly controlled group to the 5-year average total income for all financial guaranty insurance companies in the commonly controlled group to be equal to the applicable capitalization percentage.
(11) "Premiums from reinsurance assumed" means amounts received or accrued by an insurance company in consideration for liabilities it assumes from another insurance company.
(12) "Qualified dividend" means a dividend received by a corporation during the tax year from a corporation that is an insurer, whether or not the insurer is engaged in business in Montana, if at the time of each dividend payment at least 80% of each class of stock of the insurer was owned, directly or indirectly, by the corporation receiving the dividend.
(13) "Total income" means net written premiums plus investment income.
NEW SECTION. Section 12. Deduction of dividends received by corporations -- capitalization percentage. (1) For the purposes of calculating the dividends-received deduction allowed for Montana purposes, the amount of dividends must be multiplied by the appropriate capitalization percentage determined under subsections (2) through (4).
(2) If the ratio of the 5-year average net written premiums for all insurance companies in a commonly controlled group to the 5-year average total income for all insurance companies in the commonly controlled group for the tax year is greater than or equal to 60%, then the capitalization percentage is 100%.
(3) If the ratio of the 5-year average net written premiums for all insurance companies in a commonly controlled group to the 5-year average total income for all insurance companies in the commonly controlled group for the tax year is less than 60% but greater than 10%, then the capitalization percentage is equal to the following fraction, expressed as a percentage:
(a) the numerator is the 5-year average net written premiums for the tax year; and
(b) the denominator is 60% of the 5-year average total income for that tax year.
(4) If the ratio of the 5-year average net written premiums for all insurance companies in a commonly controlled group to the 5-year average total income for all insurance companies in the commonly controlled group for the tax year is 10% or less, then the capitalization percentage is 0%.
NEW SECTION. Section 13. Deductions not allowed for certain expenses. (1) A deduction is not allowed for any expense under subsection (2) that is paid or incurred to an insurer if the insurer is a member of the taxpayer's commonly controlled group and the amount paid or incurred would constitute income to the insurer if the insurer were subject to the Montana income or franchise tax.
(2) (a) The following interest amounts payable to an insurer in the same commonly controlled group are disallowed:
(i) interest paid or incurred to an insurer in the taxpayer's commonly controlled group with respect to indebtedness, other than qualified marketable debt instruments, the principal amount of which is attributable to a contribution of money by a noninsurer member of the taxpayer's commonly controlled group to the capital of an insurer member of that group, including the principal amount of a loan arising from a direct or indirect transfer of money from that contribution to capital from one insurer to another insurer of the same commonly controlled group;
(ii) interest paid or incurred to an insurer with respect to a note or other debt instrument, other than qualified marketable debt instruments, contributed to the capital of an insurer with respect to its stock by a noninsurer member of the commonly controlled group;
(iii) interest paid or incurred within 5 years after the direct or indirect acquisition of the insurer by a member of the commonly controlled group, other than interest on qualified marketable debt instruments;
(iv) interest paid or incurred during the tax year to any insurer in the commonly controlled group multiplied by the disqualifying percentage. The disqualifying percentage is an amount equal to 100% less the capitalization percentage provided for in [section 12(2), (3), or (4)] for that tax year whether or not a dividend is paid or accrued.
(b) The following noninterest expenses are disallowed:
(i) expenses attributable to property formerly held by the taxpayer or a member of the taxpayer's commonly controlled group that was acquired by the insurer in a transaction in which gain was realized but not recognized, including any income deferred under [section 14], by the taxpayer or a member of its commonly controlled group;
(ii) expenses attributable to property purchased with the proceeds attributable to a contribution by a noninsurer member of the taxpayers' commonly controlled group to the capital of an insurer member of that group, including amounts attributable to a direct or indirect transfer of money from that contribution from one insurer to another insurer in the same group.
(3) Expenses that may be disallowed by more than one expense exclusion in subsection (2) may be included only in the exclusion that will result in the highest disallowance amount.
(4) For purposes of this section, the following definitions apply:
(a) "Qualified marketable debt instruments" means publicly available debt instruments of all noninsurer members of the commonly controlled group issued, but only to the extent that the aggregate principal amount of publicly available debt instruments held by all insurer members of the commonly controlled group constitutes less than 10% of the total outstanding principal amount of publicly available debt instruments issued by all noninsurer members.
(b) "Publicly available debt instruments" means debt instruments available to the general public, including bonds, debentures, and negotiable instruments that are rated by a nationally recognized statistical rating organization, as that term is used in Rule 15c3-1(c)(2)(vi)(F) under the Securities Exchange Act of 1934, in one of its generic rating categories that signifies investment grade.
NEW SECTION. Section 14. Transfer of property to insurer. (1) (a) Except as provided in subsection (1)(b), in connection with any exchange described in section 332, 351, 354, 356, or 361 of the Internal Revenue Code, 26 U.S.C. 332, 351, 354, 356, or 361, when a taxpayer transfers property to an insurer, the insurer, for purposes of determining the extent to which gain is recognized on that transfer, is not, for the purposes of this section, considered a corporation.
