This rule has been repealed.

This rule has been repealed.

This rule has been transferred.

(1) Various tax benefits are allowed for investments in "recognized nonfossil forms of energy generation." The term "recognized nonfossil forms of energy generation" is defined in 15-32-102, MCA, and ARM 42.4.110. The term does not include commercial systems, which may be eligible for a separate credit as described in subchapter 41 of this chapter. In this rule, the term "alternative energy generating systems" is used generically to describe all of the recognized nonfossil forms of energy generation listed in ARM 42.4.110.

(2) The tax benefits for installing an alternative energy generating system are:

(a) a credit against their individual income tax liability to resident individuals who install the generating system to provide energy for their principal dwelling (equal to the cost of the system, including installation costs, less grants received, not to exceed $500) as provided in 15-32-201, MCA;

(b) if the system uses a "low emission wood or biomass combustion device" as defined in 15-32-102, MCA, and ARM 42.4.110, that a resident individual installs to provide heat for their principal dwelling, a credit against their individual income tax equal to the cost of the system, including installation, not to exceed $500, as provided in 15-32-201, MCA;

(c) if the energy generating system is a geothermal system that transfers energy from the ground by way of a closed loop or from ground water by way of an open loop that a resident individual installs in their principal dwelling to heat or cool the dwelling, a credit against their individual income tax equal to a portion of the installation costs of the system, not to exceed $1,500, as provided in 15-32-115, MCA;

(d) if the energy generating system is a geothermal system described in (2)(c), that is installed by a builder constructing a new residence to heat or cool the dwelling, a credit against the builder's individual or corporate income tax liability, as applicable, equal to a portion of the installation costs of the system, not to exceed $1,500, as provided in 15-32-115, MCA;

(e) a property tax exemption for a portion of the appraised value of a capital investment in the alternative energy generating system for ten years after installation, as described in 15-6-224, MCA, and ARM 42.19.1104 (the system may be installed in a residential dwelling or a commercial structure); and

(f) a property tax exemption for machinery and equipment used in qualifying small electric generating systems that are powered by an alternative renewable energy source, as described in 15-6-225, MCA, and ARM 42.4.4105.

(3) A taxpayer "completes installation of an energy system using a recognized nonfossil form of energy generation" as outlined in 15-32-201, MCA, when the following components of a system have been installed and placed in service:

(a) a source of alternative energy production, such as:

(i) solar photovoltaic modules;

(ii) solar thermal collectors;

(iii) a wind turbine;

(iv) a hydropower turbine; or

(v) a geothermal ground loop;

(b) a point of interconnection to the dwelling's electrical, heating, or hot water system; and

(c) if the source of alternative energy production does not produce energy in a usable form, a means of converting energy to a usable form, such as:

(i) for electrical energy systems, an inverter; or

(ii) for thermal energy systems, a heat exchanger.

(4) The cost for repair or replacement of a component installed in an existing system is not eligible for the credit.

(5) The cost of additional components installed to expand the output of an existing system is eligible for the credit. For example, if a taxpayer expands their solar photovoltaic energy system from one module to four modules, the energy credit is only available for the three new components, not all four.

(6) Energy generating systems that are standard components of conventional structures do not qualify for the property tax exemption provided in 15-6-224, MCA, or the alternative energy system credit provided in 15-32-201, MCA. ARM 42.4.110 defines standard components.

(7) To qualify for the property tax exemption provided in 15-6-224, MCA, or the alternative energy system credit provided in 15-32-201, the predominant use of the alternative energy system must be energy generation. The predominant use of a system is not energy generating if it possesses any two of the following characteristics:

(a) it is a structure that will be occupied more than four hours in a day;

(b) it is a structure that serves as a regularly used entry way to the building for which it provides energy;

(c) it is a structure that receives heat from a source other than the energy it generates;

(d) it is a structure that contains more space than is reasonably necessary for energy collection, generation, and distribution (about 200 to 230 sq. ft. to provide heat to a building with at least 1,000 sq. ft. of living area); or

(e) it is part of the living area of the structure for which it provides energy.

(8) Meeting the minimum system standards imposed to obtain a federal tax credit for solar energy systems, including solar water heating and photovoltaic systems, or for geothermal, wind energy, or fuel cell systems, is not a condition of qualifying for the Montana alternative energy system or geothermal system credits.

(9) The credits against individual income tax liability described in (2)(a) and (2)(b) are claimed on Form ENRG-B, Alternative Energy System Credit. The credits for the geothermal systems described in (2)(c) and (2)(d) are claimed on Form ENRG-A, Geothermal System Credit.

(1) Energy generating systems or their components that are standard components of conventional buildings do not qualify for the alternative energy system credit. The department is authorized to adopt rules defining standard components of conventional buildings and to establish other necessary elements of passive solar systems.

(2) Passive solar energy systems, or the components of those systems that have been determined to be acceptable include:

(a) solar greenhouses, sun porches, and like structures that are properly situated, constructed, and ducted to the building for which they provide energy to be reasonably considered a complete or supplementary energy source for that building;

(b) components of a building that have been altered for energy collection, storage, or distribution to benefit the rest of the building, such as the addition of triple glazed windows to enclosed porches;

(c) windows installed in excess of "double-glazing;"

(d) thermal collection masses such as brick, stonework, and other types that were not present in the original structure and were not installed for a purpose other than energy storage; and

(e) the components of an envelope house necessary for energy generation and distribution in the "envelope house," such as the "envelope" area devoted solely to energy collection, storage, and distribution.

This rule has been repealed.

This rule has been transferred.

This rule has been transferred.

This rule has been transferred.

The following definitions apply to terms used in this subchapter:

(1) "EPA" means the United States Environmental Protection Agency.

(2) "Low emission wood or biomass devise" means:

(a) a wood-burning appliance certified as meeting EPA standards of performance for new residential wood heaters in 40 C.F.R. 60.533;

(b) a wood-burning out-door hydronic heater that qualifies for the EPA's phase 2 white tag (meets the EPA's Phase 2 emission levels) under EPA test method 28 OWHH;

(c) a masonry heater constructed or installed in compliance with the requirements for masonry heaters in the International Residential Code of One- and Two-Family Dwellings; and

(d) an appliance that uses wood pellets as its primary source of fuel, regardless of the level of emissions.

(3) "Passive solar system" is defined in 15-32-203, MCA, and means a direct thermal energy system that uses the structure of the building and its operable components to provide heating or cooling during the appropriate times of the year by using the climate resources available at site.

(4) "Principal dwelling" means an individual's main home and excludes second homes, vacation or recreational property, and rentals.

(5) "Recognized nonfossil forms of energy generation" is defined in 15-32-102, MCA, and means:

(a) a system that captures energy for use or converts energy into usable sources using:

(i) solar energy (including a passive solar system);

(ii) wind;

(iii) solid waste;

(iv) decomposition of organic wastes;

(v) geothermal;

(vi) fuel cells that do not require hydrocarbon fuel;

(vii) a low emission wood or biomass device; and

(viii) small hydropower plants under one megawatt;

(b) a system that produces electric power from biomass or solid wood wastes; and

(c) a system that uses water power by means of an impoundment that is not over 20 acres in surface area.

(6) "Standard components of conventional structures" are those structures that are generally necessary for structural support, shelter, ventilation, temperature control, lighting, or maintenance of the occupant's regular life style.

This rule has been transferred.

This rule has been transferred.

This rule has been transferred.

This rule has been transferred.

This rule has been transferred.

This rule has been transferred.

This rule has been transferred.

(1) If more than one qualifying individual invests in a qualifying alternative energy system each may claim the credit provided the total of the credits claimed by all the individuals does not exceed the amount spent. For example, if a married couple invests $1,200 in a qualifying wood stove, they can each claim $500. However, if the same couple invests only $800 in a qualifying wood stove, the combined amount claimed cannot exceed $800.

This rule has been transferred.

This rule has been transferred.

This rule has been repealed.

This rule has been transferred.

This rule has been transferred.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

The following definitions apply to this subchapter:

(1) "Amenities" are items that enhance the pleasantness or desirability of rental or retirement homes, or contribute to the pleasure and enjoyment of the occupant(s), rather than to their indispensable needs. For periods beginning after December 31, 2016, "amenities" means services unrelated to the occupation of a dwelling and provided by personnel, including but not limited to meals, housekeeping, transportation, assisted living, or nursing care.

(2) "Gross household income" as defined under 15-30-2337, MCA, is further defined as:

(a) all capital gains income transactions less return of capital;

(b) federal refundable credits received; and

(c) any state refundable credits received, including elderly homeowner/renter credit refunds.

(3) "Land surrounding the eligible residence for the elderly homeowner/renter credit" is the one-acre farmstead or primary acre associated with the primary residence.

(a) If the one-acre farmstead or primary acre is not separately identified on the tax bill or assessment notice from the other acreage and the ownership is less than 20 acres, the allowable credit shall be calculated as follows: total amount of property tax billed, multiplied by 80 percent or divided by the total acreage, whichever is higher, to equal the allowable amount of property tax used in the credit calculation.

(b) Land ownership of 20 acres or more that does not have the one-acre farmstead or primary acre separately identified on the tax bill or assessment notice must be submitted to the department's local office for computation of the allowable amount of property tax used in the credit calculation.

(4) "Rent" is the amount of money charged to a tenant to occupy a dwelling. "Rent" does not include amenities.

(1) When the taxpayer owns the dwelling but rents the land or owns the land and rents the dwelling, the taxpayer shall add the rent-equivalent tax paid on the rented property to the property tax billed on the owned property. The total shall then be reduced as provided by 15-30-2340, MCA. The tax credit will be the reduced amount or $1,000, whichever is less. 

(2) To calculate the credit, an eligible claimant is allowed to use property taxes billed:

(a) on property held in a revocable trust if the grantor(s) of the property or their spouse is the claimant and are trustees of the revocable trust;

(b) as rent if the property occupied by the claimant is in a name other than the claimant; or

(c) if the claimant has a living trust or a life estate.

(3) When a taxpayer lives in a health, long-term, or residential care facility (facility), as defined in 50-5-101, MCA, the rent allowed in calculation of the property tax credit is the actual out-of-pocket rent paid.

(a) If one spouse lives in a facility and the other lives at a different address, they are allowed to report either the rent paid for the facility or the rent/property taxes billed for the other address, but not both. Married taxpayers who are living apart are entitled to file and receive only one claim per year.

(b) Prior to January 1, 2017, if a claimant lived in a facility that did not provide an adequate breakdown between "rent" and "amenities" paid, the rent allowed is limited to:

(i) $20 a day for periods beginning on or before December 31, 2014; or

(ii) $30 a day for periods beginning after December 31, 2014.

(c) For claims for periods beginning after December 31, 2016, if a claimant lives in a facility, the out-of-pocket rent being claimed must exclude payments for amenities. To satisfy this obligation, the claimant must either:

(i) utilize a detailed statement provided by the facility itemizing the amount paid for rent and the amount paid for amenities separately; or

(ii) determine the amount of allowable rent by deducting the amenities from the total amount paid as follows:

(A) 20 percent for services related to board such as meals, housekeeping, laundry, and transportation;

(B) 30 percent for services related to continuous care such as assisted living, medical care, paramedical care, memory care, medical supplies, and pharmacy; or

(C) 50 percent if the services in both (A) and (B) are provided.

(d) Examples of calculating the allowable rent in (c) are as follows:

(i) Val rents a room in an independent living facility. Her $1,000 monthly payment includes utilities and parking, but no services delivered by personnel. No calculation is needed. Val is allowed to report the full $1,000 per month as rent.

(ii) Paul rents a room in an independent living facility. In addition to utilities and cable, his $2,500 monthly payment includes board such as housekeeping, meals, and transportation provided by staff and contractors. The facility's year-end statement does not break out his total paid. Paul deducts 20 percent ($2,500 - 20%) for the board services to calculate $2,000 per month as allowable rent to report.

(iii) Ron lives in a long-term care facility and receives board services, assistance with daily living activities, and special memory care. The facility's year-end statement partially breaks out his $40,000 total payment, showing the amount charged by a contractor for his memory care. It does not list the amounts charged for board and care provided by staff. Ron deducts 50 percent ($40,000 - 50%) for board (20%) and care (30%) to calculate $20,000 as allowable rent to report for the year.

(iv) George rents an apartment in an assisted living facility. The facility's year-end statement breaks out his $30,000 total payment as $14,400 for rent, $5,000 for board, and $10,600 for care. George may report the $14,400 stated rent amount or, alternately, choose to deduct 50 percent from the total ($30,000 - 50%) for board (20%) and care (30%) to calculate $15,000 as allowable rent to report for the year.

(v) Mary rents a room in an assisted living facility for six months while recovering from a medical procedure. Her $2,000 total monthly payment includes assistance with daily living activities provided by staff, but she chose not to receive any additional services such as board. The facility does not itemize her payment. Mary deducts 30 percent from the monthly payment ($2,000 - 30%) for the care to calculate $1,400 per month in allowable rent. Mary may report either the allowable rent paid to the facility, or the monthly rent she paid for her primary residence during the same six-month period, but not both.

(1) The elderly homeowner credit may be claimed by an eligible individual or, if an eligible individual dies before making a claim, by the personal representative of their estate, and must be made on Form 2EC, Montana Elderly Homeowner/Renter Credit.

(2) The time for, and manner of making, a claim for the credit depends on whether or not the qualified individual (or the personal representative for them) files an individual income tax return for the year for which the credit is claimed.

