Administrative Rules of the State of Montana

BEFORE THE DEPARTMENT OF REVENUE

OF THE STATE OF MONTANA

In the matter of the adoption of New Rules I (42.4.4114), II (not adopted), and III (42.4.4115) relating to property tax incentives for new investment, development research, and technology related to renewable energy

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NOTICE OF ADOPTION

TO: All Concerned Persons

1. On November 21, 2007, the department published MAR Notice No. 42-2-782 regarding the proposed adoption of the above-stated rules at page 1878 of the 2007 Montana Administrative Register, issue no. 22.

2. A public hearing was held on December 17, 2007, to consider the proposed adoption. Those attending the hearing were: Dennis Lopach, Attorney, representing REC Silicon; Mary Whittinghill, Executive Director, Montana Taxpayers Association; and Ken Morrison, representing TransCanada/PPL Montana. Oral and written testimony is summarized as follows along with the response of the department:

COMMENT NO. 1: Ms. Whittinghill stated that the language contained in New Rule I(3), (6), (7), and (8) seem to be redundant of statutory language.

RESPONSE NO. 1: The department concurs in part with Ms. Whittinghill's comments and will not adopt sections (3) and (7). The department maintains that the language in sections (6) and (8) are needed and therefore will be adopted. Specifically, section (6) is intended to clarify that the Department of Environmental Quality is responsible for revocation of certifications. Section (8) clarifies that if transmission lines were classified as class fourteen property based on false information, the transmission lines will be reclassified as class nine property.

COMMENT NO. 2: Ms. Whittinghill requested that abated property be valued in a similar manner than other centrally assessed property and that the depreciation method to be used be clarified.

RESPONSE NO. 2: The department has and will continue to value property according to generally accepted accounting and appraisal practices and methods to properly arrive at the correct market value under the law. The department does not think the use of specific valuation formulas or depreciation schedules will provide an accurate market value.

COMMENT NO. 3: Ms. Whittinghill suggested that the ARM section referenced in New Rule I(5) as ARM 42.22.1309 should be corrected to reference ARM 42.22.1306.

RESPONSE NO. 3: The department concurs and thanks Ms. Whittinghill for identifying this error. The reference will be corrected as shown below.

COMMENT NO. 4: Mr. Lopach and Ms. Whittinghill provided comments concerning New Rule II and the fact that the rule may contradict or, at least be, inconsistent with the statutory language.

RESPONSE NO. 4: The department has decided not to adopt New Rule II. As the department receives requests for abatement it will conduct an individual review to properly apply the plain text of the statute to determine eligibility. After the department has received some abatement requests, it will take the opportunity to analyze the requests and determine the need for additional rules.

COMMENT NO. 5: Ms. Whittinghill encouraged the department to coordinate filing procedures with the Department of Environmental Quality to ensure taxpayers have a clear understanding of the filing requirements and local governments are not caught off guard with changing valuations. She also stated that there should be language to clarify commencement of construction and qualifying periods to provide for purchase of equipment and changes in land use for property tax purposes.

RESPONSE NO. 5: The department agrees with Ms. Whittinghill's comments and has already had a number of meetings with the Department of Environmental Quality to ensure continuity in the implementation of these rules, as well as that agency's rules. The department doesn't believe that language clarifying the commencement of construction and a qualifying period is appropriate in the rule language dealing with the exemption provided for under the provisions of New Rule III.

COMMENT NO. 6: Ms. Whittinghill and Mr. Morrison stated that they do not believe New Rule III(1) requiring the property owner of record to make application to the department for an exemption follows the statutory language. Section 15-6-229, MCA, requires the owner or operator of a transmission line to make the application.

RESPONSE NO. 6: The department acknowledges that the specific language in 15-6-229, MCA, identifies only the owner or operator of the transmission line as applicants for the exemption. However, while the statute specifies, it does not do so at the exclusion of the owner or operator. Since the exemption which is sought, subject to the provisions of 15-6-229, MCA, would apply only to qualifying land, the department feels it is proper to allow the land owner to make the application, in addition to either the owner or operator of the transmission line. If the owner or operator of the transmission line fails to gain any benefit from the exemption, it seems logical to assume that the same parties may not make application for the benefit of the land owner.