(b) The provisions of subsection (1)(a) do not apply to any of the following types of transactions unless that transaction has the effect, either directly or indirectly, of transferring appreciated property from a taxpayer subject to tax under this chapter or a member of the taxpayer's combined reporting group, to an insurer:
(i) an exchange or transfer pursuant to section 368(a)(2)(D) or (a)(2)(E) of the Internal Revenue Code, 26 U.S.C. 368(a)(2)(D) or (a)(2)(E);
(ii) a transfer of stock in an 80%-owned insurer for the purpose of filing a consolidated tax return or for financial or regulatory reporting; or
(iii) a transfer or exchange of publicly owned stock of the parent corporation.
(c) (i) If a transaction described in subsection (1)(b) would qualify under that subsection except that the transaction has the effect, directly or indirectly, of transferring appreciated property from a taxpayer or a member of the taxpayer's combined reporting group, subject to tax under this chapter, to an insurer, then, if the property is used in the active trade or business of the insurer, subsection (2) applies to that transfer.
(ii) For purposes of this subsection (1)(c), "appreciated property" means property with a fair market value, as of the date of the transfer subject to this section, that exceeds its adjusted basis as of that date.
(2) (a) If property subject to subsection (1)(a) or (6) is transferred to an insurer for use in the active conduct of a trade or business of the insurer, then any gain otherwise required to be recognized under subsection (1)(a) or (6) is deferred until the date that:
(i) the property is no longer owned by an insurer in the taxpayer's commonly controlled group or a member of the taxpayer's combined reporting group;
(ii) the property is no longer used in the active conduct of the insurer's trade or business or the trade or business of another member in the taxpayer's combined reporting group; or
(iii) the holder of the property is no longer held by an insurer in the commonly controlled group of the transferor or a member of the taxpayer's combined reporting group.
(b) Any of the events described in subsection (2)(a) must be treated as a disposition of the property under this subsection (2) irrespective of whether any other provision of this chapter or in the Internal Revenue Code would otherwise permit nonrecognition treatment of the transaction described in this subsection (2).
(c) An insurer that becomes a member of the taxpayer's commonly controlled group or a corporation that becomes a member of the taxpayer's combined reporting group as a result of a transaction referred to in this subsection (2) must be treated as a member of the taxpayer's commonly controlled group or a member of the taxpayer's combined reporting group at the time of the transfer for purposes of this subsection (2).
(d) For purposes of this subsection (2), stock of an insurance subsidiary constitutes property used in the active trade or business of the insurer.
(e) This subsection (2) does not apply to any property described by section 367(a)(3)(B) of the Internal Revenue Code, 26 U.S.C. 367(a)(3)(B).
(f) If the deferred gain required to be taken into account under this subsection (2) is business income as defined in 15-31-302, the gain must be apportioned using the apportionment percentage for the tax year that the gain is required to be taken into account under this subsection (2). Except as provided in 15-31-312 and rules adopted to implement that section, for purposes of the sales factor for that tax year, the transaction giving rise to that gain must be treated as a sale occurring in the tax year that the gain is taken into account. The amount of any gain required to be recognized under this subsection (2) upon any disposition described in this subsection (2) may not exceed the lesser of the deferred gain or the gain realized in the transaction in which gain is required to be recognized under this subsection (2).
(g) For purposes of computing the amount of gain required to be recognized under this subsection (2), appropriate adjustments may be made, pursuant to rules adopted by the department, to the basis of stock to reflect the disallowance of any expenses under [section 13(2)].
(3) The department may adopt rules providing for an annual reporting requirement in the form of a statement or other form, to be attached to the transferor taxpayer's return, regarding the current ownership of any property for which any gains were previously deferred pursuant to subsection (2). If the transferor taxpayer fails to provide information required by the department, the department may, in lieu of the year in subsection (2)(f), require that the transferor taxpayer take those gains into account in the first tax year in which the current ownership of the property is not reported unless the property is still owned by the transferee and the failure to provide the information was due to reasonable cause and not willful neglect. If a taxpayer fails to satisfy the reporting requirements of this subsection (3), then a notice of proposed deficiency assessment resulting from adjustments attributable to gains previously deferred pursuant to subsection (2), with respect to which the reporting requirements were not satisfied, may be mailed to the taxpayer within 4 years from the date on which the reporting requirements are satisfied by the taxpayer.
(4) Unless otherwise provided by rules adopted by the department, a transfer by a taxpayer of an interest in a partnership to an insurer in a transaction described in subsection (1)(a) must be treated as a transfer to that insurer of the taxpayer's pro rata share of the assets of the partnership.
(5) (a) A distribution described by section 355 of the Internal Revenue Code, 26 U.S.C. 355, or section 356 of the Internal Revenue Code, 26 U.S.C. 356, as it relates to section 355 of the Internal Revenue Code, must be treated as an exchange under this section, whether or not the distribution is an exchange. This subsection (5)(a) does not apply to a distribution in which:
(i) the distributing corporation is an insurer; or
(ii) the distributee is a person other than an insurer.
(b) For a distribution described in section 355 of the Internal Revenue Code, 26 U.S.C. 355, or section 356 of the Internal Revenue Code, 26 U.S.C. 356, as it relates to section 355 of the Internal Revenue Code, by a taxpayer to an insurer, the department shall adopt rules regarding the recognition of gain to prevent the removal of gain inherent in property at the time of a transfer from taxation.