(a) If an eligible individual files or is required to file an individual income tax return for the year for which the credit is claimed, the claim must be filed with the return on or before the due date of the return, including extensions. ARM 42.15.301 sets forth the rules for determining whether an individual is required to file a return. If a return is made by or for an eligible individual without making a claim for the credit, the credit may be claimed by filing an amended return within five years after the due date of the return, not including extensions.

(b) If an eligible individual is not required to file an individual income tax return, no later than April 15th of the fifth year following the claim year the claim must be:

(i) mailed to the department at the address set forth in ARM 42.1.101;

(ii) delivered to:

Department of Revenue

Sam W. Mitchell Building

Third floor, 125 North Roberts

Helena, Montana; or

(iii) filed electronically through the department's web site at: www.revenue.mt.gov.

(c) If an eligible individual is required to, but did not, file an individual income tax return the claim must be made by filing an individual income tax return with completed Form 2EC as provided in (2)(a).

(d) If the taxpayer claiming the credit files their tax return electronically, he or she represents that they have completed Form 2EC and have all the required documentation. The form and required documentation are tax records the taxpayer must retain and provide to the department on request.

(3) The following are examples showing how this rule is applied:

(a) Taxpayer is required to file an individual income tax return for 2011 and, although eligible, neglects to claim the credit by filing Form 2EC with their 2011 individual income tax return which they file April 6, 2012. Taxpayer may claim the credit by filing an amended 2011 individual income return with completed Form 2EC on or before April 15, 2017.

(b) Taxpayer, who is not required to file an individual income tax return for 2011, dies in February 2012. The taxpayer's personal representative, appointed June 2012, may at any time before April 15, 2017, either file a 2011 individual income tax return for the taxpayer with completed Form 2EC or file Form 2EC without filing a 2011 return.

(c) Taxpayer is required to, but does not file an individual income tax return for 2012. Taxpayer or, if the taxpayer has died, the personal representative of the taxpayer's estate, may claim the credit by filing a 2012 individual income return with completed Form 2EC on or before April 15, 2018.

The following definitions apply to this subchapter:

(1) "Another state" or "other state" means a state of the United States other than Montana, the District of Columbia, the Commonwealth of Puerto Rico, any other territory or possession of the United States, and a foreign country.

(2) "Foreign income tax" means the income tax paid to another state for which the credit described in ARM 42.4.402 is claimed.

(3) "Income tax" means a tax measured by and imposed on net income and, in the case of an S corporation and partnership, includes an excise tax or franchise tax that is imposed on, and measured by, the net income of the S corporation or partnership. The term does not include any other taxes such as, but not limited to, franchise or license taxes or fees not measured by net income, gross receipts taxes, gross sales taxes, capital stock taxes, or property, transaction, sales, or consumption taxes. The term does not include penalty or interest paid in connection with an income tax.

(4) "Taxable foreign income" means the income from the other state that is included in the taxpayer's Montana adjusted gross income.

(5) "Total foreign income" means the income of the other state upon which the foreign income tax was computed.

(1) A Montana resident is allowed a nonrefundable credit against the resident's Montana income tax liability for:

(a) income taxes they paid to another state or foreign country on income which is also subject to Montana income tax;

(b) the resident shareholder's pro rata share of income taxes paid by an S corporation to another state or foreign country on income that is subject to Montana income tax as provided in Title 15, chapter 30, MCA; and

(c) the resident partners' distributive share of income taxes paid by a partnership to another state or foreign country on income that is subject to Montana income tax as provided in Title 15, chapter 30, MCA.

(2) The credit is allowed under the following conditions and limitations:

(a) the credit is allowed only with respect to an income tax imposed by law and actually paid. An income tax is a tax measured by and imposed on net income and, in the case of an S corporation or partnership, includes an excise tax or franchise tax that is imposed on and measured by the net income of the entity. The credit is not allowed for other taxes such as, but not limited to, franchise or license taxes or fees not measured by net income, gross receipts taxes, gross sales taxes, capital stock taxes, or property, transaction, sales, or consumption taxes. The credit is not allowed for penalty or interest paid in connection with an income tax;

(b) in the case of a taxpayer who either becomes or ceases to be a Montana resident during the taxable year, the credit is allowed only with respect to income earned during the fractional part of the year the taxpayer was a resident of this state;

(c) the credit is allowed only with respect to an income tax that the taxpayer does not claim as a deduction in determining Montana taxable income;

(d) the credit is allowed only if the state or foreign country imposing the income tax liability does not allow the taxpayer a credit for Montana income tax liability incurred with respect to the income derived within such state or foreign country; and

(e) the credit is allowed for taxes paid to a foreign country only to the extent the taxes paid exceed either:

(i) the amount claimed under IRC section 904(a) plus any carryback and carryover amount allowed under IRC section 904(c); or

(ii) the amount claimed under IRC section 904(k).

(3) The credit against income taxes is claimed on the Montana tax return for the same year that the taxpayer reports the income associated with the tax paid to the other state or country. Because the Montana credit is nonrefundable and any unused credit may not be used in another tax year, taxes that for federal income tax purposes are deemed paid or accrued in a carryback or carryover year must be removed before calculating the Montana foreign tax credit.

(4) The credit cannot be claimed by an individual for taxes paid to another state or country by an estate or trust.

(5) If a taxpayer amends the amount of income reported to the other state or a foreign country on which the Montana credit was based, the taxpayer shall file an amended Montana tax return to recalculate the credit allowed.

(1) In determining the tax credit allowed, the computations in this rule must be made separately for each state or foreign country's income tax with respect to which a credit is claimed.

(2) If the claim for credit does not include the taxpayer's share of income tax paid to another state or country by an S corporation or partnership in which the taxpayer is a shareholder or partner:

(a) determine the amount of income taxable by the other state or foreign country that is included in Montana adjusted gross income (AGI), but do not include income that is exempt in Montana;

(b) determine the amount of tax paid to the other state or foreign country on income that is not exempt in Montana by multiplying the tax paid to the other state or foreign country by a fraction:

(i) the numerator of which is the amount of income taxable by the other state or foreign country that is included in Montana AGI (excluding income exempt in Montana;) and

(ii) the denominator of which is the total amount of income taxable by the other state or foreign country (including income exempt in Montana).

(c) determine the proportionate amount of the Montana income tax attributable to income taxed by the other state or foreign country by multiplying the Montana income tax liability, as determined without the credit, by a fraction:

(i) the numerator of which is the taxpayer's income taxable by the other state or foreign country that is included in the taxpayer's Montana AGI; and

(ii) the denominator of which is the taxpayer's total Montana AGI.

(d) the credit allowable is the lower of:

(i) the amount of income tax reported and paid to the other state or foreign country;

(ii) the amount of the income tax reported and paid to the other state or foreign country on income that is not exempt in Montana, the result of the calculation in (2)(b); or

(iii) the proportionate amount of the Montana income tax attributable to income taxed by the other state or foreign country, the result of the calculation in (2)(c).

(3) If the claim for credit does include the taxpayer's share of income tax paid to another state or country by an S corporation or partnership on income that is subject to Montana income tax:

(a) increase the taxpayer's Montana AGI for the tax year the entity deducted the income taxes by the taxpayer's share of the entity's deduction;

(b) calculate the Montana income tax liability taking the increase in Montana AGI into account;

(c) determine the taxpayer's share of the amount of net entity income that is included in Montana AGI (do not include income that is exempt in Montana);

(d) determine the taxpayer's share of the amount of income tax reported and paid to the other state or foreign country by the entity on income that is not exempt in Montana by multiplying the share of the amount of tax reported and paid to the other state or foreign country by the entity by a fraction:

(i) the numerator of which is the share of the amount of the entity's net income included in the Montana AGI (excluding income exempt in Montana); and

(ii) the denominator of which is the share of the total amount of the entity's net income (including income exempt in Montana).

(e) multiply the recalculated Montana income tax liability by a fraction, the numerator of which is the taxpayer's share of income of the entity included in the taxpayer's Montana AGI, adjusted as provided in (3)(a), and the denominator of which is the taxpayer's total Montana AGI, adjusted as provided in (3)(a);

(f) the credit allowable is the lower of:

(i) the share of the amount of income tax reported and paid by the entity to the other state or foreign country;

(ii) the share of the amount of the income tax reported and paid to the other state or foreign country by the entity on the share of income that is not exempt in Montana, the result of the calculation in (3)(d); or

(iii) the proportionate amount of the Montana income tax attributable to the share of income of the entity reported to the other state or foreign country, the result of the calculation in (3)(e).

(4) Examples of how to calculate these credits paid to another state or country are outlined in (a) through (c):

(a) Example 1 - Taxpayer, a full-year Montana resident, sold real property in State X in 2017. State X does not provide nonresidents a credit for income earned in that state if that income is taxable in another state. In 2018, the taxpayer was legally required to, and did, file a 2017 State X income tax return reporting the transaction and paying State X an income tax of $700. The taxpayer's $5,000 gain on the sale of the State X property was included in the taxable income reported on the 2017 Montana income tax return. The taxpayer's 2017 Montana income tax liability was $3,400. The taxpayer's total 2017 Montana AGI was $23,000, which included the $5,000 gain on the sale of property in State X. The amount of credit the taxpayer may claim against the 2017 Montana income tax liability is $700, the smaller of the amounts in (i) through (iii):

(i) The amount of income tax paid to State X is $700;

(ii) The amount of income tax paid to State X on income that is not exempt in Montana is $700. This amount is determined by multiplying the tax paid to State X ($700) by a fraction, the numerator of which is the amount of income from State X that is included in Montana AGI ($5,000), and the denominator of which is the total amount of income from State X, including any income that is exempt in Montana. The calculation is $700 x ($5,000/$5,000) = $700;

(iii) The proportionate amount of the Montana income tax attributable to income taxed by State X is $739. This amount is determined by multiplying the Montana income tax liability without the credit ($3,400) by a fraction, the numerator of which is the income from State X included in Montana AGI ($5,000), and the denominator of which is total Montana AGI ($23,000). The calculation is $3,400 x ($5,000/$23,000) = $739.

(b) Example 2 - Taxpayer, a full-year Montana resident, was a shareholder in an S corporation that was engaged in banking in State X in 2017. State X does not allow S corporations engaged in financial businesses to elect state-level S corporation treatment and imposes a tax on them measured by net income. The following represents what occurred:

(i) The S corporation was required to and did file a 2017 income tax return with State X in 2018 and paid a tax measured by its net income of $132,000, $121,000 by estimated payments made in 2017 and the balance of $11,000 in 2018 when it filed its 2017 return;

(ii) The S corporation paid $15,000 tax to State X for tax year 2016 when it filed its 2016 return in 2017. The S corporation's non-separately stated and separately stated items for tax year 2017 were as follows, of which the Montana resident shareholder's share was 10 percent:

(A) An ordinary income of $2,000,000 from banking business includes a deduction of $136,000 for State X taxes paid in 2017, $121,000 for estimated payments in 2017, and $15,000 for 2016 taxes paid in 2017;

Tax exempt interest income $1,200,000

Ordinary dividends 300,000

(B) The taxpayer's total 2017 Montana AGI was $500,000, which included 10 percent of the S corporation's ordinary dividends, or $30,000, and 10 percent of the ordinary income from its banking business, or $200,000;

(C) The shareholder's $200,000 share of the S corporation's ordinary income from its business was reduced by the shareholder's share of the S corporation's deduction for $136,000 income taxes paid to State X in 2017, or by $13,600 (had the shareholder paid the shareholder's 10 percent share of the State X's taxes rather than the S corporation, the shareholder's 10 percent pro rata share of the S corporation's ordinary income for 2017 would have been $213,600);

(D) The shareholder's 10 percent share of the S corporation's tax-exempt interest, or $120,000, is exempt from Montana individual income tax but is subject to tax by State X; and

(E) Assume the taxpayer's 2017 Montana tax liability would be $50,000 if the credit were not claimed;

(iii) The taxpayer calculates the Montana income tax liability and the amount of credit the taxpayer may claim against the 2017 income tax liability as follows:

(A) The taxpayer's Montana taxable income is increased by the pro rata share of the S corporation's deduction for State X taxes paid for which the taxpayer claims the credit;

Montana AGI:                $500,000

Reverse deduction:           13,600

Adjusted MT AGI:          $513,600

(B) The taxpayer's pro rata share of the tax reported and paid to State X by the S corporation for 2017 ($13,200) is multiplied by the proportion of the taxpayer's pro rata share of the S corporation income taxed in State X that is not exempt in Montana ($230,000) to the taxpayer's pro rata share of the amount of income that is taxable in State X, including income that is exempt in Montana ($350,000):

Ordinary income from banking operations $200,000

Ordinary dividends 30,000

S corporation income exempt from Montana tax 120,000

Taxpayer's share of income tax reported and paid to State X on income that is not exempt in Montana:

$13,200 x $230,000 / $350,000 = $8,674

(C) The taxpayer's Montana income tax liability is recalculated. Tax on adjusted Montana AGI of $513,600: $56,500 (assumed result). The recalculated Montana income tax liability ($56,500) is multiplied by the ratio of S corporation net income included in Montana AGI, increased by the pro rata share of the S corporation deduction for the income taxes paid ($200,000 + $30,000 + $13,600 = $243,600) to the taxpayer's total Montana AGI, increased by the pro rata share of the S corporation deduction for income taxes paid ($513,600).

Montana income tax attributable to income that is taxed in both states:

$56,500 x $243,600 / $513,600 = $26,798

(D) The allowable credit is $8,674, the lower of:

(I) pro rata share of the income tax reported and paid by the S corporation, $13,200;

(II) pro rata share of the amount of the income tax reported and paid to the other state or foreign country by the S corporation on their pro rata share of income that is not exempt in Montana, $8,674; and

(III) proportionate amount of the Montana income tax attributable to their pro rata share of income of the S corporation reported to the other state or foreign country, $26,798.

