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| Montana Administrative Register Notice 42-2-802 | No. 8 04/30/2009 | |
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BEFORE THE DEPARTMENT OF REVENUE OF THE STATE OF
TO: All Concerned Persons 1. On November 26, 2008, the department published MAR Notice No. 42-2-802 regarding the proposed amendment of the above-stated rules at page 2456 of the 2008 Montana Administrative Register, issue no. 22. 2. A public hearing was held on December 18, 2008, to consider the proposed amendment. Oral and written testimony was received at the hearing and is summarized below along with the response of the department: COMMENT NO. 1: Guy Hanson, RESPONSE NO. 1: In answer to Mr. Hanson's first question, the amendments to ARM 42.4.204(1)(o) are not intended to necessarily limit the 15-32-109, MCA, credit to replacements of existing heating or cooling systems -- a credit is also allowed for installation of a new heating or cooling system as part of new construction based on the cost of exceeding the new construction standards in ARM 42.4.206. "New construction" means construction of, or additions to, buildings, living areas, or attached garages that comply with the established standards of new construction as determined by the building code statutes in Title 50, MCA. The answer to the second question is no -- the credit under 15-32-109, MCA, is allowed only for the installation of a new "heating system" -- not the cost of supplementing an existing heating system with another system or component. The augmentation described, like purchase of a small space heater to avoid using an existing furnace, although resulting in less total energy consumption and laudable, does not qualify for the 15-32-109, MCA credit. Also, the 15-32-109, MCA credit is limited to installation of a heating system in a qualifying "building" – a dwelling or an enclosed, insulated structure used for commercial, industrial, or agricultural purposes. A guesthouse may or may not be a dwelling, depending on how it is used. Installation of a heating system in a garage or shop does not qualify for the credit unless, in addition to the other requirements, the garage or shop is used for commercial, industrial, or agricultural purposes. COMMENT NO. 2: Mr. Hanson; James Roach, Energy Technology Student at the University of Montana; and James Swanson, Swanson Distributing all asked if the new language was intended to exclude technologies like heat pump systems as replacements for electric resistance heating. Mr. Roach stated that electric heating has an efficiency rating of 100% whether used for space heating or hot water. Heat pump technology and other alternate technologies (like solar thermal) do not have efficiencies in excess of 100%. They do however provide radically more heat for the same energy input and as such greatly conserve energy. Those industries use a rating called coefficient of performance of show that they deliver far more heat than if the electricity they consumed had been used as resistance heating. Coefficient of performance is used to measure the effectiveness of a system that uses input energy (like electricity) to collect environmental energy (like solar or ground source heat) and return more energy (heat) to the structure than was input. Heat pump systems commonly return four times the energy input and solar thermal return 700 times the energy input. Under the proposed language a taxpayer who installed a heat pump system would not qualify if they were already using conventional electric heat even though they would reduce their electric usage by 75 to 80%. RESPONSE NO. 2: Air-source heat pumps installed as the primary heating and cooling system for a home qualify for the energy conservation credit in certain circumstances. If an air-source heat pump is installed in an existing home which used another type of system for heating and cooling, the requirements of ARM 42.4.204(2), which is not being amended in this notice, will apply and the installation will be considered new construction and only the extra amount spent to exceed the applicable federal minimum ratings will qualify as an investment in energy conserving measures. ARM 42.4.204(2) states: "If the new system described in (1)(o) differs in style or type from the previous system, such as, if one or more window air-conditioning units is replaced with a central air system, the new system must exceed the requirement in ARM 42.4.206(1)(c). If the replacement system exceeds the established standards, only the additional cost shall be considered when computing the credit." An air-source heat pump installed while