(6) For purposes of this section, a transfer of property to an insurer as a contribution to capital of that insurer by one or more persons who, immediately after the transfer, own, within the meaning of section 318 of the Internal Revenue Code, 26 U.S.C. 318, stock possessing at least 80% of the total combined voting power of all classes of stock of that insurer that are entitled to vote must be treated as an exchange of that property for stock of the insurer equal in value to the fair market value of the property transferred.
(7) (a) In the case of any liquidation to which section 332 of the Internal Revenue Code, 26 U.S.C. 332, applies, unless otherwise provided in rules adopted by the department:
(i) sections 337(a) and (b)(1) of the Internal Revenue Code, 26 U.S.C. 337(a) and (b)(1), do not apply if the 80% distributee is an insurer; and
(ii) if the distributor is an insurer, the distributee shall treat the distribution as a distribution from the insurer's earnings and profits.
(b) For purposes of subsection (7)(a)(ii), the distribution from earnings and profits must be treated as a dividend eligible for a deduction, to the extent otherwise provided in [section 12], as if it was actually distributed as a dividend.
(8) (a) Upon an adequate showing by a taxpayer that a transaction referred to in subsection (1) or (7) would not violate the purposes of this section to prevent the removal of gain inherent in property at the time of a transfer from taxation under this section, the department may grant relief from the application of this section.
(b) In a proceeding contesting the department's actions under this section, relief may be granted a taxpayer only upon a specific finding by the state tax appeal board or district court that the contested transfer did not remove gain inherent in property at the time of transfer from taxation under this section.
NEW SECTION. Section 15. Includable in gross income. (1)(a) The department may include in the gross income of the taxpayer or a member of the taxpayer's combined reporting group in that tax year the taxpayer's pro rata share or the pro rata share of a member of the taxpayer's combined reporting group of any of those insurers' current earnings and profits in that tax year, but not to exceed an amount equal to the specific insurer's net income attributable to investment income for that year minus that insurer's net written premiums received in that same tax year, if:
(i) for any tax year, an insurer is a member of a taxpayer's commonly controlled group;
(ii) the ratio of the 5-year average net written premiums to the 5-year average total income of all insurers in the commonly controlled group is equal to or less than 0.10; and
(iii) the accumulation of earnings and profits of the insurers in the commonly controlled group had a substantial purpose of avoidance of taxes on, according to, or measured by income of this state or any other state.
(b) The amount included in gross income pursuant to subsection (1)(a) must be treated as a dividend received from an insurance company during the tax year, and to the extent applicable, [section 12] applies to that amount.
(2) To the extent that the amounts are included pursuant to subsection (1) in the gross income of a taxpayer or a member of the taxpayer's combined reporting group, those amounts may not again be considered as investment income in the application of the ratio in subsection (1)(a)(ii).
(3) (a) The amounts included in gross income under subsection (1) may not again be included in gross income when subsequent distributions are made to:
(i) the taxpayer or a member of the taxpayer's combined reporting group;
(ii) another taxpayer that acquires an interest in the stock of the taxpayer or a member of the taxpayer's combined reporting group with respect to which subsection (1) was applied; or
(iii) any successor or assign of the respective taxpayers or a member of the taxpayer's combined reporting group described in this subsection (3).
(b) For purposes of applying this subsection (3), distributions from an insurer are considered first made from amounts included under subsection (1).
(4) For purposes of this section, the terms "net written premiums", "5-year average net written premiums", and "5-year average total income" have the same meaning as applicable for [section 12] whether or not a dividend is actually received from any insurer member of the taxpayer's commonly controlled group in that tax year.
(5) For the purposes of this section, the taxpayer's pro rata share of the current earnings and profits of an insurer member of a commonly controlled group is the amount that would have been received as a dividend by the taxpayer or a member of the taxpayer's combined reporting group if:
(a) the insurer had directly distributed its current earnings and profits with respect to its stock held by the taxpayer or a member of the taxpayer's combined reporting group; and
(b) the insurer holds the stock of another insurer and all other insurer members of the taxpayer's commonly controlled group had distributed the same current earnings and profits with respect to their stock, in the same tax year, until amounts were received as a dividend by the taxpayer or a member of the taxpayer's combined reporting group from an insurer member of the commonly controlled group.
(6) In the application of this section, amounts treated as a dividend received by a partnership are considered a dividend received by each partner that is a member of the commonly controlled group, either directly or through a series of tiered partnerships.
(7) The provisions of this section do not apply to an insurer involved in a proceeding under the Insurers Supervision, Rehabilitation, and Liquidation Act, Title 33, chapter 2, part 13, or any similar proceeding brought by any other state insurance commissioner.
NEW SECTION. Section 16. Legitimate business purpose. (1) If a taxpayer's ratio of the 5-year average net written premiums for all insurance companies in a commonly controlled group to the 5-year average total income for all insurance companies in the commonly controlled group for the tax year is greater than or equal to 60%, as determined under [section 12], then the provisions of [sections 11 through 17] do not apply.
(2) If a taxpayer's ratio of the 5-year average net written premiums for all insurance companies in a commonly controlled group to the 5-year average total income for all insurance companies in the commonly controlled group for the tax year is less than 60%, as determined under [section 12], and upon an adequate showing by a taxpayer that a transaction referred to in [sections 12 through 16] was entered into with a legitimate business purpose, the department may grant relief from the application of [sections 11 through 17].