(c) Example 3 – A full-year Montana resident pays $1,000 in income taxes to a foreign country. For federal income tax purposes, the taxpayer elects to claim the federal foreign credit for those taxes rather than a deduction. The amount of the foreign federal tax credit is $800, $500 of which the taxpayer claims currently and $300 of which is allowed to be carried back and forward under IRS 904(c). In calculating the Montana credit for taxes paid to the foreign country, the taxpayer must use $200 rather than $1,000 as the amount of taxes paid to the foreign country.

(1) Except as provided in (2), a taxpayer may not claim a deduction for any item for which a credit is claimed.

(2) The total amount of wages and salaries paid may be claimed as a deduction by a taxpayer who, in determining federal AGI, has reduced the taxpayer's business deductions by the amount of wages and salaries for which a federal work opportunity tax credit was elected under sections 38 and 51(a) of the IRC.

The following definitions apply to terms found in this subchapter:

(1) "Net capital gain" means an individual's net capital gain included in Montana adjusted gross income as shown on their Montana individual income tax return.

(2) "Tax year 2005" means the taxpayer's tax year beginning after December 31, 2004.

(3) "Tax year 2006" means the taxpayer's tax year beginning after December 31, 2005.

(1) An individual may claim a credit against their Montana individual income tax of up to 2 percent of their net capital gain. The credit is based on the net capital gain as shown on the individual's Montana individual income tax return. Spouses who file a joint return for federal income tax purposes but a separate return for Montana income tax and who elect to claim the same amount of capital loss deduction as shown on their joint federal income tax return as provided in 15-30-2110, MCA, must compute the capital gain credit consistently. The credit is nonrefundable and may not be carried back or carried forward to any other tax year. The credit must be applied before any other credit.

(2) A nonresident or a part-year resident must apply the credit to Montana tax computed as if he or she were a resident during the entire tax year.

(3) For an estate or trust filing a Form FID-3, Montana fiduciary return, the credit is calculated on the net capital gains reported minus any net capital gains distributed to any beneficiary.

(4) Married taxpayers filing separately must compute and report their capital gains and losses as provided in ARM 42.15.206.

(5) Spouses may elect to report all of their capital gains and losses separately for the current and future tax years. An election is made by claiming a capital gains credit calculated on a net capital gain amount that is different from the net capital gain shown on the taxpayer's joint federal income tax return, or claiming a capital loss deduction that is greater than the amount that would be allowed for federal income tax purposes if the taxpayer had filed a separate federal income tax return.

(6) The following are examples of how the credit is applied:

(a) Example: For tax year 2017, John and Barbara file a joint 2017 federal income tax return reporting $2,000 of net capital gain. John's income consists of $50,000 in wages and $8,000 of net capital gain. Barbara's income consists of $35,000 in wages and $6,000 of net capital loss. If they file separately rather than jointly for Montana, unless they elect to separately report their capital gains and losses for this and future years as provided in (5), their capital gain credit is 2 percent of their net capital gain of $2,000, or $40.

(b) Example: Assume the same facts as the example in (a) except that the spouses do elect to separately report their capital gains and losses as provided in (5). John may claim a capital gain credit of up to $160 ($8,000 x 2%) against his Montana income tax. Barbara is not entitled to claim any credit against her tax. 

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

The following definitions apply to terms used in this subchapter:

(1)  "School district," for the purposes of this rule, means a Montana public elementary school district or public high school district, or any of the three state-funded public schools: Montana School for the Deaf and Blind, the Department of Corrections – adult school, and the Department of Corrections – youth school.

This rule has been repealed.

(1) Prior to registering a donation with the department, a school district or SSO shall submit a complete application to the department. The application is located on the department's website at the education donations portal. The application must include the following information: 

(a) the school district or SSO name, address, and federal employer identification number; and 

(b) the school district or SSO donation manager's name, title, phone number, and e-mail address.

(2) A school district or SSO must register each donation, upon receipt, in the department's registration system. Preapproval of the amount of donation eligible for the credit will be provided at the time the school district or SSO registers the donation in the department's registration system.

(3) With respect to the aggregate limit of tax credits allowed for a year, the priority of donations is based upon the time and date stamp issued by the department's registration system when a school district or SSO completes registration of the donation. Donations made in excess of the aggregate limits and credit cap, which is the amount of the credit provided under 15-30-3110 and 15-30-3111, MCA, will not be eligible for the tax credit. 

(4) The department will certify to a school district or SSO the amount of credit available to the taxpayer when the school district or SSO completes the registration of the donation in the department's registration system.

(1) A taxpayer may claim a credit for contributions made in cash to a school district provided for in 20-9-901, MCA, and/or a student scholarship organization (SSO), provided for in 15-30-3110, MCA. For the purpose of this rule, cash includes:

(a) U.S. currency;

(b) a personal check;

(c) cashier's check;

(d) money order;

(e) bank draft; 

(f) an electronic bank account transfer (e.g., wire transfer, ACH draft);

(g) a credit card transaction (less any transaction surcharges or fees); or 

(h) traveler's check.

(2) The maximum credit that may be claimed in a tax year by an individual taxpayer or a corporation for allowable contributions to:

(a) a school district is $200,000; and

(b) an SSO is $200,000.

(3) In the case of a married couple that makes a joint contribution, unless specifically allocated by the taxpayers, the contribution will be split equally between each spouse. If each spouse makes a separate contribution, each may be allowed a credit up to the maximum amount.

(4) An allowable contribution from:

(a) an S corporation passes to its shareholders based on their ownership percentage; and

(b) a partnership or limited liability company taxed as a partnership passes to their partners and owners based on their share of profits and losses as reported for Montana income tax purposes.

(1) Only the corporation that earned the tax credit may claim that credit against its own corporate income tax liability. A corporation earns a tax credit if it is the entity that made the qualifying investment or expenditure to generate the applicable tax credit.

(2) Except as provided for in 15-32-508, MCA, in the case of a merger or consolidation, if a credit is earned by a corporation that is no longer in existence the credit may not be claimed against the tax liability of the surviving corporation.

(3) Except as provided for in 15-32-508, MCA, in the case of a corporate entity that has converted to a disregarded entity, any credit earned by the entity prior to the conversion may not be claimed against the tax liability of another entity.

(4) As provided in (1), tax credits are applied on a separate entity basis. A tax credit may not be transferred, assigned, or otherwise used to reduce the tax liability of any other corporation, even if that other corporation is a member of the same unitary business group as the corporation that earned the credit.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

(1) Subject to the restriction that apprenticeship tax credits may not exceed the taxpayer's total tax liability, the total amount of credit an employer participating in a state-registered apprenticeship training program may claim is determined by the Montana Department of Labor and Industry (DLI). The department can only adjust the total credit allocation among the owners of an S corporation, partnership, or limited liability company in order to conform to 15-30-2357 and 15-31-173, MCA, and this rule.

(a) If the employer is an S corporation, the shareholders' share of the total credit is based on their pro rata share of income or loss.

(b) If the employer is a partnership or a limited liability company that is taxed like a partnership, the partners' or members' share of the total credit is based on the their distributive share of the entity's income or loss reported for Montana income tax purposes.

(2) A taxpayer who files a tax return on a calendar year basis shall claim the credit for the tax year in which the DLI approved the credit.

(3) A taxpayer who files a tax return on a fiscal year basis shall claim the credit allowed for the calendar year that ends within the taxpayer's fiscal period.

(4) The taxpayer shall include copies of all tax certification numbers, agreements, DLI approval notice, and supporting documents when filing their return. If the return is filed electronically using software that does not support attachments, the taxpayer shall retain the information and provide it to the department upon request.

(5) When reviewing a claim for the credit, the department may request additional information to determine a taxpayer's eligibility for the allocation of the credit being claimed. This information may include, but is not limited to:

(a) a Montana Schedule K-1 issued by a partnership, S corporation, or fiduciary indicating the partner, shareholder, or beneficiary's share of the credit; or

(b) a return filed by a partnership, S corporation, or fiduciary including information showing the owners of the entity.

The following definitions apply to terms used in this subchapter:

(1) "Agreement" means the contract for participation entered into between the Montana Department of Fish, Wildlife and Parks (FWP) and the landowner(s) for purposes of guaranteeing access to public land under the unlocking public lands program.

(2) "Tax certification number" means the number issued by FWP certifying that the landowner is providing qualified access to public land under the unlocking public lands program provided for in 87-1-294, MCA.

(1) To claim the unlocking public lands tax credit, a taxpayer shall file a Montana tax return (Form 2 for individuals, Form FID-3 for estates and trusts, or Form CIT for C corporations), whether or not they are otherwise required to file a tax return for the year the credit is being claimed.

(2) A taxpayer who files a tax return on a calendar year basis shall claim the credit for the tax year in which the agreement applied.

(3) A taxpayer who files a tax return on a fiscal year basis shall claim the credit for the tax year in which the agreement was certified by the Montana Department of Fish, Wildlife and Parks.

(4) The taxpayer shall include copies of all tax certification numbers, agreements, and supporting documents when filing their return. If the return is filed electronically using software that does not support attachments, the taxpayer shall retain the information and provide it to the department upon request.

(5) When reviewing a claim for the credit, the department may request additional information to determine a taxpayer's eligibility for the allocation of the credit being claimed. This information may include, but is not limited to:

(a) documentation establishing ownership and ownership percentage of the parcel(s);

(b) a Montana Schedule K-1 issued by a partnership, S corporation, or fiduciary indicating the partner, shareholder, or beneficiary's share of the credit; or

(c) a return filed by a partnership, S corporation, or fiduciary including information showing the owners of the entity.

(1) For purposes of calculating the tax credit permitted by the unlocking public lands program, parcels held wholly or in part by an entity disregarded for tax purposes shall be treated as owned by the entity's owner or owners. For example, a parcel held in the name of a single-member limited liability company that is disregarded for tax purposes shall be considered as owned by the sole member, or sole member and spouse, if applicable.

(2) Unless substantiation of a different ownership split is provided by all landowners, the credit for access granted through land having multiple owners, such as two individuals or an individual and an unrelated corporation, shall be divided equally among the landowners.

(3) The credit for access through land owned by an S corporation must be allocated to its shareholders in the same manner the S corporation uses to allocate its items of income or loss to its owners for Montana income tax purposes.

(4) A partnership that is entitled to the credit may allocate the total credit in a manner that is mutually agreeable to its partners. Evidence of such an allocation may include, but is not limited to, Montana Schedules K-1, terms of the partnership agreement that are specific to this credit, or a separate agreement between the partners regarding the allocation of this credit. If evidence of the allocation is not provided to the department upon request, or if the information provided is deficient, the total credit must be allocated to the partners in the same manner the partnership allocated its income and losses to its owners for Montana income tax purposes.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

(1) If any part of the credit earned in taxable years beginning after December 31, 2004, is not applied against the tax liability for the year earned, the unused portion of the credit can be carried forward to offset tax liability in the next seven periods.

(2) The credit may be subject to recapture if the facility claiming the credit ceases blending of biodiesel with petroleum diesel for sale for a period of 12 consecutive months. At the point the facility ceases blending of biodiesel with petroleum diesel, any credit claimed in the five years prior to the cease date must be recaptured.

The following definitions apply to this subchapter:

(1) "Finished product" means a marketable product that has economic value and is ready to be used by a consumer.

(2) "Machinery or equipment" is property having a depreciable life of more than one year, whose primary purpose is to collect or process reclaimable material or is depreciable property used in the manufacturing of a product from reclaimed material.

(3) "Primarily" means over 50% of time, usage, or other appropriate measure.

(4) "Process or processing" means preparation, treatment, including treatment of hazardous waste as defined in 75-10-403, MCA, or conversion of a product or material by an action, change, or function or a series of actions, changes, or functions that bring about a desired end result.

(5) "Reclaimed material" is post-consumer material that has been collected and used in a process designed to produce recycled material.

(6) "Recycled material" means a material that can be readily utilized without further processing in place of raw or virgin material in manufacturing a product and consists of materials derived from post-consumer waste, industrial scrap, and material derived from agricultural wastes and other items, all of which can be used in the manufacture of new products.

(1) Businesses, including corporations, individuals, and partnerships, may take an additional 10 percent deduction of the expenses related to the purchase of recycled products used within Montana in their business if the recycled products purchased contain recycled material at a level consistent with industry standards and/or standards established by the Federal Environmental Protection Agency when such standards exist. The department may request the assistance of the Montana Department of Environmental Quality to determine if the product qualifies as a recycled product. Due to continuing technological advances in the recycling industry, the standards will be subject to constant change. The industry standards to be used will be those in effect at the time the product was purchased.

(2) For a taxpayer paying individual income tax, the deduction is an adjustment to federal adjusted gross income for individual income tax.

(3) For a corporation paying the corporate income tax/alternative corporate income tax, the deduction is an adjustment to federal taxable income for the corporate income tax/alternative corporate income tax.

(4) A shareholder of an S corporation may claim a share of the allowable deduction for expenditures that the S corporation incurred for purchase of qualified recycled material based on the shareholder's pro rata share of their ownership in the S corporation. A partner of a partnership may claim a share of the allowable deduction for expenditures the partnership incurred for the purchase of qualified recycled material in the same proportion used to report the partnership's income or loss for Montana income tax purposes.

(5) Any deductions claimed are subject to review by the department. The responsibility to maintain accurate records to substantiate deductions remains with the taxpayer.

