(1) The composite tax, required to be remitted to the department with the composite tax return, is the sum of each electing eligible participant's composite tax liability.

(2) The composite return liability of each eligible consenting participant is calculated as follows:

(a) compute the entity's composite tax ratio by:

(i) calculating the entity's federal income from all sources as determined for federal income tax purposes;

(ii) calculating the entity's Montana source income;

(A) if the entity is only doing business in Montana, the entity's Montana source income is the net taxable income after Montana additions and deductions to income as allowed in 15-30-3302, MCA; or

(B) if the entity is engaged in multistate business, the entity's Montana source income is determined as provided in ARM 42.9.107; and

(iii) dividing the entity's Montana source income by the entity's federal income from all sources;

(b) subtract the allowable standard deduction for a single individual and one exemption allowance from each participant's share of the entity's federal taxable income as determined for federal income tax purposes. Determine the tax that would be imposed on the result using the rates specified in 15-31-121, MCA, for C corporations and the rates specified in 15-30-2103, MCA, for all other eligible participants; and

(c) multiply the amount determined in (b) by the composite tax ratio computed in (a).

(i) Example 1a. composite tax ratio: Assume a partnership's federal income from all sources (as reported on Form PR-1, line 15) is $60,000 and the partnership's Montana source income (as reported on Form PR-1, line 21) is $20,000. The composite tax ratio is $20,000/$60,000 = 33.3333%.

(ii) Example 1b. composite tax liability: Assume that the partnership in Example 1a. has one electing eligible participant in the composite tax return, an individual. To determine the electing partner's share of federal taxable income, multiply the partner's ownership percentage (as reported on the Montana Schedule III) by federal income from all sources (as reported on Form PR-1, line 15).

 

Electing partner's ownership percentage 50%

Partnership's federal income from all sources $60,000

Electing partner's distributive share of federal income from all sources $30,000

 

Reduce the electing partner's distributive share of federal income from all sources by the allowable standard deduction for a single individual and one exemption allowance.

 

Electing partner's distributive share of federal income from all sources $30,000

Standard deduction ($4,110)

Exemption allowance ($2,190)

$23,700

Using the tax rates as set forth in 15-30-2103, MCA, assume the tax is $1,123. Multiply the resulting tax by the composite tax ratio determined in Example 1a.

 

Tax on the distributive share of federal income $1,123

Composite tax ratio (from Example 1.a.) 33.3333%

Total composite tax $374

(3) Tax credits may not be claimed against composite tax.

(4) When shareholders and partners elect to be included in the composite return, the entity must apply their share of mineral royalty tax withheld for mineral rights owned by the entity to the composite tax liability.

(5) The entity is required to make quarterly estimated tax payments as prescribed by 15-30-2512, MCA, on the total composite tax liability as computed in (1).