NEW SECTION. Section 17. Rulemaking authority. The department may adopt rules that it considers necessary to implement and administer the provisions of [sections 11 through 17].
NEW SECTION. Section 18. Waiver of grantor trust reporting requirements. The department shall waive the reporting requirements provided in 15-30-1102 for a grantor trust that establishes that the trust's Montana source income will be fully accounted for in individual income tax returns, corporation license tax returns, or corporation income tax returns filed with the state.
NEW SECTION. Section 19. Short title -- purpose. (1) [Sections 19 through 25] may be cited as "The Listed Transaction Act".
(2) The purpose of enacting [sections 19 through 25] is to address listed transactions and tax evasion. [Sections 19 through 25] are not intended to prevent taxpayers from minimizing their taxes in compliance with the law.
NEW SECTION. Section 20. Definitions. As used in [sections 19 through 25], the following definitions apply:
(1) "Disqualified opinion" has the meaning provided in section 6664(d)(3)(b)(iii) of the Internal Revenue Code, 26 U.S.C. 6664(d)(3)(b)(iii).
(2) "Disqualified tax adviser" has the meaning provided in section 6664(d)(3)(b)(ii) of the Internal Revenue Code, 26 U.S.C. 6664(d)(3)(b)(ii).
(3) "Gross valuation overstatement" has the meaning provided in section 6700(b) of the Internal Revenue Code, 26 U.S.C. 6700(b), and also means any statement as to the value of any property or services if:
(a) the stated value exceeds 200% of the amount determined to be the correct valuation; and
(b) the value of the property or services is directly related to the amount of any deduction or credit allowable under Title 15, chapter 30 or 31, to any participant.
(4) "Internal Revenue Code" has the meaning provided in 15-30-101.
(5) "Listed transaction" has the meaning provided in section 6707A(c)(2) of the Internal Revenue Code, 26 U.S.C. 6707A(c)(2).
(6) "Material adviser" has the meaning provided in section 6111(b)(1) of the Internal Revenue Code, 26 U.S.C. 6111(b)(1).
(8) "Tax shelter" has the meaning provided in section 6662(d)(2)(c)(ii) of the Internal Revenue Code, 26 U.S.C. 6662(d)(2)(c)(ii), and also means a partnership or other entity, any investment plan or arrangement, or any other plan or arrangement if a significant purpose of the partnership, entity, plan, or arrangement is the evasion of a tax imposed by Title 15, chapter 30 or 31. As used in this subsection, "significant purpose" has the same meaning given the term under federal tax law.
NEW SECTION. Section 21. Taxpayer responsibility for disclosure of listed transactions -- penalties -- waiver. (1) For each tax year in which a taxpayer, a pass-through entity, a federal consolidated group of which a taxpayer is a member, or a member of a unitary group of which a taxpayer is a member has participated in a listed transaction, the taxpayer, pass-through entity, federal consolidated group, or unitary group is required to disclose the transaction as provided in subsection (2). In addition, for each tax year in which a taxpayer, a pass-through entity, a federal consolidated group of which a taxpayer is a member, or a member of a unitary group of which a taxpayer is a member is required to make a disclosure statement under U.S. treasury regulation 1.6011-4, 26 CFR 1.6011-4, with respect to a listed in which the taxpayer, pass-through entity, federal consolidated group, or unitary group participated, the taxpayer, pass-through entity, federal consolidated group, or unitary group shall file a copy of the disclosure with the department as provided in subsection (2).
(2) (a) Listed transactions must be disclosed in the manner prescribed in U.S. treasury regulations 1.6011-4, 26 CFR 1.6011-4, and department rules. A taxpayer who is an individual is required to disclose only transactions that are required to be disclosed as listed transactions for federal income tax purposes.
(b) With respect to a listed transaction entered into after February 28, 2000, but on or before December 31, 2006, disclosure must be made on or before the due date of and attached to the taxpayer's original and any amended Montana individual income or corporation license tax or pass-through entity information return for tax year 2006 and to the original and any amended Montana income or corporation license tax or pass-through entity information return for any subsequent tax year that reflects a reduction in Montana tax resulting from the listed transaction, including a loss, deduction, or credit resulting from a listed transaction that is being carried forward or back.
(3) The provisions of subsections (1) and (2) apply to any listed transaction entered into after February 28, 2000, for any tax year or years for which the transaction remains undisclosed and for which the statute of limitations on assessment has not expired as of [60 days after the effective date of sections 19 through 25].
(4) (a) A person who does not include on a return or statement information with respect to a listed transaction that is required under subsection (2) or (3) to be included with the return or statement shall pay a penalty, in addition to any other penalty imposed, in the amount determined under subsection (4)(b).
(b) With respect to a listed transaction, the amount of the penalty under subsection (4)(a) is $100,000 in the case of an individual and $200,000 in any other case.
(5) A penalty imposed under subsection (4) is considered assessed on the due date of the tax return upon or attached to which the disclosure of the listed transaction was required pursuant to this section and department rules.
