BEFORE THE DEPARTMENT OF REVENUE
OF THE STATE OF MONTANA
In the matter of the adoption of New Rules I through III relating to the Insure Montana tax credit
TO: All Concerned Persons
1. On September 2, 2010, at 10:00 a.m., a public hearing will be held in the Third Floor Reception Area Conference Room of the Sam W. Mitchell Building, at Helena, Montana, to consider the adoption of the above-stated rules.
Individuals planning to attend the hearing shall enter the building through the east doors of the Sam W. Mitchell Building, 125 North Roberts, Helena, Montana.
2. The Department of Revenue will make reasonable accommodations for persons with disabilities who wish to participate in this public hearing or need an alternative accessible format of this notice. If you require an accommodation, contact the Department of Revenue no later than 5:00 p.m., August 23, 2010, to advise us of the nature of the accommodation that you need. Please contact Cleo Anderson, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-5828; fax (406) 444-4375; or e-mail firstname.lastname@example.org.
3. The proposed new rules do not replace or modify any section currently found in the Administrative Rules of Montana. The proposed new rules provide as follows:
NEW RULE I INSURE MONTANA REFUNDABLE CREDIT (1) The total amount of credit an employer participating in the Insure Montana program may claim is determined by the State Auditor's office. 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 15-30-2368, MCA, and this rule.
(a) If the employer is an S corporation, the shareholders' share of the total credit is based on their ownership percentage.
(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 share of the entity's income or loss reported for Montana income tax purposes.
(2) Special rules apply to entities that file fiscal year tax returns.
(a) A C corporation or other entity that files its tax return on a fiscal year-end basis must allocate the total amount of the credit it is entitled to for a calendar year between the filing periods which cover that year. The total is allocated based on the ratio of the number of months of the calendar year that are included in the fiscal year. For example, a corporation is eligible for a credit of $6,000 for 2010. If their fiscal year ends September 30, they claim $4,500 (9/12ths of $6,000) on the return for the year ending on September 30, 2010 and the remainder of $1,500 (3/12ths of $6,000) on the return filed for the year ending on September 30, 2011.
(b) If a fiscal year return is due before the amount of credit for the calendar year has been determined by the State Auditor's office, an estimated credit can be claimed. The estimated credit should be based on the prior year's credit if there is no change in the number of participating employees, spouses, or dependents. Any remaining amount may be claimed on the subsequent tax year.
AUTH: 15-30-2104, MCA
IMP: 15-30-2368, 33-22-2006, 33-22-2007, MCA
REASONABLE NECESSITY: The department is proposing to adopt New Rule I for the Insure Montana program to clarify that it has no power to alter the amount of the credit, to explain how the credit on an employer that is a pass-through entity is allocated among the shareholders if the employer is an S corporation, among the partners if the employer is a partnership, and among the members if the employer is a limited liability company that is taxed as a partnership. Also, the rule explains how fiscal year employers allocate the calendar year credit amount to the included fiscal years. The rule will provide information to help employers and owners of pass-through entities properly complete their tax returns.
NEW RULE II REDUCTION OF DECUCTIONS ALLOWED FOR INSURANCE CLAIMS (1) An employer is not allowed to claim both a Montana credit and a deduction for the same insurance premium dollars paid.
(a) If the employer is not claiming a federal small business health insurance credit, the deduction claimed on the federal return is reduced by an amount equal to twice the Insure Montana credit claimed by the taxpayer when arriving at income for Montana purposes. For example, an employer determined to be eligible for $4,000 in tax credit must reduce their deduction for premiums by $8,000 ($4,000 x 2).
(b) If the employer is claiming a federal small business health insurance tax credit, their federal deduction may be reduced or completely eliminated. When the federal deduction is reduced for this reason, the deduction only needs to be further reduced for Montana purposes if the federal reduction is less than the Montana reduction that would otherwise be called for in (1)(a). For example, if an employer reduced their federal deduction by $5,000 and they are claiming an Insure Montana credit of $3,000, the reduction on the Montana return is $1,000 ($3,000 x 2 = $6,000 gross reduction less $5,000 federal reduction).
(c) The reduction of the deduction by an employer that is a C corporation must be made by entering the appropriate amount on form CLT-4, line 2, "Additions".
(d) The reduction of the deduction by an employer that is a sole proprietor, must be made by entering the appropriate amount on form 2, Schedule I, "Montana Additions to Income Federal Adjusted Gross Income."
