BEFORE THE DEPARTMENT OF REVENUE
OF THE STATE OF MONTANA
In the matter of the amendment of ARM 42.21.158 and 42.21.160 relating to the aggregation of property tax for certain property
NOTICE OF AMENDMENT
TO: All Concerned Persons
1. On August 25, 2011, the department published MAR Notice No. 42-2-867 regarding the proposed amendment of the above-stated rules at page 1650 of the 2011 Montana Administrative Register, issue no. 16.
2. A public hearing was held on September 19, 2011, to consider the proposed amendment. Ms. Nancy Schlepp, President of the Montana Taxpayers Association (MonTax), appeared and testified at the hearing. Oral testimony and written comments subsequently received are summarized as follows along with the response of the department:
COMMENT NO. 1: Ms. Schlepp asked, relative to ARM 42.21.158(2), how the $20K exemption is going to be handled. She commented that it appears in the proposed rule that the department is still going to want people with only $20K or less to keep reporting every year. Ms. Schlepp explained that the reason they are hopeful this is amended out is because in a recent Council on State Taxation (COST) scorecard, Montana received an A rating for the exclusion of de minimis values for exempting $20K and below, and with this rule amendment it would be required where it wasn't before.
In addition to testifying at the hearing, Ms. Schlepp provided follow-up written comments in which she added that MonTax opposes adoption of the entire portion of this rule and requests that the requirement remain as it has been since 2005, because it is an increased and unnecessary reporting requirement, and the exclusion for de minimis property values is one of the key components to fostering open and transparent tax collections.
RESPONSE NO. 1: The department appreciates Ms. Schlepp's comments, participation in this rulemaking action, and the opportunity to confirm that the current $20,000 exemption from taxation threshold for personal property remains in effect. If an individual's or business entity's aggregate market value is $20,000 or less, the class eight property is exempt from taxation. The proposed amendment to ARM 42.21.158 does not change the existing exemption threshold for class eight personal property.
The class eight property reporting requirements also remain unchanged, although, the department restructured the sentence for readability only. The current reporting requirements were first adopted in 2006 and updated in 2010 and implemented with taxpayers early in 2011. Individuals or business entities with class eight property that has an aggregate market value of $20,000 or less are required to report biennially. Individuals or business entities with class eight property that has an aggregate market value of $20,000 or more are required to report annually.
The proposed amendment to ARM 42.21.158 does not change the existing reporting requirements.
COMMENT NO. 2: In her written comments, Ms. Schlepp also requested that the department provide a list of all items considered business equipment.
RESPONSE NO. 2: Section 15-6-138, MCA, provides detailed descriptions of the types of business equipment that the department considers "class eight property." The proposed amendment to ARM 42.21.158 does not change the existing statutory description.
COMMENT NO. 3: Mr. John Bennion, Government Relations Director for the Montana Chamber of Commerce, provided written comments about the proposed amendments to ARM 42.21.158. Mr. Bennion commented that in order for a business to be exempt from class eight property, the total business equipment tax value for the business must be under $20K, a threshold that was created in the 2005 Legislative Session; and that as far as he knows, no reporting changes have been made since then, including the business equipment tax reductions contained in Senate Bill 372, L. 2011. He further stated that, as such, this reporting requirement for businesses with less than $20K in equipment appears to be just one more tedious reporting requirement from a government agency.
Mr. Bennion further commented that the cost of complying with government regulation is significant, especially for small businesses. He wrote that a small, new reporting requirement may not seem like a significant burden to a government agency, but any new, unnecessary regulation would be adding to an already substantial amount of regulation and forms required to run a business. Mr. Bennion added that this is why they have routinely lobbied in support of requiring agencies like the Department of Revenue to look at the compliance costs of additional regulations before introducing them.
Mr. Bennion stated that the new reporting requirement is likely to impact smaller businesses, since they are often the entities with the least amount of business equipment. He further stated if this requirement has not been necessary since the creation of the 2005 threshold, they would encourage the department to continue the practice of excusing exempt businesses from reporting every other year.