(6) The department may waive all or any portion of any penalty imposed by this section with respect to any violation if rescinding the penalty would promote compliance with the requirements of Title 15, chapter 30 or 31, and effective tax administration.
(7) The penalty imposed under subsection (4) applies to any failure to disclose any listed transaction entered into after [the effective date of sections 19 through 25] for any tax year or years for which the transaction remains undisclosed and for which the statute of limitations on assessment has not expired as of [60 days after the effective date of sections 19 through 25].
(8) (a) If a taxpayer has a listed transaction understatement for any tax year as determined under subsection (8)(b), there must be added to the tax a penalty in an amount equal to 20% of the amount of the understatement. If the requirements of subsection (1) are not met, the percentage to be used for the penalty determination is 30% with respect to the portion of any listed transaction understatement.
(b) (i) Except as provided by department rule, a tax treatment included with an amendment or supplement to a return of tax may not be taken into account in determining the amount of any listed transaction understatement if the amendment or supplement is filed after the earlier of the date the taxpayer is first contacted by the department regarding the examination of the return or any other date that is adopted by rule pursuant to [section 25].
(ii) A listed transaction understatement is the sum of:
(A) the product of:
(I) the highest rate of tax imposed by 15-30-103 if the taxpayer is an individual and 15-31-121 if the taxpayer is a C. corporation; and
(II) the amount of the increase, if any, in Montana taxable income, as determined under subsection (8)(c), that results from a difference between the proper tax treatment of an item to which subsection (3) applies and the taxpayer's treatment of that item as shown on the taxpayer's return of tax, including an amended return if the amended return is filed prior to the date that the taxpayer is first contacted by the department regarding the examination of the tax year for which the amended return is filed; and
(B) the amount of the decrease, if any, in the aggregate amount of credits that results from a difference between the taxpayer's treatment of an item to which subsection (3) applies as shown on the taxpayer's return of tax and the proper tax treatment of that item.
(c) The amount of the increase in Montana taxable income for a particular tax year includes the restatement for another tax year to which a loss or deduction is carried forward or carried back that is attributable to the listed transaction for that year in which the carryforward or carryback of the loss or deduction applies. Any reduction of the excess of deductions allowed for the tax year over gross income for the year and any reduction in the amount of capital losses that would be allowed for the year are treated as an increase in taxable income.
(d) This subsection (8) applies to any item that is attributable to any listed transaction if section 6662A of the Internal Revenue Code, 26 U.S.C. 6662A, applies to the transaction or if a significant purpose of the transaction is the evasion of Montana income or corporation license tax.
(e) A penalty imposed under this subsection (8) is considered assessed on the due date of the Montana tax return that shows the understatement of tax resulting from a listed transaction to which the penalty relates.
(9) (a) For an amended return filed after December 31, 2007, and before the taxpayer is contacted by the U.S. internal revenue service or the department regarding a listed transaction, there must be added to any listed transaction understatement, as determined under subsection (8)(b), a penalty, in addition to all other applicable penalties, equal to 50% of the interest assessed under 15-1-216 for the period beginning on the last date prescribed by law for the payment of the tax, determined without regard to extensions and ending on the date of payment.
(b) If the taxpayer has been contacted by the internal revenue service or the department regarding a listed transaction, there must be added to any listed transaction understatement, as determined under subsection (8)(b), a penalty, in addition to any other applicable penalties, equal to 100% of the interest assessed under 15-1-216 for the period beginning on the last date prescribed by law for the payment of the tax, determined without regard to extensions and ending on the date the notice of proposed assessment is mailed.
(10) (a) Except as provided in subsection (10)(b), the department may waive all or any portion of any penalty imposed by subsections (8) and (9) with respect to any portion of a listed transaction understatement if it is shown that the taxpayer had a reasonable basis for the tax treatment applicable to that portion and acted in good faith with respect to that treatment.
(b) Subsection (10)(a) does not apply to any listed transaction understatement unless:
(i) the relevant facts affecting the tax treatment of the item are adequately disclosed in accordance with all requirements of subsection (1) and department rules or the penalty for the taxpayer's failure to fully disclose was waived pursuant to subsection (6);
(ii) there is or was substantial authority for the tax treatment; and
(iii) the taxpayer reasonably believed that the tax treatment was more likely than not the proper tax treatment, but only if the belief:
(A) is based on the facts and law that exist at the time the return that includes the tax treatment is filed;
(B) relates solely to the taxpayer's chances of success on the merits of the tax treatment and does not take into account the possibility that a return will not be audited, the tax treatment will not be raised on audit, or the tax treatment will be resolved through settlement if it is raised; and
(C) does not rely upon the opinion of a disqualified tax adviser or on a disqualified opinion.
(11) A penalty imposed under subsections (8) and (9) applies to any understatement of tax resulting from a listed transaction entered into after [the effective date of sections 19 through 25] in any tax year or years for which the statute of limitations on assessment has not expired as of [the effective date of sections 19 through 25].
NEW SECTION. Section 22. Material adviser responsibility for disclosure of listed transactions and maintenance of advisee lists -- penalties -- waiver. (1) (a) With respect to any listed transaction, a material adviser shall make a return in the form that the department prescribes setting forth:
(i) information identifying and describing the transaction;
(ii) information describing any potential tax benefits expected to result from the transaction; and
(iii) any other information that the department may prescribe.