(1) The credit is subject to the limitations outlined in 15-32-602 , MCA, and is available only for the acquisition of machinery and/or equipment that is depreciable, as defined in Section 167 of the IRC. The machinery and/or equipment must be used in Montana primarily for the collection or processing of reclaimable material, or in the manufacture of finished products from reclaimed material.

(2) The basis for the credit is generally the cost of the property before consideration of trade-in equipment. An exception to this is that the basis shall be reduced by any trade-in which has had this credit previously taken on it. This includes the purchase price, transportation cost (if paid by the purchaser) , and the installation cost before depreciation or other reductions. This credit does not increase or decrease the basis for tax purposes. Leased equipment is restricted to capital leases, and the credit is calculated on the amount capitalized for balance sheet purposes under generally accepted accounting principles.

(3) Recycling machinery and/or equipment must be located and operating in Montana on the last day of the taxable year for which the credit is claimed. The machinery or equipment must be used to:

(a) collect;

(b) process;

(c) separate;

(d) modify;

(e) convert; or

(f) treat solid waste into a product that can be used in place of a raw material for productive use or treat soil that has been contaminated by hazardous wastes.

(4) Examples may include, but are not limited to:

(a) balers;

(b) bobcats;

(c) briquetters;

(d) compactors;

(e) containers;

(f) conveyors;

(g) conveyor systems;

(h) cranes with grapple hooks or magnets;

(i) crushers;

(j) end loaders;

(k) exhaust fans;

(l) fork lifts;

(m) granulators;

(n) lift-gates;

(o) magnetic separators;

(p) pallet jacks;

(q) perforators;

(r) pumps;

(s) scales;

(t) screeners;

(u) shears;

(v) shredders;

(w) two-wheel carts; and

(x) vacuum systems.

(5) This does not include transportation equipment, unless it is specialized to the point that it can only be used to collect and process reclaimable material or treat soil that has been contaminated by hazardous wastes.

(6) In the instance of the specialized mobile equipment that does qualify and is used both within and outside of Montana, the credit must be prorated using the following calculation:

          D x C x E = Credit allowed

          T

C = credit % in 15-32-602 , MCA

D = days used in Montana

E = cost of equipment

T = total days used

(7) Absent a specific agreement to the contrary, the owners of a small business corporation, partnership, or sole proprietorship must prorate the credit in the same proportion as their ownership in the business.

(8) Only a taxpayer that owns an interest, either directly or through a pass-through entity such as a partnership or S corporation, and is operating the equipment as the primary user on the last business day of the year, may claim the credit.

(9) The credit is limited to the amount of the taxpayer's income or corporation tax liability. Any excess credit is not refundable, nor can it be carried back or forward to other tax years.

(10) The department may disallow a credit resulting from a sale or lease when the overriding purpose of the transaction is not to collect or process reclaimable material, or manufacture a product from reclaimed material.

(1) The credit must be taken in the tax year in which the machinery/equipment was acquired and placed into service.

(2) Any credit claimed is subject to review by the department. The department may request the assistance of the Montana Department of Environmental Quality when making its determinations. The responsibility to maintain accurate records to substantiate the credit remains with the taxpayer.

The following definitions apply to this subchapter:

(1) "Allowable contribution" for the purposes of the qualified endowment credit is a charitable gift made to a qualified endowment. The contribution from an individual to a qualified endowment must be by means of a planned gift as defined in 15-30-2327, MCA. A contribution from a corporation, small business corporation, estate, trust, partnership, or limited liability company may be made by means of a planned gift or may be made directly to a qualified endowment.

(2) "Donor" means an individual, corporation, estate, or trust that contributes to a qualified charitable endowment as required by 15-30-2327, 15-30-2328, 15-30-2329, 15-31-161, and 15-31-162, MCA.

(3) "Paid-up life insurance policies" are life insurance policies in which all the premiums have been paid prior to the policies being contributed to a qualified endowment. The donor must make the tax-exempt organization the owner and beneficiary of the policy. The paid-up life insurance policy does not have to be on the life of the donor.

(4) "Permanent irrevocable fund" means a fund comprised of one or more assets that are invested and appropriated pursuant to the Uniform Prudent Management of Institutional Funds Act provided for in Title 72, chapter 30, MCA. Investment assets may include cash, securities, mutual funds, or other investment assets. A "building fund" or other fund that is used to accumulate contributions that will be expended is not a permanent irrevocable fund. A fund from which contributions are expended directly for constructing, renovating, or purchasing operational assets, such as buildings or equipment, is not a permanent irrevocable fund.

(5) "Present value of the charitable gift portion of a planned gift" is the allowable amount of the charitable contribution as defined in 15-30-2131, and 15-30-2152, MCA, or for corporations as defined in 15-31-114, MCA, prior to any percentage limitations.

(6) "Qualified endowment" means a permanent irrevocable fund established for a specific charitable, religious, educational, or eleemosynary purpose by an organization qualified to hold it as provided in ARM 42.4.2703.

(1) To hold a qualified endowment an organization must be:

(a) incorporated or otherwise formed under the laws of Montana and exempt from federal income tax under 26 USC 501(c)(3); or

(b) a Montana chartered bank or trust company, as defined in 15-30-2327, MCA, holding an endowment fund on behalf of a Montana or foreign 501(c)(3) organization.

(2) A qualifying gift to an institution meeting the definition in (1)(b) at the time of the gift remains a qualifying gift even if subsequent changes to the institution mean it no longer meets the definition of an entity eligible to hold a qualified endowment. For example, a qualifying gift to a Montana chartered bank remains a qualifying gift even if the bank is subsequently acquired and absorbed by a nationally chartered bank.

(1) The credit allowed the corporation, estate, trust, or individual against its tax liability for a contribution of a planned gift is the percentage, as shown in the following table, of the present value of the allowable contribution as defined in ARM 42.4.2701. The credit allowed against the tax liability of the corporation, estate, or trust for a direct contribution is equal to 20 percent of the charitable contribution. The maximum credit that may be claimed in one year is $10,000 per donor. A contribution made in a previous tax year cannot be used for a credit in any subsequent tax year.

Planned Gifts by Individuals or Entities

 

Planned Gift Date	Percent of Present Value	Used to Calculate Maximum Credit	Maximum Credit Per Year
7/1/03 - 12/31/19	40%	$25,000	$10,000

(2) The credit allowed against the corporate, estate, trust, or individual tax liability for a charitable gift made by a corporation, small business corporation, estate, trust, partnership, or limited liability company directly to a qualified endowment is the percentage, as shown in the following table, of the allowable contribution as defined in ARM 42.4.2701.

Unplanned Gifts by Eligible Entities

Qualified Charitable Gift Date	Percent of Allowable Contribution	Allowable Contribution Used to Calculate Maximum Credit	Maximum Credit Per Year
7/1/03 - 12/31/19	20%	$50,000	$10,000

 

(3) The balance of the allowable contributions not used in the credit calculation may be used as a deduction subject to the limitations and carryover provisions found in 15-30-2131, MCA, or for corporations, the limitations and carryover provisions found in 15-31-114, MCA.

(a) Example of an allowable deduction when a planned gift is used for the Qualified Endowment Credit:

Time Period	Present Value	Maximum Credit	Credit Percentage	Allowable Deduction
7/1/03 - 12/31/19	$50,000-	($10,000 /	.40) =	$25,000

(b) Example of an allowable deduction when an outright gift is used for the Qualified Endowment Credit:

Time Period	Market Value	Maximum Credit	Credit Percentage	Allowable Deduction
7/1/03 - 12/31/19	$55,000-	($10,000 /	.20) =	$5,000

(4) A contribution to a qualified endowment by a small business corporation, partnership, or limited liability company qualifies for the credit only if the entity carried on a trade or business or rental activity during the tax year the contribution was made.

(5) The contribution to a qualified endowment from a small business corporation, partnership, or limited liability company is passed through to the shareholders, partners, or members in the same proportion as their distributive share of the entity's income or loss for Montana income tax purposes. The proportionate share of the contribution passed through to each shareholder, partner, or member becomes an allowable contribution for that donor for that year, and the credit allowed and the excess contribution deduction allowed are calculated as set forth in (1) and (2). The credit maximums apply at the corporation and individual levels, and not at the pass-through entity's level for partnerships, small business corporations, and limited liability companies.

(6) Deductions and credit limitations for an estate or trust are as follows:

(a) if an estate or trust claims a credit based on the computation of the full amount of the contribution, there is no credit available to beneficiaries;

(b) any portion of a contribution not used in the calculation of credit for the estate may be passed through to the beneficiaries, in the same proportion as their distributive share of the estate's or trust's income or loss for Montana income tax purposes; however, beneficiaries may deduct only that portion of allowable contributions not used toward the credit or deduction claimed by the estate or trust; or

(c) if the estate or trust has deducted the full amount of the contribution, the credit may not be claimed by either the estate, trust, or the individual beneficiaries.

(7) The rate a beneficiary will use to calculate their credit for an allowable contribution passed to them by an estate will be based on the nature of the gift made by the estate. For example, if an estate makes an outright gift to a qualified endowment on July 17, 2017, and the contribution is passed to a beneficiary, the beneficiary will calculate their credit using the 20 percent rate.

(8) At no time can a corporation, small business corporation, partnership, limited liability company, estate, trust, or individual be allowed to receive the benefit of both a contribution deduction and a credit from the same portion of a contribution.

(9) The maximum credit that may be claimed in a tax year by any donor for allowable contributions from all sources is limited to the maximum credit stated in (1) and (2). In the case of a married couple that makes a joint contribution, the contribution is assumed split equally. If each spouse makes a separate contribution, each may be allowed the maximum credit as stated in (1) and (2).

(a) Example 1: Assume a married couple makes a joint planned gift to a qualified endowment on September 1, 2017. The allowable contribution made by the couple is $30,000. That couple is eligible to take a credit of up to $12,000, with each claiming a credit of $6,000.

(b) Example 2: Assume a married couple makes separate planned gifts to qualified endowments on September 1, 2017, which result in an allowable contribution of $20,000 for each person. They each would be eligible to take a credit of up to $8,000.

(10) A donor may, at a later date, name or substitute the Montana qualified endowment, as defined in 15-30-2327, MCA, to receive the planned gift provided that the original trust or gift document reserves in the donor the right to do so.

(1) A permanent, irrevocable fund can be created by a restriction in the applicable planned gift document indicating the donor's intention that the contribution shall be held in a permanent, irrevocable fund. For planned gifts other than paid-up life insurance policies, the applicable planned gift document is the trust document, gift annuity contract, life estate agreement or pooled income fund agreement.

(2) A permanent irrevocable fund can be created in a separate gift document accompanying an outright contribution.

(3) A permanent irrevocable fund may be created by either a qualified organization referenced in ARM 42.4.2703 under a separate governing document or when a donor creates an endowment through a gift document.

(4) By creating a permanent, irrevocable fund and receiving the credit, the donor waives the right under 72-30-207, MCA, to release the restriction in the gift document.

(5) All funds created by donors or qualified organizations must meet the requirements of a permanent irrevocable fund provided in these rules.

(1) The donor must attach a copy of the following information to the tax return reporting the credit:

(a) a receipt acknowledging the amount of the allowable contribution from the:

(i) tax-exempt organization under 26 USC 501(c)(3) holding the qualified endowment receiving the contribution;

(ii) trustee of the trust administering the planned gift; or

(iii) bank or trust company holding a qualified endowment on behalf of a tax exempt organization.

(b) the date of the contribution to the qualified endowment or the planned gift;

(c) the name of the organization incorporated or established in Montana holding the qualified endowment fund or the name of the tax exempt organization on behalf of which the qualified endowment fund is held;

(d) in the case of a charitable trust where the charity is yet to be named, the donor shall include a copy of the disposition clause of the charitable trust which gives evidence that a qualified endowment fund has been created;

(e) a description of the type of gift, i.e. outright gift, charitable remainder unitrust, charitable gift annuity, etc.; and

(f) in the case of an outright gift, the receipt in (a) must state that the contribution was placed in a permanent irrevocable fund as defined in ARM 42.4.2701.

(2) The information required by these rules will be reported on forms prescribed and made available by the department.

This rule has been repealed.

(1) For purposes of determining the endowment credit, the present value of a contribution is the amount reported to the Internal Revenue Service for that contribution. The present value of a gift contributed to a qualified endowment is based on its fair market value on the date of the gift.

(2) As derived from the May 2009 IRS Publication 1457 titled "Actuarial Valuations," the life expectancy tables that shall be used when determining the life expectancy of the annuitant or joint life expectancy of the annuitants, within which the first partial or full-year payment of a deferred charitable gift annuity is required to begin in order for it to be deemed a planned gift for the purposes of 15-30-2327, MCA, are set forth in Tables 1 and 2.

(a) Example. The table indicates a 98-year-old annuitant has a life expectancy of 2.5 years. So the first partial year (such as a monthly, quarterly, or semi-annual payment), or full year payment mandated by the annuity contract, must be required to be paid no later than two and one-half years from the date the deferred annuity contract is created.

Table 1: Single Life Expectancies Based on 2000 CM Mortality

Table 2: Two Life Expectancies Based on 2000 CM Mortality

 

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

(1) Montana's tax credit for the preservation of historic buildings is to be computed using the federal credit allowed by 26 USC 47, which is a component of the federal general business credit. No other component of the federal general business credit may be used to compute Montana's credit for the preservation of historic buildings.

(2) Qualifying expenditures used to calculate the credit for the preservation of historic buildings must be reduced by amounts used in calculating other Montana tax credits or tax incentives. 