RESPONSE NO. 3: The department understands the reporting requirement challenges that face small businesses and appreciates Mr. Bennion's participation in this rulemaking action. Mr. Bennion is correct, the Legislature approved the $20,000 threshold in 2005, and that has remained unchanged. The department is required by the Montana Constitution to assess and equalize the valuation of all property. To ensure the equalization of taxes, the department requires, at a minimum, the biennial reporting of all class eight property. As noted in Response No. 1, the current biennial reporting requirement is substantially unchanged. It was first adopted in 2006, updated in 2010 and implemented with the taxpayers early in 2011. As noted in Response No. 4, the biennial reporting is necessary to ensure proper compliance with the $20,000 threshold. The department is exploring ways to make the reporting process less burdensome for all class eight property taxpayers.
COMMENT NO. 4: Mr. Jake Cummins, Executive Vice President of the Montana Farm Bureau Federations, also provided written comments on the proposed amendments to ARM 42.21.158(2). He stated their concern is that businesses and individuals would have to report all exempt business equipment, even if the total amount falls under the $20K exemption level. Mr. Cummins explained that this requirement will only cause added and unnecessary paperwork for anyone and everyone who owns any amount of business equipment and will also create added and unnecessary work for department staff. He further questioned if the property is exempt as stated in the law, "why must it be reported?"
RESPONSE NO. 4: The department appreciates Mr. Cummins' interest and comments on the proposed rule amendments.
The law requires the department to ensure that all property taxpayers are paying their fair share of taxes. The law does not allow the department to assume that once an individual's or business entity's aggregate market value is $20,000 or less, that it will not change. The department adheres to the constitutional and statutory stipulation of equalization by requiring biennial reporting of all individual's and business entity's class eight property to ensure proper compliance with the $20,000 threshold.
COMMENT NO. 5: Mr. Cummins also expressed concern with striking (3) in ARM 42.21.158, because it is important that the department continue to provide educational information about class eight property exemptions to everyone who owns class eight property. He further stated that this is especially important because of the changes made to the law in 2011. He also explained that their members pay many types of taxes and the rules can be quite confusing and, therefore, anything the department can provide to help clarify any and all tax law would be appreciated.
RESPONSE NO. 5: The department appreciates Mr. Cummins bringing his concerns regarding this proposed amendment to the department's attention. The department agrees with his concerns. Upon further review, it was determined that the department struck (3) of ARM 42.21.158 in error. The rule is being further amended, as shown below, to correct the error and replace that section. The department will continue to provide educational information on its web site, personal property reporting forms, and in the local revenue offices.
3. Based on the comments received, the department further amends ARM 42. 21.158 as follows, stricken matter interlined, new matter underlined:
42.21.158 PROPERTY REPORTING REQUIREMENTS (1) and (2) remain as proposed.
(3) The department will provide educational information on the class eight personal property exemption to all individual taxpayers or business entities the department is aware of that currently have class eight business personal property.
(3) remains as proposed but is renumbered (4).
(4)(5) Statements postmarked after March 15 will be assessed the penalty provided in (3)(4) unless:
(a) the taxpayer provides evidence of their inability to comply with the timeframes set forth in
(3)(4) due to hospitalization, physical illness, infirmity, or mental illness; and
(b) evidence that this/these condition(s), while not necessarily continuous, existed at sufficient levels in the period of January 1 to March 15 to prevent timely filing of the reporting form.
(5) through (9)(b) remain as proposed, but are renumbered (6) through (10)(b).
AUTH: 15-1-201, 15-9-101, MCA
IMP: 15-1-121, 15-1-303, 15-6-138, 15-8-104, 15-8-301, 15-8-303, 15-8-309, 15-9-101, 15-24-902, 15-24-903, 15-24-904, 15-24-905, MCA
4. Therefore, the department amends ARM 42.21.158 with the amendments listed above and amends ARM 42.21.160 as proposed.
5. An electronic copy of this notice is available on the department's web site at www.revenue.mt.gov. Locate "Legal Resources" in the left hand column, select the "Rules" link and view the options under the "Notice of Proposed Rulemaking" heading. The department strives to make the electronic copy of this 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 November 28, 2011