(e) The reduction of the deduction by an employer that is an S corporation must be made by entering the appropriate amount on form CLT-4S, line 15c, "Other additions", and on the Montana Schedule K-1s of the shareholders, line 13, "Other additions."
(f) The reduction of the deduction by an employer that is a partnership or a limited liability company that is taxed as a partnership must be made by entering the appropriate amount on form PR-1, line 16.c, "Other additions," and on the partners' or members' Montana Schedule K-1s, line 3, "Other additions."
(3) An employee who receives premium assistance payments, whether paid to the employee or to an insurance company on behalf of the employee, cannot include the amount of the insurance premiums paid with the assistance payments in determining the amount of unreimbursed medical expenses they can claim as an itemized deduction on either their federal or Montana income tax returns.
AUTH: 15-30-2104, MCA
IMP: 15-30-2368, 15-31-130, 33-22-2006, 33-22-2007, MCA
REASONABLE NECESSITY: The department is proposing to adopt New Rule II to explain how the credit may affect other tax provisions. It explains that an employer's federal income tax deduction that was claimed for the employee health insurance premiums may have to be reduced in determining the amount of deduction allowed in the employer's Montana tax return because the employer cannot claim both the Insurance Montana credit and a deduction for the same dollars of health insurance premiums paid or accrued. The employer is required to reduce the deduction by twice the amount of the credit because the credit is allowed for 50% of the premiums paid. The rule also explains that an employer's usual federal deduction for health insurance premiums may be reduced because the employer cannot include amounts reimbursed with the credit or a premium assistant payment in calculating its deduction or, when premiums accrued and credits received fall in different tax years, the employer may have to report the credit or payment as a tax benefit recovery of an amount deducted in an earlier year. It explains to those employees who directly receive a premium assistance payment under the program that they cannot include the assistance amounts in determining any itemized deduction they may have for unreimbursed medical expenses.
The rule also specifies how the employer is required to report any adjustment to its federal deduction for health insurance premiums paid on its applicable Montana income tax, corporation license tax, or pass-through entity information return.
NEW RULE III COORDINATION WITH OTHER HEALTH INSURANCE CREDITS (1) An employer who claims the federal small business insurance credits is not prevented from claiming the Insure Montana credit. The amount of the Insure Montana credit is not affected by the amount of the federal small business insurance credits an employer claims.
(2) An employer may not claim both the Insure Montana credit and the Health Insurance for Uninsured Montanans credit, form H, provided in 15-30-2367 and 15-31-132, MCA.
AUTH: 15-30-2104, MCA
IMP: 15-30-2367, 15-30-2368, 15-31-130, 15-31-132, 33-22-2006, 33-22-2007, MCA
REASONABLE NECESSITY: The department is proposing to adopt New Rule III to explain how the Insure Montana credit relates to the federal small business insurance credit and the Montana credit for Health Insurance for Uninsured Montanans Credit.
4. Concerned persons may submit their data, views, or arguments, either orally or in writing, at the hearing. Written data, views, or arguments may also be submitted to: Cleo Anderson, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-5828; fax (406) 444-4375; or e-mail email@example.com and must be received no later than September 10, 2010.
5. Cleo Anderson, Department of Revenue, Director's Office, has been designated to preside over and conduct the hearing.
6. An electronic copy of this Notice of Public Hearing 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 Notice of Public Hearing 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.
7. The Department of Revenue maintains a list of interested persons who wish to receive notices of rulemaking actions proposed by this agency. Persons who wish to have their name added to the list shall make a written request, which includes the name and e-mail or mailing address of the person to receive notices and specifies that the person wishes to receive notices regarding particular subject matter or matters. Notices will be sent by e-mail unless a mailing preference is noted in the request. Such written request may be mailed or delivered to the person in 4 above or faxed to the office at (406) 444-4375, or may be made by completing a request form at any rules hearing held by the Department of Revenue.
8. The bill sponsor contact requirements of 2-4-302, MCA, apply and have been fulfilled. The primary bill sponsor, Representative David Wanzenried, for HB 667 of the 2005 Legislative Session was contacted on April 19, 2006, by regular mail. A draft of the rules was subsequently provided on July 22, 2010.
/s/ Cleo Anderson /s/ Dan R. Bucks
CLEO ANDERSON DAN R. BUCKS
Rule Reviewer Director of Revenue
Certified to Secretary of State August 2, 2010