(1) If property qualifying for the credit is owned by a husband and wife, the credit may be applied to their joint tax liability if filing a joint tax return.

(2) If husband and wife file separately, and the property is jointly held, the credit must be computed individually by each spouse and applied to the corresponding tax liabilities.

(3) When filing separately, one spouse's credit cannot be applied to the other spouse's tax liability.

(4) Carryovers of unused preservation credit may only be applied to the tax liability of the spouse who is entitled to claim the credit. If in a carryover year husband and wife who previously filed separately, now file a joint return, carryover credits must be applied separately to each spouse's share of the joint tax liability.

(1) The credit is allowed to owners of the property who make qualified rehabilitation expenditures.

(2) A lessee that makes its own qualified rehabilitation expenditures to a certified historical building for which it is allowed a federal rehabilitation credit in its own right under IRC 47(c)(2)(B)(vi) when the initial lease term is longer than the building's IRC 168(c) recovery period is allowed to claim the Montana rehabilitation credits based on its own investment.

(3) A lessor who elects under U.S. Treasury regulation 26 C.F.R. 1.48-4(f) and (g) to pass the federal rehabilitation credit to a lessee may not claim the Montana credit and, correspondingly, a lessee to whom the federal rehabilitation credit is transferred is entitled to claim the Montana credit.

(4) A credit for the preservation of historic property jointly owned by more than one individual must be allocated between owners based on each owner's share of ownership in the property. Unless specified otherwise when the property is purchased, percentage of ownership will be considered equal to 100 percent divided by the number of owners.

(5) A credit for the preservation of historic property owned by an S corporation must be allocated to its shareholders based on their pro rata share of ownership in the corporation.

(6) A credit for the preservation of historic property owned by a partnership must be attributed to the partners in the same proportion used to report the partnership's income or loss for Montana income tax purposes.

(1) The credit is allowed to owners of the property who make qualified rehabilitation expenditures.

(2) A lessee that makes its own qualified rehabilitation expenditures to a certified historical building for which it is allowed a federal rehabilitation credit in its own right under IRC 47(c)(2)(B)(vi) when the initial lease term is longer than the building's IRC 168(c) recovery period is allowed to claim the Montana rehabilitation credits based on its own investment.

(3) A lessor who elects under U.S. Treasury regulation 26 C.F.R. 1.48-4(f) and (g) to pass the federal rehabilitation credit to a lessee may not claim the Montana credit and, correspondingly, a lessee to whom the federal rehabilitation credit is transferred is entitled to claim the Montana credit.

(4) A credit for the preservation of historic property jointly owned by more than one individual must be allocated between owners based on each owner's share of ownership in the property. Unless specified otherwise when the property is purchased, percentage of ownership will be considered equal to 100 percent divided by the number of owners.

(5) A credit for the preservation of historic property owned by an S corporation must be allocated to its shareholders based on their pro rata share of ownership in the corporation.

(6) A credit for the preservation of historic property owned by a partnership must be attributed to the partners in the same proportion used to report the partnership's income or loss for Montana income tax purposes.

(1) Except as provided in (2), federal Form 3468, the form used in claiming the federal rehabilitation credit, must be attached to the applicable Montana tax returns. S corporations and entities taxable as partnerships must attach the form to their information returns and the owners of the pass-through entities must also attach a copy to their individual income or corporate income tax returns.

(2) A taxpayer who made a valid election to transfer the federal rehabilitation credit to a lessee must attach a copy of the election statement required by U.S. Treasury regulation 26 C.F.R. 1.48-4(f) and (g), and the lessee's Form 3468 that identifies the taxpayer as the transferor. If the credit calculation for certified historic structures on the lessee's Form 3468 contains qualified rehabilitation expenditures other than those incurred by the taxpayer, the taxpayer must provide a schedule breaking out the taxpayer's own expenditures and a pro forma federal credit calculation.

(2) A taxpayer claiming the credit must follow both of the following criteria:

(a) the taxpayer must meet the provisions set forth in 17-6-309 , MCA; and

(b) the taxpayer must pay the infrastructure user fee.

(1) A taxpayer who qualifies for the infrastructure user fee credit may take the full credit for the fees paid. The credit is not to exceed the loan principal paid plus interest.

(2) When claiming the credit, the taxpayer must attach to their tax return a completed copy of Form IUFC, Infrastructure User Fee Credit.

(3) A credit will not be allowed for any infrastructure user fee that was not timely paid.

(4) The credit is nonrefundable. Any excess credit must first be carried back to each of the three preceding taxable periods, reducing the tax liability to zero, and then carried forward to each of the seven taxable periods following the taxable period of the credit. The current year credit must be applied first before any carry back or carry forward will be allowed.

(1) If the board of investments determines that the loan to the local government has not met the conditions set forth in 17-6-309 , MCA, the credit for the infrastructure user fee shall be subject to recapture.

(2) The credit recaptured will be the credit claimed to date to offset the taxpayer's tax liability plus any applicable interest, pursuant to Title 15, chapters 30 and 31, MCA.

(3) Any credit previously eligible for the carry forward on a loan that the board of investments determines does not qualify will not be available for carry forward.

(1) A resident or a nonresident taxpayer is allowed a credit against the taxpayer's Montana income tax liability for public contractor's gross receipts tax paid pursuant to the provisions of 15-50-205 and 15-50-206, MCA. The credit is allowed with respect to the taxpayer's Montana income tax liability determined for the taxable year in which the net income from contracts subject to the gross receipts tax is reported. If the taxpayer reports income from contracts on a percentage of completion basis, the credit must be allocated accordingly. The amount of credit allowable is the net public contractor's gross receipts tax (after personal property tax credit) actually imposed and paid by the taxpayer but not in excess of the taxpayer's Montana income tax liability. Any excess credit may be carried forward for up to five taxable periods.

(2) In the event the public contractor's gross receipts tax is paid by a partnership, S corporation, limited liability company, or limited liability partnership, the members, partners, or shareholders are entitled to the credit for the tax as the respective interests appears.

(1) A direct credit against the tax is allowed for "public contractor's gross receipts tax" paid pursuant to the provisions of 15-50-205 and 15-50-206, MCA. The credit is allowed with respect to the corporation's Montana corporate income tax liability determined for the taxable period within which the net income from contracts subject to the gross receipts tax is reported. If the corporation reports its income from contracts on a percentage of completion basis, the credit must be allocated accordingly.

(2) The amount of credit allowable is the net public contractor's gross receipts tax (after personal property tax credit) actually imposed against and paid by the corporation but not in excess of its Montana corporate income tax liability. The credit is allowed without regard to the fact that the public contractor's gross receipts tax is an allowable deduction in determining net income subject to the Montana corporate income tax.

(3) In the event the public contractor's gross receipts tax is paid by a joint venture or a partnership, the members thereof shall be entitled to the credit for the tax as their respective interests appear.

(4) If the public contractor's gross receipts tax is paid by an S corporation, the credit must be attributed to shareholders using the same proportion used to report the corporation's income or loss for Montana income tax purposes.

(1) A credit for increases in qualified research expenses and basic research payments that occurred prior to January 1, 2011, is allowed to a qualified corporation, an individual, a small business corporation, a partnership, a limited liability partnership, or a limited liability company. Except as specifically limited by Montana law, 15-31-150, MCA, this credit is determined in accordance with 26 USC 41 as that section read on July 1, 1996.

(2) For tax years beginning after December 31, 2010, no current year credit may be claimed. Only unused amounts available as a carry forward under 15-31-150, MCA, may be claimed for the 15 succeeding tax years.

(3) A taxpayer must file Form RSCH providing information as prescribed on the form, which includes a copy of the form filed with the IRS to claim the federal credit for increasing research activities. If amounts paid or incurred do not apply to the federal credit after a termination date provided in 26 USC 41, a taxpayer whose expenses qualify for the Montana credit after the termination date must submit with Form RSCH the information required on the federal form for the tax year immediately preceding the tax year in which the termination occurred.

(4) Form RSCH may be obtained from the department upon request or is available on the department's web site under the downloadable forms at revenue.mt.gov.

(5) Form RSCH must be filed with the tax return.

(a) For individual taxpayers, including single member limited liability companies that are owned by an individual and are disregarded for income tax purposes, if the tax return is filed by paper, the return and Form RSCH must be mailed to:

Department of Revenue

P.O. Box 5805

Helena, Montana 59604-5805

(b) For corporations, partnerships, and entities taxed as corporations or partnerships, if the tax return is filed by paper, the return and Form RSCH must be mailed to:

Department of Revenue

P.O. Box 8021

Helena, Montana 59604-8021

(c) If the tax return is filed electronically, Form RSCH must be kept in the taxpayer's records and a copy provided to the department upon request.

(a) gross sales less returns and allowances that conform to the requirements of 15-31-311 , MCA;

(b) qualified research expenses as defined in 15-31-150 , MCA;

(c) supplies as defined in 15-31-150 , MCA; and

(d) wages as defined in 15-31-150 , MCA.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

The following definitions apply to terms used in this subchapter:

(1) "Credit base" means the qualified production expenditures base or compensation base used to calculate media production or postproduction tax credits.

(2) "Credit year" means the calendar year allocated to a tax credit.

(3) "Crew member" means a person hired by a production company or a hired production company, including production staff members, that is not an actor, director, producer, or writer, and who is directly participating in a state-certified production. An individual who receives compensation that is less than Montana minimum wage as described in 39-3-409, MCA, is not a crew member.

(4) "Employee" means the same as in 15-30-2501, MCA, and for purposes of these rules also includes an owner, partner, shareholder, or member of a loan-out company to the extent the individual performed personal services on behalf of a loan-out company.

(5) "Hired production company" means a company, including a loan-out company, hired to undertake production functions that are directly related to principal photography on behalf of a production company. A hired production company agrees to provide the production company with all necessary information and documentation for the calculation of media production or media postproduction tax credits. A hired production company does not include a travel agency, travel company, insurance agency, lodging service, or equipment rental service.

(6) "In-studio facility and equipment," for the purpose of claiming the additional 10 percent credit under 15-31-1007(3)(b)(vi), MCA, means:

(a) a permanent, enclosed building or structure that a production company rents for a "qualified production activity," as defined under 15-31-1003(16)(a), MCA; and

(b) equipment (i.e., personal property) that a production company rents for a "qualified production activity," as defined under 15-31-1003(16)(a), MCA.

The facility must not be used exclusively for storage and the equipment must be provided by the party renting the facility.

(7) "Montana insurance agency" means an insurance company maintaining a permanent place of business in Montana that pays the Montana premium tax and meets the criteria as an authorized insurer, as provided in 33-2-705(4), MCA.

(8) "Montana office" means the principal place of business of the production company claiming the media production tax credit.

(9) "Montana travel agency" means an entity registered to do business in Montana as a travel agency and maintains a permanent place of business in the state.

(10) "Multi-year production" means a state-certified production that has principal photography occurring over two or more tax periods.

(11) "Permanent place of business in Montana" means a physical presence in Montana through which a business's activity is conducted. Non-exhaustive examples of permanent places of business in Montana are: an office, factory, store, workshop, warehouse, or similar commercial space. Further, a digital-only business presence, such as the operation of a computer server, does not meet the necessary level of physical presence for these rules.

(12) "Personal service company" means a personal service corporation, as defined in IRC 269A(b), or any other entity meeting the principal activity and the ownership requirements of IRC 269A(b), and also includes a sole proprietorship or an individual being paid as an independent contractor.

(13) "Production company" means the same as provided in 15-31-1003, MCA, and for the purposes of these rules applies to an individual; a disregarded entity, a C corporation, or an S corporation, defined in ARM 42.2.304, including any affiliates required to submit a combined report under ARM 42.26.204, or in a consolidated return under 15-31-141, MCA; a partnership; an estate; or a trust. The production company must maintain a Montana office as provided in

15-30-1004(2)(b), MCA, for the duration of the production and must file a Montana income tax return, as required under Title 15, MCA, for the tax years it directly or indirectly incurs the expenses giving rise to the media production tax credit.

(14) "Series interim production period" means the period of time between two state-certified productions of the same production company.

(15) "Unique credit reference number (UCRN)" means the reference number generated by the department associated with a valid tax credit amount for a given credit year.

(16) "Wages" means the same as provided in 15-30-2501, MCA. 

(1) The media production tax credit is the sum of one or more of the production tax credits provided under 15-31-1007, MCA. The basis for each tax credit is determined separately.

(a) Production expenditures, as defined in 15-31-1003, MCA, include expenditures incurred by a production company or a hired production company, including preproduction expenses. Production expenditures paid to an entity which is also a loan-out company must be segregated from personal services as a separate item of expense. Production expenditures paid to another company, which is not a hired production company or a loan-out company, may be included regardless of whether the expenditures include compensation. The basis of an additional tax credit as provided in 15-31-1007(3)(b)(v) through (vii), MCA, may include the same expenditure used under 15-31-1007(3)(a)(i), MCA.

(b) Compensation, as described in 15-31-1003(3), MCA, can only be used in one of the credits provided in 15-31-1007(3)(b)(i) through (iv), MCA, and includes the portion of a payment to a loan-out company for personal services. Compensation incurred in Montana within six months of state certification of the production may be included.

(c) Payments to a loan-out company cannot be included in any credit base if the production company, its affiliate, or hired production company did not pay withholding on the compensation portion, as provided in 15-31-1003(3), MCA, and ARM 42.4.3403.