(b) A material adviser who is required to disclose a listed transaction pursuant to section 6111 of the Internal Revenue Code, 26 U.S.C. 6111, shall file a copy of the disclosure with the department.
(c) The return required by subsection (1)(a) and disclosure required by subsection (1)(b) must be filed not later than the date specified by the department.
(d) The department may adopt rules that provide:
(i) that only one person is required to meet the requirements of this subsection (1) in cases in which two or more persons would otherwise be required to meet the requirements; and
(ii) exemptions from the requirements of this subsection (1).
(2) (a) Each material adviser with respect to any listed transaction shall, whether or not required to file a return under subsection (1)(a), maintain a list identifying each Montana taxpayer, pass-through entity, member of a federal consolidated group, or member of a unitary group for whom the adviser has acted as a material adviser with respect to the transaction.
(b) The list required under subsection (2)(a) must include the same information and must be maintained in the same form and manner as required under section 6112 of the Internal Revenue Code, 26 U.S.C. 6112, U.S. treasury regulation 301.6112-1, 26 CFR 301.6112-1, and any additional information or maintenance requirements as the department may by rule require.
(3) A person required to maintain a list under subsection (2)(a):
(a) shall make the list available to the department upon written request; and
(b) except as otherwise provided by the department by rule, shall retain any information that is required to be included on the list for 7 years.
(4) The department may, by rule, provide that in cases in which two or more persons are required to maintain the same list or a portion of the list under subsection (2), only one person is required to maintain the list or portion of the list.
(5) (a) If a person who is required to file a return or disclosure under subsection (1) with respect to any listed transaction does not file the return or disclosure on or before the due date or files false or incomplete information with the department with respect to the transaction, the person shall pay a penalty with respect to the return or disclosure in the amount determined under subsections (5)(b) and (5)(c).
(b) Except as provided in subsection (5)(c), the penalty imposed under subsection (5)(a) with respect to any failure is $50,000.
(c) The penalty imposed under subsection (5)(a) with respect to any listed transaction is an amount equal to the greater of:
(i) $200,000; or
(ii) except as provided in subsection (5)(d), 50% of the gross income derived by the person with respect to aid, assistance, or advice that is provided with respect to the listed transaction before the date the return and, if applicable, disclosure is filed under subsection (1).
(d) For an intentional failure or act described in subsection (5)(a), the percentage amount for the penalty computation in subsection (5)(c)(ii) is 75%.
(e) If a person is required to maintain a list under subsection (2) but does not make the list available upon written request to the department in accordance with subsection (3) within 20 business days after the date of the request, the person shall pay a penalty of $10,000 for each day the list is not made available after the 20-day period has expired.
(6) Each of the penalties imposed by subsection (5) is in addition to any other applicable penalties.
(7) The department may waive all or any portion of penalty imposed under subsection (5):
(a) with respect to any violation of subsection (1) if a waiver of the penalty would promote compliance with the requirements of Title 15, chapters 30 and 31, and effective tax administration; and
(b) with respect to any violation of subsection (2), if on any day the violation was due to a reasonable cause.
(8) The provisions of this section apply to transactions with respect to which material aid, assistance, or advice is provided by a material adviser after [the effective date of sections 19 through 25].
NEW SECTION. Section 23. Tax shelters -- penalty for promotion. (1) The penalty provided in subsection (3) must be paid by a person who:
(a) (i) organizes or assists in the organization of:
(A) a partnership or other entity;
(B) any investment plan or arrangement; or
(C) any other plan or arrangement; or
(ii) participates, directly or indirectly, in the sale of any interest in an entity, plan, or arrangement referred to in subsection (1)(a); and
(b) makes or furnishes or causes another person to make or furnish in connection with the organization or sale:
(i) a statement with respect to the allowability of any deduction or credit, the excludability of any income, the manipulation of any allocation or apportionment rule, or the securing of any other tax benefit by reason of holding an interest in the entity or participating in a plan or arrangement that the person knows or has reason to know is false or fraudulent as to any material matter; or
(ii) a gross valuation overstatement as to any material matter.
(2) Activities described in subsection (1)(a) with respect to each entity or arrangement must be treated as a separate activity, and participation in each sale described in subsection (1)(b) must be treated as a separate activity.
(3) A person described in subsection (1) shall pay, with respect to each activity described in subsection (1)(a) and in addition to any other penalty provided by law, a penalty equal to:
(a) the lesser of:
(i) $1,000; or
(ii) 100% of the gross income derived or to be derived by the person from the activity; or
(b) if an activity with respect to which a penalty imposed under this subsection (3) involves a disclosure described in subsection (1)(b), a penalty of 50% of the gross income derived or to be derived from the activity by the person on which the penalty is imposed.
(4) The department may waive all or any part of the penalty provided for in subsection (3) with respect to any gross valuation overstatement on a showing that there was a reasonable basis for the valuation and that the valuation was made in good faith.
(5) A privilege of confidentiality does not apply to any written communication that is:
(a) between a tax practitioner and:
(i) any person;
(ii) the department or any officer, employee, agent, or representative of the person; or
(iii) any other person holding a capital or profits interest in the person; and
(b) in connection with the promotion of the direct or indirect participation of the person in any tax shelter.