COMMENT NO. 7: Ms. Whittinghill and Mr. Morrison stated that rather than filing applications with each of the department's county offices and having them forward the application to the central office, it would be better to have applicants file directly with the central office in Helena.

RESPONSE NO. 7: The department disagrees and intends to follow the current property tax exemption process. It seems very clear that 15-6-229(2)(a), MCA, requires a separate application be made for each county in which an exemption is sought. The amount of land subject to each exemption application would have to be verified by each affected local Department of Revenue office. Once that occurs, the information will be forwarded to the central office in Helena for a final determination.

COMMENT NO. 8: Ms. Whittinghill and Mr. Morrison stated that section (5) in New Rule III seems to imply the exemption applies only to constructed lines. They stated that they believe the exemption can also apply to lines under construction.

RESPONSE NO. 8: The department concurs and proposes to amend that section of the rule as shown below.

COMMENT NO. 9: Ms. Whittinghill and Mr. Morrison also stated that they believe much of the language in New Rule III(1) appears to duplicate current statutory language.

RESPONSE NO. 9: The department concedes that some of the language duplicates statutory wording, but in administering this exemption provision, the department believes that for taxpayer convenience and clarity purposes, it's necessary that some statutory wording be used to set out the provisions that are required in meeting the exemption criteria.

3. As a result of the comments received the department will not adopt New Rule II and amends New Rule I (42.4.4114) and New Rule III (42.4.4115) with the following changes, stricken matter interlined, new matter underlined:

NEW RULE I (42.4.4114) ENERGY PRODUCTION OR DEVELOPMENT TAX ABATEMENT ELIGIBILITY FOR NEW INVESTMENT IN THE CONVERSION, TRANSPORT, MANUFACTURE, RESEARCH, AND DEVELOPMENT OF RENEWABLE ENERGY, CLEAN COAL ENERGY, AND CARBON DIOXIDE EQUIPMENT AND FACILITIES (1) and (2) remain as proposed.

(3) For clean advanced coal research and development equipment or renewable energy research equipment, the qualifying equipment, up to the first $1 million of the value of the equipment at the facility, shall be assessed by the department at 50% of its taxable value for the qualifying period identified in (2). The abatement does not extend to any equipment in excess of the first $1 million of equipment located at the facility.

(4) through (6) remain as proposed but are renumbered (3) through (5).

~~(7) If a taxpayer's certification is revoked, the taxpayer forfeits the abatement or classification under 15-6-157, or 15-6-158, MCA, and may not reapply for abatement for that property.~~

(8) remains as proposed but is renumbered (6).

AUTH: 15-24-3116, MCA

IMP: 15-6-141, 15-6-157, 15-6-158, 15-6-159, 15-24-3101, 15-24-3102, 15-24-3111, 15-24-3112, 15-24-3116, MCA

NEW RULE III (42.4.4115) EXEMPTION FOR LAND ADJACENT TO TRANSMISSION LINE RIGHT-OF-WAY OR EASEMENT (1) through (4) remain as proposed.

(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.

AUTH: 15-24-3116, MCA

IMP: 2-15-1763, 15-6-229, MCA

4. The department adopts New Rule I (42.4.4114) and New Rule III (42.4.4115) with the amendments shown above.

5. An electronic copy of this Adoption Notice is available through the department's site on the World Wide Web at www.mt.gov/revenue, under "for your reference"; "DOR administrative rules"; and "upcoming events and proposed rule changes." The department strives to make the electronic copy of this Adoption Notice conform to the official version of the Notice, as printed in the Montana Administrative Register, but advises all concerned persons that in the event of a discrepancy between the official printed text of the Notice and the electronic version of the Notice, only the official printed text will be considered. In addition, although the department strives to keep its web site accessible at all times, concerned persons should be aware that the web site may be unavailable during some periods, due to system maintenance or technical problems.

/s/ Cleo Anderson /s/ Dan R. Bucks

CLEO ANDERSON DAN R. BUCKS

Rule Reviewer Director of Revenue

Certified to Secretary of State April 14, 2008