(2) If a production company or hired production company is organized as a corporation and files a combined report under ARM 42.26.204, or files a consolidated return under 15-31-141, MCA, the company may aggregate the production expenditures and compensation of its affiliates or subsidiaries in its credit base. A production company may not aggregate expenses incurred from entities in which they own an interest - including partnerships - unless the entity is disregarded for federal tax purposes under CFR 301.7701-1, 301.7701-3, and 301.7701-5, or the entity is a hired production company. A production company must disclose to the department the names and federal identification numbers of all disregarded entities, affiliates, and hired production companies for each category of expenses included in the credit base. No tax credits shall be allowed for expenses incurred by an undisclosed hired production company.

(3) To be included in the base investment and in the credit base, production expenditures and compensation must directly relate to a state-certified production's qualified expenditures.

(4) Production expenditures representing the cost of tangible personal property used in a state-certified production in Montana may be included under the following conditions. For these purposes, "used in a state-certified production" means a production physically located in Montana during principal photography, but not during any series interim production period.

(a) The cost of acquiring personal property with a useful life of less than a year through a vendor that has a permanent place of business in Montana may be included in qualified expenditures. Personal property acquired through a vendor that acts like a conduit to enable purchases that would otherwise not qualify as an expenditure incurred in Montana shall not qualify as a production expenditure. All other costs for the use of personal property with a useful life of less than one year shall not qualify as a production expenditure.

(b) If the personal property has a useful life of more than one year, production expenditures are allowed for the lesser of the depreciation cost taken on the production company's federal income tax return for the tax year or tax years when principal photography occurs, or the yearly depreciation calculated using the straight-line method multiplied by the number of days the personal property was used in the state-certified production divided by 365.

(5) When a production company owns or leases vehicles and uses the optional standard mileage rate to account for transportation costs in lieu of actual costs and depreciation on their income tax return, then the same method is used for the inclusion of such costs in production expenditures. Regardless of the method used, miles or distance traveled must be in Montana - even if the out-of-state destination is part of the same production - and is directly related to the

state-certified production.

(6) Production expenditures for services not included in compensation may be included in production expenditures as follows.

(a) Equipment rentals, including the cost of placing the equipment in service, must be made through a vendor that has a permanent place of business in Montana. All other rental equipment or services do not qualify as production expenditures.

(b) Costs directly related to the manufacturing, assembly, or alteration of costumes, wardrobe, or accessories completed in Montana. Costs for out-of-state services provided shall not be included - even if the products are being shipped or transported to Montana.

(c) Shipping or transportation costs for equipment used in a state-certified production for transport between an original storage location and the Montana production location only; and only when the transportation service provider maintains a permanent place of business in Montana. All other shipping or transportation costs may not be included.

(d) Cost of airfare purchased through a Montana travel agency for employees to the extent that the purpose of the travel is directly related to the state-certified production. Airfare purchased to attend to business that is not related to the

state-certified production, airfare that is not related to the state-certified production, airfare for personal reasons, and airfare not purchased through a Montana travel agency shall not be included - even if directly related to a state-certified production.

(e) Insurance purchased through a Montana insurance agency for any tangible personal property or real property in Montana, or for an activity directly related to the state-certified production. If the insurance pertains to a combination of state-certified production and nonstate-certified production purposes, costs that may be included are expenses incurred in the tax year multiplied by the number of days used in the state-certified production divided by the total number of days for the insurance coverage in the tax period.

(f) Per diem or actual cost for meals and lodging as set forth by the United States General Services Administration to the extent the per diem can be taken as a business deduction on the income tax return of the production company, its affiliate, or hired company.

(g) The cost of lodging or housing paid in Montana to accommodate crew members, employees, actors, directors, writers, and producers. Rental housing must be substantiated with a copy of the signed lease or rental agreement identifying the name and address of the landlord, the address of the rental, the stated term of the rental, and the rental amount. The cost of lodging or housing in Montana to accommodate individuals involved directly or indirectly in the marketing function of the state-certified production shall not be included.

(h) Entertainment expenses shall not be included.

(7) Preproduction expenditures may be included:

(a) in the first tax year's expenditures if they are attributable to production expenditures and compensation incurred no more than six months prior to production certification by the Montana Department of Commerce.

(b) in the production expenditures of the second state-certified production for series interim production period. Series interim production expenditures include only the cost of safe storage of sets and equipment and do not include the cost recovery of stored material.

(8) Compensation paid to crew members, actors, writers, producers, and directors who are employees of the production company, one of its affiliates, or a hired company for personal services rendered in a state-certified production must conform with the applicable individual income tax and estimated tax and withholding requirements provided in 15-30-2501, et. seq., MCA, and the department's administrative rules, to be eligible for inclusion in the base investment or the compensation credit base.

(9) The residency status of crew members on their first day of work in a

state-certified production must be reported to the department on a department form. The residency status on the first day of work of an employee on a state-certified production determines whether the production company may include the compensation paid to the employee in the credit base for resident crew members or nonresident crew members.

(10) Fringe benefits paid directly by the production company, one of its affiliates, or a hired production company may be included in compensation if they are directly related to the personal services performed in a state-certified production. Fringe benefits corresponding to compensation provided by a loan-out company may be included in a compensation credit base only if the withholding in ARM 42.4.3403 was applied to the compensation. Fringe benefits may be included as compensation without being subject to the loan-out withholding requirement. Fringe benefits such as contributions to qualified plans or other expenses incurred under a qualified deferred compensation plan paid for the benefit of employees may be included based on the annual total contributions or deductible expenses, for tax purposes, multiplied by the number of days of personal services rendered in a state-certified production over a given year.

(11) Production expenditures and compensation included in a credit base, whether incurred by the production company, an affiliate, or a hired company, must be added as additional income to federal adjusted income in calculating the Montana net income of the production company that files a claim for the media production tax credit. This inclusion must be made in the tax year the production expenditures were incurred and compensation was paid.

(12) If production expenditures or compensation are excluded from the base investment or a credit base after the production company files its income tax return, the production company may amend its return or informational return to make an adjustment to the addition of income and claim a refund within one year of the final exclusion determination. If the production company makes an election as provided in ARM 42.4.3408, this addition to federal adjusted income must be made on the return of the second tax year that is part of the election.

(13) The inclusion of production expenditures in Montana net income does not create any change in depreciation or amortization recovery schedules for future tax years. 

(1) In accordance with 15-31-1003(3)(c), MCA, and to be considered for inclusion in a production company's compensation base for a state-certified production, all production company personal services payments to any loan-out company must withhold Montana income taxes at the rate of 6.9%. The production company or its agent, affiliate, or hired production company may perform the act of withholding. The income tax withholding applies to payments made to a loan-out company that is related to personal services performed during a calendar year and must be paid by January 31 of the following year.

(2) The income tax withholding must be calculated for an employee of the loan-out company using the allocable amount of time the employee performed personal services in Montana.

(3) When the loan-out company payment involves more than one employee, the payment must be divided equally between all employees based on the total number of days of personal services rendered unless otherwise specified in the contract between the production company and the loan-out company.

(4) An allocation for the loan-out company payment attributable to the personal services rendered in Montana must be determined by making the following deductions, where applicable, from the total payment made to the loan-out company:

(a) personal services performed in another state;

(b) personal services performed in Montana for a production that is not a state-certified production;

(c) fringe benefits paid directly by the production company, its agent, its affiliate, or its hired production company; and

(d) payments not related to personal services such as but not limited to:

(i) rental of tangible personal property;

(ii) residuals or profit-sharing payments; or

(iii) royalty and image rights.

(5) A production company, hired production company, or their agent must electronically file the loan-out withholding report with the department using the department's online portal and according to department procedures. When a hired production company contracts with a loan-out company, all the withholding payments must be aggregated under the account of the production company.

(6) A loan-out company withholding report is due with payment of the withholding tax by January 31 of the calendar year following the year an employee of the loan-out company provided services to the hiring production company. If the withholding tax is not paid by January 31 of the calendar year following the year the hiring production company made a payment to the loan-out company which is included in a compensation base of a state-certified production, then the department shall apply penalties and interest, as provided in 15-1-216, MCA.

(7) Upon filing the loan-out company income tax withholding report and withholding tax payment with the department, the production company must issue a withholding certificate, for each employee to whom withholding tax is allocable on the report.

(a) Employees of a loan-out company must receive their withholding certificates no later than February 28 of the year following the calendar year the personal services were performed. The withholding certificate must include the name and address of the employee, the certification number of the production, the year for which the withholding applies, and the amount of withholding that may be claimed as a tax credit against Montana individual income tax.

(b) For audit purposes, an employee must keep the withholding certificate for a minimum of three years following the date of filing a Montana individual income tax return.

(8) An employee may claim the reported income tax withheld as a refundable tax credit by filing a Montana individual income tax return. The refund amount claimed cannot be more than the amount of withholding paid and attributed to the employee on the loan-out company withholding report, even if the certificate shows a greater amount. In the event of an error on an employee's withholding certificate, the employee and their employer must resolve the error and the employee must receive a corrected certificate.

(9) A loan-out company may reduce its wage withholding payment pursuant to 15-30-2502, MCA, and related rules, on wages paid to its employees that rendered services to a state-certified production by a maximum of the amount resulting from the calculations described in this rule. If the loan-out income tax withholding is not paid to the department, the reduction of wage withholding based on prospective qualified compensation does not relieve the loan-out company from its obligations under 15-30-2502, MCA, nor the employee from their obligation under 15-30-2512, MCA, and related penalties and interest. 

(1) If a production company initiates more than one state-certified production in a single tax year and one or more of them do not meet the base investment requirement, as provided in 15-31-1005(1), MCA, the production company may elect to combine nonqualifying productions occurring in the same tax year to qualify all of the combined state-certified productions for the base investment requirement. This election is made on the media production tax credit application. When this election is made, all production expenditures must be combined into the base investment as if a single production had been certified; and the limitations to the media production tax credit apply only once on the total amount of base investment and credit base. If the production company claims the Montana screen credit under 15-31-1007(3)(b)(viii), MCA, on a base investment of combined state-certified productions, the screen tax credit provided under 15-31-1004(7), MCA, must appear on all of the media resulting from the combined productions. This production election is made prior to the election stated in ARM 42.4.3408(2).

(2) When a production company elects to combine nonqualifying productions under this rule, the production company will receive only one UCRN for the combined state-certified productions, per credit year.

(1) The credit base for the postproduction tax credit equals the sum of hourly wages directly incurred in Montana for state-certified postproduction activities during a tax year. Postproduction activities related to a state-certified production begin on the day following the last day of principal photography in Montana. Postproduction activities performed in Montana for photography performed outside Montana qualify regardless of the date of principal photography.

(2) When an employee is not paid an hourly wage, the postproduction company must provide an hourly cost of the employee compensation based on a regular work week. No wages may be included in the postproduction credit base if the same wages are already included in a production credit base.

(3) The postproduction tax credit cannot exceed the total amount of compensation paid to postproduction company employees for personal services performed in Montana. For the purpose of this rule, compensation paid includes compensation paid in the first month following the tax year in which the wages included in the postproduction credit base were incurred.

(4) To be included in the postproduction credit base, postproduction wages must be directly related to a state-certified production. A wage is directly related to a qualified postproduction activity when the personal services rendered by the employee are necessary for the completion of the postproduction activity, as defined under 15-31-1003(13), MCA. Administrative activities of the postproduction company such as secretarial, accounting, human resources, or marketing services are not directly related to qualified postproduction activities.

(5) The postproduction company must maintain current and ongoing paper or electronic employee timekeeping records of the hours spent by an employee on the state-certified postproduction activity. If no such records are kept, the employee wages shall be excluded from the postproduction credit base. Timekeeping records must contain the name of the employee, job title or work function, days and number of hours worked each day on a state-certified production, and the work location.

(1) The credit year of a media production or postproduction tax credit is the calendar year in which the tax year of the production company or the postproduction company applying for the tax credit according to ARM 42.4.3411, or ARM 42.4.3412 begins, except when:

(a) The department receives the submission of costs, required under

15-31-1005, MCA, more than 60 calendar days after the end of principal photography or after the end of the tax year if the production is a multi-year production. In this case, the credit year is the calendar year following the calendar year in which the tax year of the production company or the postproduction company incurring the expenses begins.

(b) A production company makes an election as described in (2), in which case the credit year may not be earlier than the calendar year in which the second tax year begins; or

(c) The tax credit limit provided in 15-31-1010, MCA, is reached and the tax credit is allocated to a subsequent credit year.

(2) Applications in ARM 42.4.3411 and ARM 42.4.3412 must be made for the tax year when the qualifying expenditures were incurred and qualifying compensation was paid. When a production company undertakes a state-certified production overlapping two tax years, the production company may elect to apply the entire base investment and credit base from the first tax year to the second tax year. When the production company makes this election:

(a) the election in ARM 42.4.3406 must be applied before any election under this section is made.

(b) the provision in (1)(a) applies based on the second tax year.

(c) a single media production tax credit application is required. This election must be made on a media production tax credit application.

(d) no UCRN will be issued for the first tax year.

(3) For the purpose of providing additional credit year guidance to production companies, the department provides the following example:

Example: A production company has two separate state-certified productions occurring in calendar year 2021, but with principal photography for the second production scheduled to end in calendar year 2022. If the base investment for the first production does not qualify for the media production tax credit, then the production company may elect not to file a media production tax credit application and, alternately, combine both productions into one multi-year state-certified production, as provided in ARM 42.4.3406. In this case, the production company combines its production expenditures incurred and compensation paid in 2021 and 2022, makes the election as provided in ARM 42.4.3408, and submits one media production tax credit application to the department for both productions. The application is filed 61 days after the conclusion of the second production's principal photography. The result is that the entire tax credit may be reserved for tax year 2023, at the earliest, as long as the overall calendar year credit limitation in 15-31-1010, MCA, is not reached.