(6) The provisions of this section apply to activities after [the effective date of sections 19 through 25].
NEW SECTION. Section 24. Injunction of certain conduct related to listed transactions and tax shelters. (1) A civil action in the name of the state to enjoin any person from further engaging in conduct specified in subsection (3) may be commenced at the request of the department. If the person is an individual who resides in Montana, an action under this section must be brought in the county in which the individual resides. If the person is not an individual who resides in Montana, an action under this section must be brought in the first judicial district court of Lewis and Clark County. The court may exercise its jurisdiction over the action separate and apart from any other action brought by the state against the person.
(2) In any action under this section, if the court finds that the person has engaged in the conduct specified in subsection (3) and that injunctive relief is appropriate to prevent recurrence of that conduct, the court may enjoin the person from engaging in that conduct or in any other activity subject to penalty under [sections 19 through 25].
(3) Conduct subject to injunction under this section is any action or failure to take action that is:
(a) subject to penalty under [sections 19 through 25]; or
(b) in violation of any requirement under rules issued pursuant to [sections 19 through 25].
NEW SECTION. Section 25. Tax evasion transactions -- department rules. (1) The department may not specifically identify a transaction or arrangement as a tax evasion transaction unless the department:
(a) consults with the multistate tax commission to promote uniformity;
(b) considers whether the transaction or arrangement involves some combination of the following:
(i) lacks meaningful economic risk of loss or potential for gain;
(ii) results in purposely inconsistent financial and accounting treatment;
(iii) involves complexity, unnecessary steps, or novel investments;
(iv) uses tax indifferent parties; or
(v) was marketed to multiple investors;
(c) considers whether disclosure of the transaction is limited in any manner by express or implied understanding or agreement, whether or not the understanding or agreement is legally binding;
(d) considers whether the taxpayer has the right to a full or partial refund of fees paid to any person who makes or provides an oral or written statement about the potential tax consequences of a transaction if it is not sustained or if fees are contingent on the taxpayer's realization of tax benefits from the transaction; and
(e) determines and considers the costs of taxpayer compliance.
(2) The department shall by rule identify each transaction or arrangement specifically identified by the department pursuant to subsection (1) as a tax evasion transaction.
(3) The department shall file a report with each rule proposal notice when it proposes to adopt a rule to identify a listed transaction, setting forth how it applied the criteria listed in subsection (1) in proposing to identify a transaction or arrangement as a listed transaction.
(4) In adopting rules pursuant to [sections 19 through 25], the department shall determine and consider the costs of taxpayer compliance.
NEW SECTION. Section 26. Definitions. As used in [sections 26 through 28], the following definitions apply:
(1) "Montana property taxes" means the ad valorem property taxes imposed on property classified under 15-6-134 that is a single-family dwelling unit, unit of a multiple-unit dwelling, trailer, manufactured home, or mobile home and as much of the surrounding land, not exceeding 1 acre, as is reasonably necessary for its use as a dwelling and that were assessed in the specified calendar year.
(2) "Owned" includes purchasing under a contract for deed and being the grantor or grantors under a trust indenture.
NEW SECTION. Section 27. Property tax refund -- manner of claiming -- limitations. (1) (a) A refund of up to $400 of 2006 Montana property taxes assessed to and paid by a taxpayer or taxpayers on the residence that they owned and occupied as their principal residence for at least 7 months during 2006 may be claimed as provided in subsection (2), subject to the limitations provided in subsection (3).
(b) If the 2006 Montana property taxes assessed to and paid by a taxpayer or taxpayers on the residence that they owned and occupied as their principal residence for at least 7 months during 2006 were more than $25 and less than $400, a refund of the 2005 Montana property taxes assessed to and paid by the taxpayer or taxpayers on the principal residence, if they owned and occupied it as their principal residence for at least 7 months during 2005, may be claimed as provided in subsection (2), subject to the limitations provided in subsection (3), in an amount that together with the refund under subsection (1)(a) does not exceed $400.
(c) If the 2006 Montana property taxes assessed to and paid by a taxpayer or taxpayers on the residence that they owned and occupied as their principal residence for at least 7 months during 2006, together with the 2005 Montana property taxes allowed as a refund under subsection (1)(b), were more than $50 and less than $400, a refund of the 2004 Montana property taxes assessed to and paid by the taxpayer or taxpayers on the principal residence, if they owned and occupied it as their principal residence for at least 7 months during 2004, may be claimed as provided in subsection (2), subject to the limitations provided in subsection (3), in an amount that together with the refund under subsections (1)(a) and (1)(b) does not exceed $400.
(2) (a) Subject to subsection (2)(b), the claim for refund, in the form that the department prescribes, must be executed by each taxpayer under penalty of false swearing and must include the information that the department requires.
(b) The personal representative of the estate of a deceased taxpayer may execute and file the claim for refund on behalf of a deceased taxpayer who qualifies for the refund.
(3) The claim for a refund is subject to the following limitations:
(a) The claim must be filed with the department of revenue on or before December 31, 2007, unless the department, for good cause shown, grants a reasonable extension of time for filing.
(b) Only one claim may be made with respect to any property.
(c) The claims by a taxpayer or taxpayers for 2006, 2005, and 2004 must be for the same property.
