(1) Except as provided in (2), a first-tier pass-through entity with one or more owners that are also pass-through entities (second-tier pass-through entities), during any part of the tax year for which an information return is required by this chapter, must for each second-tier pass-through entity:
(a) file a composite return as provided in ARM 42.9.202 and include the second-tier pass-through entity in the filing; or
(b) do each of the following:
(i) remit to the department an amount equal to the highest marginal rate in effect under 15-30-2103, MCA multiplied by the second-tier pass-through entity's share of Montana source income with the forms CLT-4S, PR-1, or DER-1 Pass-Through Entity's Information Return; and
(ii) provide Form PT-WH or Montana Schedule K-1 to the second-tier pass-through entity setting forth the amount remitted to the department that may be claimed as a refundable credit against the Montana income tax liability of the owners who file individual, corporation license, or other income tax returns as explained in (7).
(2) The department may waive the requirements to remit tax or pay composite tax on behalf of the second-tier pass-through entity for the current tax year as set forth in (1) if the first-tier pass-through entity:
(a) completes and submits the Form PT-STM for the year to the department at least 45 days before the original due date of the first-tier pass-through entity's tax return; and
(b) establishes to the satisfaction of the department that the second-tier pass-through entity's distributive share of Montana source income for the current year will be fully accounted for in individual income, corporation license, or other income tax returns filed with the state.
(3) The department will notify the first-tier pass-through entity of its decision to waive or not waive the requirement to file a composite return or remit within 30 days after receipt of the completed Form PT-STM. The department will generally waive the requirement if it can determine that all of the income for the three most recent tax years has been reported on timely filed tax returns and that all tax due under those returns has been paid.
(4) The department may grant a conditional waiver that lasts longer than one year on written request included with the Form PT-STM if, in addition to the conditions provided in (3), the first-tier pass-through entity:
(a) agrees to notify the department if the ownership of the second-tier pass-through entity and, if applicable, the ownership of any higher-tier pass-through entities changes;
(b) agrees to remit the amount provided under (1) within 60 days after notice from the department that the second-tier pass-through entity's distributive share was not fully accounted for on corporation license, individual income, or other tax returns filed with the department; and
(c) agrees to be subject to the personal jurisdiction of the state for the collection of the remittance.
(5) The department's waiver is conditioned upon there being no change in material facts, including a change of ownership of the second-tier pass-through entity and, if applicable, the ownership of any higher-tier pass-through entity changes, and is automatically revoked on the happening of any such change.
(6) A publicly traded partnership as defined in section 7704(b) of the IRC, that is treated as a partnership for federal purposes, is exempt from the requirements in (1) for tax years beginning after December 31, 2008, if certain information is provided to the department. This information includes the name, address, taxpayer identification number, and Montana source income of each partner that had an interest in the partnership during the tax year. This information must be provided in an electronic format approved by the department.
(7) The amount remitted by the first-tier pass-through entity on behalf of the second-tier pass-through entity is claimed as a refundable credit by the taxpayer who ultimately reports their distributive share of the second-tier pass-through entity's Montana source income. For example:
(a) a first-tier pass-through entity remitted tax on behalf of a second-tier pass-through entity, X. X has two owners, an individual and another pass-through entity, Y. The individual owner will report his or her distributive share of the remitted tax as a refundable credit on an individual Montana income tax return. The other owner, Y, will report Y's distributive amount of the remitted tax to its owner. Y has one owner, a trust. The trust will report its distributive share of the remitted tax as a refundable credit on its Montana income tax return for trusts and estates.
(8) This rule is effective for tax years beginning after December 31, 2011.