(1) To reserve a media production tax credit, a production company must submit a media production tax credit application (application) on a form provided by the department, including all supporting documentation provided in this rule, with payment of the fee required under 15-31-1005, MCA. The department will not consider an application "filed" until:

(a) the production company, including its affiliates if the production company is a C corporation, in the state-certified production complies with 15-31-1003(10), MCA;

(b) the production company has paid the required fee; and

(c) the supporting documentation for the application is complete, legible, and is presented in an orderly manner.

(2) The fee required under 15-31-1005, MCA, is due, in full, with each new application. Any submission of an application associated with another state-certified production, even for the same tax year, constitutes a new application and is subject to another fee. Providing additional documentation after an application is submitted to complete a department request does not constitute a new application.

(3) The application must be filed by the date provided in 15-30-2604, MCA, following the end of the tax year the expenditures were incurred and compensation was paid, or the following tax year if an election pursuant to ARM 42.4.3408(2) is made. For the purpose of this section, production expenditures and compensation incurred between July 1, 2019 and the first day of the tax year beginning in 2020 are deemed to have occurred in tax year beginning in 2020.

(4) Production companies with a multi-year production must file the media production tax credit application and pay the required fee for each tax year any base investment expenses are incurred, except:

(a) for tax years beginning after June 30, 2019, but before January 1, 2020, which must be filed with the media production tax credit application pertaining to expenditures incurred and compensation paid in tax years beginning in 2020; or

(b) if an election pursuant to ARM 42.4.3408(1) or (2) is made. If so, the production company must pay the required fee for each base investment reported on the application before any election is made.

(5) An application is considered "submitted" on the day the department receives all of the information, documents, and fee described in (1) from the applicant submitted via the department's online portal, and according to department procedures. A "complete" application includes:

(a) a submission of costs, as provided in 15-31-1005, MCA, which includes a list of all the affiliates or hired production companies that incurred the qualifying production expenditures and compensation paid included in the production credit base.

(b) a production verification report, as required by 15-31-1006, MCA.

(c) detailed information on production expenditures incurred in Montana and directly used for the qualified production activity, including:

(i) the total expenditures incurred for each category of production expenditures listed in 15-31-1003(11)(a), MCA;

(ii) all receipts for expenses, in order, using account identification numbers provided by the department in the submission of costs and presented by each account in decreasing amounts of expenditures. All the receipts must include the account to which they relate. Additionally, receipts related to payments made to a Montana college or university, expenses incurred towards an in-studio facility in Montana for 20 days or more, and expenses incurred in underserved areas, must be clearly identified with a notation of "college," "in studio," or "underserved" on the first page of the receipt.

(iii) copies of all the call sheets related to compensation of employees whether they are employees of the production company or a loan-out company.

(iv) detailed amounts of withholding applied to loan-out company employees as listed on the loan-out company withholding report.

(v) copies of contracts with any loan-out companies pertaining to any inclusion of compensation in the base investment and production credit base.

(vi) copies of any agreements with any loan-out company employees pertaining to their personal services performed on behalf of the loan-out company.

(vii) copies of department Form MEDIA-COMP referencing the state-certified production and the status of each employee of a production company, hired production company, and loan-out company.

(6) Any application or submission of costs information presented to the department in a disorganized or unsystematic manner, or where source documents, receipts, and other support documents are provided in an unprepared format, will be deemed "insufficient for review" by the department and will be returned to the production company. In this case, the statutory fee will not be refunded. However, a subsequent, acceptable submission of costs will not require a second payment of the fee.

(7) If the department accepts the application for review but determines that additional documentation is necessary to correct or complete the application, it will send one written request for additional information to the applicant, or its designated, authorized representative.

(a) The department's correspondence will list the deficiencies of the items required under (5) and provide the applicant or its authorized representative 30 days to cure all deficiencies.

(b) Failure by the applicant or its authorized representative to provide the requested items within the time prescribed in (7)(a) may result in the denial of the application and the return of all application materials to the applicant. In this case, the statutory fee will not be refunded by the department.

(8) At its discretion, but not earlier than the 30-day period described in (7)(a), the department may adjust the amount of media production tax credit or base investment, or both, if the applicant is unable to provide records substantiating the inclusion of the expense in the base investment or as a qualifying expense for the calculation of the media production tax credit. Any downward adjustment to a base investment by the department is not considered a denial or a return of the application or submission of costs. In this case, the statutory fee will not be refunded by the department.

(9) The production company is responsible for keeping records or substantiating evidence of all production expenditures and compensation payments. Copies of the media production tax credit documentation organized in the same manner as described in (5) must be provided to the certified public accountant preparing the production verification report, required under 15-31-1006, MCA.

(1) To reserve a postproduction tax credit, the postproduction company must submit a media postproduction tax credit application to the department, using the department's online portal and according to department procedures, each tax year the postproduction company is certified by the Montana Department of Commerce, including all supporting documentation provided in this rule, with payment of the statutory fee required under 15-31-1005, MCA. The media postproduction tax credit application will not be considered "filed" until:

(a) the postproduction company, including its affiliates if the postproduction company is a C corporation, taking part in the state-certified postproduction complies with 15-31-1003(8), MCA;

(b) the postproduction company has paid the required fee; and

(c) the application includes the documentation required in this rule presented in an orderly manner.

(2) The fee required under 15-31-1005, MCA, is due with each new submission of the postproduction tax credit application.

(3) The postproduction tax credit application must be filed by the 15th day of the fourth month following the end of the tax year the qualified wages were incurred. For the purpose of this section, qualified wages incurred from July 1, 2019 until the first day of the tax year beginning in 2020 are deemed to have occurred in the tax year beginning in 2020.

(4) A postproduction tax credit application is considered "submitted" when the following documentation is received by the department:

(a) the items described in (1) and (2);

(b) the verification report conforming to the requirements under 15-31-1006, MCA;

(c) a list of all the affiliates that incurred the qualifying wages paid included in the postproduction credit base; and

(d) a detailed listing of employee names, individual tax identification numbers, Montana wages paid, and the nature of the personal services rendered by the employee.

(5) Any application or submission of costs information presented to the department in a disorganized or unsystematic manner, or where source documents, receipts, and other support documents are provided in an unprepared format, will be deemed "insufficient for review" by the department and will be returned to the applicant, or its designated, authorized representative. In this case, the statutory fee will not be refunded. However, a subsequent, acceptable submission of costs will not require a second payment of the fee.

(6) If the department accepts the application for review but determines that additional documentation is necessary to correct or complete the application, it will send one written request for additional information to the applicant, or its designated, authorized representative.

(a) The department's correspondence will list the deficiencies of the items required under (4) and provide the applicant or its authorized representative 30 days to cure all deficiencies.

(b) Failure by the applicant or its authorized representative to provide the requested items within the time prescribed in (6)(a) may result in the denial of the application and the return of all application materials to the applicant. In this case, the statutory fee will not be refunded by the department.

(7) The department may adjust the amount of tax credit reported on the application if the claimant is not able to provide records substantiating the inclusion of the wages in the credit base before the closure of the verification period, but not earlier than 30 days after a department's information request. Any downward adjustment to a base investment by the department is not considered a denial or a return of the submission costs. The statutory fee is not refundable.

(8) The postproduction company is responsible for keeping records of all substantiating evidence of payment of compensation. Copies of the tax credit documentation, organized in the same manner as described in (5), must be provided to the certified public accountant verifying the costs and the calculation of the tax credit.

(1) For the purpose of complying with 15-31-1006(3)(a), MCA, the verification report must include sufficient detail for the department to verify the accuracy of the expenditures and compensation used in the computation of any production or postproduction credit base or base investment, as described in this subchapter, and that the application is free from material misstatements.

(2) The verification report described in 15-31-1006, MCA, must be issued by a certified public accountant (CPA) authorized to practice in Montana who must be unrelated to the production or postproduction company filing the media credit application to which the verification report relates.

(a) The CPA certification that a person is unrelated, as required under

15-31-1006(2)(a), MCA, must also include the disclosure of any transactions for which the CPA has been retained as a consultant or an intermediary pertaining to any future transfers of the tax credit; including name and address of the parties.

(b) "Unrelated" means that the CPA is not:

(i) an employee of the production or postproduction company;

(ii) a holder of an interest directly or indirectly in the production or postproduction company. An indirect interest is an interest held by a spouse, lineal ascendant, lineal descendant, siblings, including step-brothers or step-sisters, step-children and step-grandchildren;

(iii) an employee of a firm, if one of the owners or associates of the firm holds direct or indirect interest in the production or postproduction company; or

(iv) a recipient of compensation for the verification of the costs that is not commensurate with industry standards.

(3) The verification report must be submitted to the department through its online portal and must meet the requirements under 15-31-1006, MCA.

(1) The tax credit limit in 15-31-1010, MCA, applies to the aggregate amount of production and postproduction tax credits issued in Montana for a credit year.

(2) The aggregate amount of tax credit reserved is determined in the following order:

(a) A production or postproduction company reserves the tax credit for a credit year as determined in ARM 42.4.3408.

(b) A credit is reserved on the date a complete media tax credit application is filed based on the amount requested on the application.

(c) Amounts reserved are aggregated on a "first-come, first-served" basis for each tax credit year until the tax credit limit amount in 15-31-1010, MCA, is reached. If two or more production companies file their media production tax credit application simultaneously, or if tax credit reservations are postponed on the same day to a credit year according to (d), priority will be given to the production company with the lesser base investment.

(d) Any amount reserved in excess of the overall limitation amount for a given credit year must be included in the aggregate credit amount of the earliest following credit year for which the total amount of credit reserved is less than the applicable overall limitation amount for that year. If, after review by the department, a reserved credit amount for a given credit year is not issued, the difference between the total credit amount reserved and the amount issued may only be used for credit amounts reserved but not yet issued on a first-come, first-served basis.

(e) Once a credit amount is verified and a final determination is reached, the amount of tax credit reserved becomes issued for the credit year allocated according to this rule.

(f) The credit year of a media production tax credit issued cannot be changed.

(g) The department will provide contemporaneous information to the Montana Department of Commerce to update the amount of tax credit reserved on its website.

(3) To conform with 15-31-1010(2)(b), MCA, when a credit year for a certain tax credit amount is postponed one year because the total reserved amount of tax credit exceeds the overall limitation amount for that calendar year, the carryover period provided in ARM 42.4.3418 is reduced by one year. This reduction must be indicated in the UCRN associated with the tax credit as described in ARM 42.4.3417. Once the carryover period is reduced to zero because the reserved tax credit was in excess of the tax credit limitation amount for five consecutive years, any amount of reserved tax credit in excess of the total credit amount for the fifth year following the initial credit year of media tax credit application will be denied.  

(1) For each media production or postproduction tax credit application, the department must review and validate tax credit amounts that are allowed to be claimed against Montana income tax liability. Each tax credit amount validated for each

state-certified production must be assigned a UCRN. If a tax credit amount is allocated to several credit years, a UCRN must be issued for each credit year. The tax credit is considered issued on the date the UCRN is issued to the applicant.

(2) If, upon the review of the production media tax credit application, the department adjusts the tax credit amount claimed and reserved, the department must provide the applicant with a written justification of the reasons for any adjustment. The applicant has 30 days from the date of the adjustment letter to accept or appeal the department's adjustment, as provided under 15-1-216, MCA. Once a final determination is made, the department will issue the appropriate tax credit as provided in (1).

(3) If the applicant does not appeal the department's adjustment, the adjustment becomes the department's final determination for the tax credit amount. The applicant may inform the department at any time that it accepts the department's determination.

(4) Once a final determination is reached, in addition to requirements in

15-31-1005(3), MCA, the department will provide the Montana Department of Commerce with a letter providing:

(a) the amount of base investment verified by the department;

(b) the credit base retained;

(c) a UCRN per credit year;

(d) a first credit year reference in which the tax credit can be claimed; and

(e) the ending credit year, which is the last credit year the tax credit may be claimed on an income tax return.

(5) No transfer of a tax credit reserved is allowed until the claimant has received a UCRN related to an amount of a tax credit.

(1) A valid media production or postproduction tax credit can be claimed against Montana income tax liability at the earliest on an income tax return with a tax year beginning in the credit year indicated in the UCRN.

(2) A valid media production tax credit can be claimed against Montana income tax liability regardless of whether the taxpayer has directly or indirectly incurred the expenses relating to the tax credit.

(3) If a valid media production or postproduction tax credit is claimed by a grantor trust, the tax credit must flow entirely to the grantor. If it is claimed by a non-grantor trust or an estate, the tax credit must be allocated to the trust or estate in proportion of the Montana adjusted total income reduced by the Montana income distribution deduction over the Montana adjusted total income.

(4) If a valid tax credit is claimed by an S corporation, the tax credit must be distributed based on each shareholder's distributive share of income or loss.

(5) If a valid tax credit is claimed by a partnership, the tax credit must be distributed based on each partner's distributive share of income or loss, unless a special allocation applies. In order to comply with 15-31-1007(7)(c), MCA, and 15-31-1009(6)(c), MCA, special allocations of production or postproduction tax credit in a partnership agreement are not allowed unless the capital account of each partner receiving a Montana Schedule K-1 is adjusted in proportion of the amount of tax credit received.  

(1) If a taxpayer has not claimed or transferred the media production tax credit or claimed the postproduction tax credit on or before the tax year beginning in the ending credit year indicated on the UCRN, the tax credit is no longer available to be used against income tax liabilities. Each year, a taxpayer must include on their income tax return:

(a) the amount of tax credit available for current and each preceding credit year;

(b) the amount of tax credit that was available for each tax year and transferred during the tax year; and

(c) the carryover amount per credit year.