NEW SECTION. Section 28. Property tax refund -- penalty for false or fraudulent claim. A person who files a false or fraudulent claim for a property tax refund under [section 27] is subject to criminal prosecution under the provisions of 45-7-202. If a false or fraudulent claim has been paid, the amount paid may be recovered as any other tax owed the state, together with a penalty of 25% and interest on the amount of the refund at the rate of 12% a year, until paid.
NEW SECTION. Section 29. Notification to tribal governments. The secretary of state shall send a copy of [this act] to each tribal government located on the seven Montana reservations and to the Little Shell Chippewa tribe.
NEW SECTION. Section 30. Codification instruction. (1) [Section 1] is intended to be codified as an integral part of Title 15, chapter 1, part 1, and the provisions of Title 15, chapter 1, part 1, apply to [section 1].
(2) [Sections 9 and 18] are intended to be codified as an integral part of Title 15, chapter 30, part 1, and the provisions of Title 15, chapter 30, part 1, apply to [sections 9 and 18].
(3) [Section 10] is intended to be codified as an integral part of Title 15, chapter 30, part 2, and the provisions of Title 15, chapter 30, part 2, apply to [section 10].
(4) [Sections 11 through 17] are intended to be codified as an integral part of Title 15, chapter 31, and the provisions of Title 15, chapter 31, apply to sections 11 through 17].
(5) [Sections 19 through 25] are intended to be codified as an integral part of Title 15, and the provisions of Title 15, apply to [sections 19 through 25].
COORDINATION SECTION. Section 31. Coordination instruction. If Senate Bill No. 2 and [this act] are both passed and approved and they contain a section amending 20-9-366, then the section amending 20-9-366 in Senate Bill No. 2 is effective as provided in that bill, the section in [this act] amending 20-9-366 is void, and 20-9-366 must be amended as follows on July 1, 2008:
"20-9-366. Definitions. As used in 20-9-366 through 20-9-371, the following definitions apply:
(1) "County retirement mill value per elementary ANB" or "county retirement mill value per high school ANB" means the sum of the taxable valuation in the previous year of all property in the county divided by 1,000, with the quotient divided by the total county elementary ANB count or the total county high school ANB count used to calculate the elementary school districts' and high school districts' current year total per-ANB entitlement amounts.
(2) (a) "District guaranteed tax base ratio" for guaranteed tax base funding for the BASE budget of an eligible district means the taxable valuation in the previous year of all property in the district divided by the sum of the district's current year BASE budget amount less direct state aid and the state special education allowable cost payment.
(b) "District mill value per ANB", for school facility entitlement purposes, means the taxable valuation in the previous year of all property in the district divided by 1,000, with the quotient divided by the ANB count of the district used to calculate the district's current year total per-ANB entitlement amount.
(3) "Facility guaranteed mill value per ANB", for school facility entitlement guaranteed tax base purposes, means the sum of the taxable valuation in the previous year of all property in the state, multiplied by 140% and divided by 1,000, with the quotient divided by the total state elementary ANB count or the total state high school ANB count used to calculate the elementary school districts' and high school districts' current year total per-ANB entitlement amounts.
(4) (a) "Statewide elementary guaranteed tax base ratio" or "statewide high school guaranteed tax base ratio", for guaranteed tax base funding for the BASE budget of an eligible district, means the sum of the taxable valuation in the previous year of all property in the state, multiplied by 175% 203% and divided by the total sum of either the state elementary school districts' or the high school districts' current year BASE budget amounts less total direct state aid.
(b) "Statewide mill value per elementary ANB" or "statewide mill value per high school ANB", for school retirement guaranteed tax base purposes, means the sum of the taxable valuation in the previous year of all property in the state, multiplied by 121% 122% and divided by 1,000, with the quotient divided by the total state elementary ANB count or the total state high school ANB amount used to calculate the elementary school districts' and high school districts' current year total per-ANB entitlement amounts."
NEW SECTION. Section 32. Severability. If a part of [this act] is invalid, all valid parts that are severable from the invalid part remain in effect. If a part of [this act] is invalid in one or more of its applications, the part remains in effect in all valid applications that are severable from the invalid applications.
NEW SECTION. Section 33. Effective dates. (1) Except as provided in subsections (2) through (4), [this act] is effective July 1, 2007.
(2) [Sections 1 and 3 through 5] are effective January 1, 2008.
(3) [Section 8] and the amendments to 20-9-366 in [section 31] are effective July 1, 2008.
(4) [Sections 9 through 17, 26 through 32, 34, and 35 and this section] are effective on passage and approval.
NEW SECTION. Section 34. Applicability. (1) [Sections 3 through 5] apply to property tax years beginning after December 31, 2007.
(2) [Sections 8 and 31] apply to school fiscal years beginning after June 30, 2008.
NEW SECTION. Section 35. Retroactive applicability. (1) [Sections 9 and 11 through 17] apply retroactively, within the meaning of 1-2-109, to tax years beginning after December 31, 2006.
(2) [Section 21] applies retroactively, within the meaning of 1-2-109, to any listed transaction entered into after February 28, 2000, for any tax year or years for which the transaction remains undisclosed and for which the statute of limitations on assessment has not expired as of 60 days after passage and approval of [this act].
- END -
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