constructing a new home would also qualify as long as the conditions in 42.4.205(3) and 42.4.206 are met. The department has further amended ARM 42.4.206 as shown below to reflect the complete ratings for air-source heat pumps. The current ENERGY STAR ratings are slightly higher than what is shown in the existing rule but slightly lower than what qualifies for the federal credit. Regarding the suggestion that coefficient of performance should be used to determine whether a replacement system should qualify for the credit, further analysis is necessary to determine whether implementing this method would be appropriate. The department would like to confirm with the Department of Environmental Quality in order to clarify the potential benefit these systems may provide for energy conservation. The review would occur as required by ARM 42.4.208 in September 2009. COMMENT NO. 3: Mary Whittinghill, Montana Taxpayers Association, Helena, commented that the reference in ARM 42.4.118(1)(a), which is part of the energy rules but not addressed in this notice is incorrect and should be corrected. The rule refers to the form "ENRG B" and it should be "ENRG A". Ms. Whittinghill stated that the implementing cite of 15-32-109, MCA should be deleted from ARM 42.4.118 because that statute more appropriately applies to energy-conserving expenditures which are addressed in the rules found in chapter 4, subchapter 2 rather than this rule. Ms. Whittinghill further suggested the department change the title of chapter 4, subchapter 1 from "Tax Credits for Alternative Energy Systems" to "Tax Credits for Alternative Energy Systems and Credit for Geothermal" because the rules apply to both of these credits. RESPONSE NO. 3: The department agrees with Ms. Whittinghill's observations and amends ARM 42.4.118 as shown below. The title to subchapter 1 will be amended when the replacement pages are prepared the end of June 2009. 3. As a result of the comments received and further review the department amends ARM 42.4.118, 42.4.203, 42.4.204, and 42.4.206 with the following changes: 42.4.118 ENERGY AND CONSERVATION INDIVIDUAL INCOME TAX CRED (a) To qualify for the geothermal energy system credit allowed under 15-32-115, MCA, a taxpayer must file form (b) and (c) remain the same. AUTH: 15-1-201, 15-32-203, MCA IMP: 42.4.203 CREDIT FOR ENERGY CONSERVATION INVESTMENT (1) Eligible investments for the energy conservation credit in new construction are the investments that meet or exceed the requirements (a) through (1)(c) remain as proposed. (2) For investments in existing buildings, a credit will be given for capital investments listed in ARM 42.4.204 that are recognized to substantially reduce the waste or dissipation of energy, or reduce the amount of energy required for proper utilization of the building. (3) through (6) remain as proposed. AUTH: 15-1-201, MCA IMP: 15-32-106, 15-32-109, MCA 42.4.204 CAPITAL INVESTMENTS FOR QUALIFYING ENERGY CONSERVATION CREDIT (1) The following capital investments are those that exclusively qualify for the conservation of energy credit for tax year (b) through (1)(m) remain as proposed. (n) programmable thermostats; (o) (i) a new one of the same style or type that has a higher efficiency rating, whether or not the new water heater or heating or cooling system meets or exceeds the established standards for new construction provided in ARM 42.4.205; and (ii) a new one that is of a different style or type that exceeds the requirements for new construction provided in ARM 42.4.206, but only for the additional cost of exceeding the standard; and (p) installation as part of new construction of a water heater or heating or cooling system that exceeds established standards for new construction provided in ARM 42.4.206(1)(c), but only for the additional cost of exceeding the standard. (2) remains as proposed. AUTH: 15-1-201, 15-32-105, MCA IMP: 15-32-102, 15-32-105, 15-32-106, 15-32-109, MCA 42.4.206 NEW CONSTRUCTION STANDARDS (1) For new construction, the energy-conserving expenditure must meet or exceed the following equipment standards: (a) air-source heat pumps - specification (split systems - greater than or equal to (b) through (2)(h) remain as proposed. AUTH: 15-32-105, MCA IMP: 15-32-105, 15-32-109, MCA 4. Therefore, the department amends ARM 42.4.118, 42.4.203, 42.4.204, and 42.4.206 with the amendments listed above and amends ARM 42.4.201 as proposed. 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 20, 2009 |
A directory of state agencies is available online at http://www.mt.gov/govt/agencylisting.asp.
For questions about the organization of the ARM or this web site, contact sosarm@mt.gov.