(2) Tax credits are used on a "first-in, first-out" basis.

(3) Tax years of less than 12 months count as one tax year.

(4) The carryover amount of media production tax credit is any amount in excess of income tax liability after deduction of all other nonrefundable tax credits, including the media postproduction tax credit.

(5) Owners of a pass-through entity may claim the tax credit in the tax year they include their distributive share of income, loss, deduction, or tax credit reported on the Montana Schedule K-1. 

(1) A taxpayer allowed to claim the production tax credit may elect to transfer any unused tax credit for a minimum of 85% of its value. The transferor must notify the department of the transfer and pay a transfer fee equal to two percent of the value of the tax credit no later than 30 days following the transfer of the tax credit. Time computation for deadlines falling on weekends or holidays shall conform to 1-1-307, MCA, which provides any acts required to be done may be performed upon the next business day with the same effect as if it had been performed upon the day appointed. 

(2) The transfer notification must be made on a form provided by the department and include:

(a) All UCRNs associated with the tax credits transferred;

(b) The tax credit balances before and after the transfer for each tax credit associated with a UCRN;

(c) The tax identification numbers of the transferee and the transferor;

(d) The overall amount of tax credit transferred, and the price paid for each tax credit associated with a UCRN; and

(e) An acknowledgment by the transferee and the transferor that the transfer is valid, and that the transferee may claim the tax credit on a tax return only if the notification required in this rule is filed and the statutory fee is paid.

(3) If a transferor fails to notify the department and pay the fee within the period provided in (1), or before the transferee claims the tax credit on an income tax return, whichever comes first, the transaction does not constitute a valid transfer, and the transferee may not claim the tax credit.

(4) A production tax credit acquired by means of transfer may not be transferred by the transferee until the end of the tax year in which the tax credit was acquired.

(5) The tax credit cannot be sold if the carryover period under ARM 42.4.3419 has expired.

(6) A tax credit purchased in a tax year may be claimed by the transferee on a return pertaining to that tax year or the following years when permitted under ARM 42.4.3419. It may not be carried back to a preceding tax year unless the tax credit is purchased before the due date of the transferee's income or information tax return under Title 15, MCA, in which case the tax credit can be applied against the tax liability of that preceding tax year. For example, an individual may purchase a tax credit before April 15 of Year 2 and apply this tax credit against their individual income tax liability pertaining to Year 1.

(7) The carryover period under ARM 42.4.3419 cannot be reset or suspended due to a transfer or sale of the tax credit. The transferee must determine the number of carryover years left for the tax credit as if it had the ability to claim the tax credit in the tax year beginning in the credit year for which the tax credit was issued and using the same period in which the tax credit was bought. For example, on March 1, 2024, a corporation with a fiscal year beginning June 1, buys a tax credit. The credit year of the tax credit is 2020 with the carry-over ending in 2025. The first tax year the corporation is able to use the tax credit on a return based on its current tax period is the tax year beginning June 1, 2024. The last tax year the corporation can claim the tax credit is the tax year beginning June 1, 2025.

(8) A pass-through entity that is allowed a production tax credit for a tax year, either as a transferee or as a second-tier pass-through entity, must either claim and distribute part or all the tax credit as described in ARM 42.4.3418, or elect to transfer part or all the tax credit on behalf of its owners. 

(9) If an owner of a pass-through entity, who is a direct owner or an owner that is holding interest in the pass-through entity through the use of disregarded entities, sells their interest in the pass-through entity on or after the date the pass-through entity has legally received the right to claim a valid tax credit, the sale is deemed to include a transfer of the tax credit to the new owner of the pass-through interest. The transferor of the interest must notify the department and pay the two percent fee as provided in (1) and (2) within 30 days of the sale of the pass-through entity's interest or before the new owner of the pass-through interest claims the tax credit whichever comes first. If the department is not notified and the fee paid timely, the new owner of the pass-through entity's interest may not claim the tax credit. The requirement to sell the tax credit at a minimum of 85% of the tax credit sale value must be assessed using the capital account of the owner without regards to the effect of the tax credit being transferred.

(10) Any capital gain that must be recognized for federal tax purposes resulting from the direct or disguised sale of the tax credit, whether the transfer was validated or not, must be included in Montana net income, including any gain resulting from the transfer occurring through the sale of a pass-through entity interest as described in (9).

The following definitions apply to this subchapter:

(1) "Alternative renewable energy source" is defined in 15-6-225, MCA, and means an inexhaustible source of energy that is not in general commercial use and specifically includes:

(a) solar, wind, and geothermal energy;

(b) the conversion of biomass;

(c) fuel cells that do not require hydrocarbon fuel;

(d) small hydroelectric generators producing less than one megawatt of electricity; and

(e) methane from solid waste.

(2) "Commercial system" means a depreciable system that generates, by means of an alternative renewable energy source, electricity for the purpose of sale and includes the generating equipment, safety devices and storage components, transmission lines needed to connect with existing transmission facilities, and transmission lines needed to connect directly to the purchaser of the electricity when no other transmission facilities are available.

(3) "Net metering system" is defined in 69-8-103, MCA, and means a depreciable electrical energy generating facility with a generating capacity of 50 kilowatts or less that:

(a) is located on a customer-generator's premises;

(b) uses solar, wind, or hydropower as its fuel;

(c) operates in parallel with a public or cooperative utility's distribution facilities; and

(d) is intended primarily to offset part or all of the customer-generator's needs for electricity.

(4) "Placed in service" as referenced in 15-32-404, MCA, means the tax year the commercial system or net metering system is placed in a condition or state of readiness to generate electricity by means of an alternative renewable energy source.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

(1) For machinery and equipment to qualify for the alternative renewable energy generation facilities exemption, the facility must be powered by an alternative renewable energy source as defined in 90-4-102, MCA, and be less than one megawatt.

(2) To obtain the alternative renewable energy generation facilities tax exemption for machinery and equipment that has a nameplate capacity of less than one megawatt, the property owner of record or the property owner's agent must submit an application to the Department of Revenue, P.O. Box 5805, Helena, Montana 59604-5805, on or before March 31 of the year which an exemption is sought.

(1) For energy-related property tax exemptions or property tax rate reductions, an applicant may appeal the department's decision to the State Tax Appeal Board within 30 days of receiving notice of denial from the department.

(2) For energy-related income tax credits, an individual or entity claiming the credit may appeal the department's denial or other adjustment of the credit in accordance with ARM 42.2.510 and 42.2.613 through 42.2.621.

(1) The credit against individual income and corporate income taxes provided in 15-32-402, MCA, is limited to 35 percent of the eligible costs for investments in depreciable commercial systems and net metering systems. Property placed in service for personal use does not qualify for this credit, but may qualify for the alternative energy system credit provided in 15-32-201, MCA, and ARM 42.4.104.

(2) The credit may not be claimed against taxes generally, but can only be applied against taxes due as a result of Montana taxable or net income produced by certain manufacturing plants, energy sales to new or expanded business facilities, or the alternative energy generating equipment itself. The determination of this income and associated tax is made on Form AEPC, Alternative Energy Production Credit. Examples of qualification for the credit are:

(a) Company A manufactures windmills in Montana. Company A invests in and installs windmills to supplement the electricity needs of its manufacturing plant. Company A can claim the credit to offset taxes on income from sale of the windmills.

(b) Company B invests in a windmill farm. Company C is a new manufacturing plant in Montana. Company B enters into a direct sales contract to sell electricity to Company C. Company B is eligible to claim the credit to offset taxes on income from the sale of electricity to Company C.

(c) Company D invests in a windmill farm. Company D sells the electricity generated by its windmill farm to the power grid. The credit is available for Company D to offset taxes on income from the sale of the electricity.

(3) The alternative energy production credit is not available to offset taxes on income from new or expanded business facilities. The following example describes nonqualification for the credit:

(a) Company E invests in a new business facility in Montana. Company E installs a windmill that is connected to a net metering system. The windmill provides energy for the new business facility. The credit is not available for Company E to offset taxes on income from the operations of the new business facility.

(1) In order to obtain a property tax exemption for noncommercial electrical generation machinery and equipment, the property owner of record or the property owner's agent must notify the department on its annual reporting form that the existence of noncommercial electrical generation machinery and equipment is in their ownership or use.

(2) The department will request from the property owner the appropriate information to determine the amount of the property tax exemption. The department will also verify with the Department of Environmental Quality that the electrical generation machinery and equipment comply with the provisions of 75-2-211 and 75-2-215, MCA, and the supporting documentation. The department will determine the amount of the property tax exemption. The applicant will be advised in writing of the decision.

(1) To qualify for the 15-year carry-forward provision authorized in 15-32-404, MCA, for investing in a five megawatt or larger commercial system located within the exterior boundaries of a Montana Indian reservation, a copy of the signed agreement with the tribal government of the reservation must be attached to the applicable tax return filed for the first taxable period for which the credit is reported.

(2) The signed agreement must include the details of the:

(a) training and employment of tribal members in the construction;

(b) tribal members involvement in the operation; and

(c) maintenance of the commercial system.

This rule has been repealed.

This rule has been repealed.

(1) Taxpayers shall maintain records necessary to support their entitlement to and qualification for the property tax exemption, property tax abatement, or income tax credit.

(2) For the Alternative Energy Production Credit, such records must include:

(a) if the alternative energy renewable source is a small hydroelectric generator producing less than one megawatt of electricity or the commercial system is a five megawatt or larger system located within the exterior boundaries of a Montana Indian reservation, source documents detailing the total capacity of the system;

(b) total investment in the commercial or net metering system;

(c) gross revenues associated with the commercial or net metering system;

(d) expenses associated with the commercial or net metering system; and

(e) if the alternative energy equipment supplies the basic energy needed to a new or expanded business facility as referenced in 15-32-402(1)(b), MCA, a copy of the direct sales contract.

(3) The records shall be maintained by the taxpayer for the appropriate statutory period of time that the property tax exemption, property tax abatement, or income tax credit may be received by the taxpayer, plus one year. Such records shall be subject to audit by the department at any time during the period to determine whether the provisions of the contract are being met.

This rule has been repealed.

(1) The property owner of record, the property's owner's agent, or the operator of the qualifying property must apply to the Department of Environmental Quality (DEQ) for a certification of eligibility for equipment or facilities for which the abatement is sought. Upon review of the application, the DEQ shall provide the Department of Revenue (department) with a certification of eligibility for qualifying equipment or facilities.

(2) The department shall classify the property in the appropriate class of property and shall assess the qualifying facilities for which the certification is granted at 50% of its taxable value for the qualifying period which includes the construction period and the first 15 years after the facility commences operation or the clean advanced coal research and development equipment or renewable energy research and development equipment is purchased. The total time of the qualifying period may not exceed 19 years.

(3) For centrally assessed property, the department shall determine the market value of the property or equipment by multiplying the depreciated value of the approved class fourteen, fifteen, or sixteen qualifying equipment of facilities by a market to book ratio then multiplying by 0.50. The market to book ratio shall be determined by dividing the system or unit value after deduction of the exempt intangible personal property by the system net book value after deduction of the exempt intangible personal property. This value shall then be deducted from the Montana value and certified to the counties as class fourteen, fifteen, or sixteen property.

(4) For industrially assessed property, the department shall determine the market value of the qualifying industrially assessed property in accordance with ARM 42.22.1309 and then multiply the qualifying property or equipment by 0.50.

(5) Upon revocation of a certification by the DEQ, the department will, if necessary, reclassify the property and assess the property at 100% of its taxable value beginning January 1 of the year or years for which the certification is revoked.

(6) If the department finds that a certification for a transmission line which was previously granted was based on an application that the applicant knew was false or fraudulent or subsequently revoked, the department must reclassify property as class nine under 15-6-141, MCA. In addition, the department may assess the applicant for additional taxes, penalty, and interest from the time the certification was in effect.

(1) The property owner of record, the property owner's agent, or the operator of a transmission line must make application to the Department of Revenue's (department) local county office for an exemption from property taxes for land that is within 660 feet on either side of the midpoint of a transmission line right-of-way or easement. The transmission line must have a design capacity of 30 megavoltamperes or greater, as certified by the Department of Environmental Quality (DEQ), and be constructed after January 1, 2007. Application will be made on a form available from the department's local county office before March 1 of the tax year for which the exemption is sought. The DEQ certification shall be attached to and be part of the application for exemption under this part.

(2) The applicant must provide to the department's local county office, along with the application, a legal description for the property described on the application provided for in (1) and a digitized certificate of survey prepared by a surveyor registered with the Board of Professional Engineers and Professional Land Surveyors provided for in 2-15-1763, MCA, which specifically provides the boundaries of the property listed on the application provided for in (1). The acceptable format for the digitized certificate of survey is an Environmental System Research Institute (ESRI) Shapefile file format in State Plane single zone projection. Shapefiles spatially describe points, polygons, and lines. State Plane refers to the State Plane Coordinate System.

(3) The application will be forwarded to the department's Property Assessment Division (PAD) office in Helena referred to as the "central office." The PAD central office will process the application and determine if the property meets the requirements of exemption.

(4) The central office will issue a letter indicating whether the application for exemption has been granted or denied and provide a copy of the letter to the applicant, the local county office, and the Business and Income Taxes Division.

(5) If the transmission line is either constructed or under construction after January 1 of a tax year and an application for exemption is submitted for the right-of-way or easement by March 1 of that tax year and the property qualifies for the exemption, the exemption will be effective for the whole tax year.