BEFORE THE DEPARTMENT OF REVENUE
OF THE STATE OF MONTANA
TO: All Concerned Persons
1. On May 10, 2010, at 1:30 p.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 and amendment 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., May 3, 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) 444-3696; or e-mail canderson@mt.gov.
3. The proposed new rule does not replace or modify any section currently found in the Administrative Rules of Montana. The proposed new rule provides as follows:
NEW RULE I STANDARDS AND RATINGS (1) For investments in products installed on or after July 1, 2010, the following applicable specification must be met or exceeded to qualify for the credit:
(a) Exterior windows and skylights-U factor and SHGC less than or equal to 0.30;
(b) Storm windows-U factor and SHGC less than or equal to 0.30 when measured in combination with the exterior window over which it is installed;
(c) Exterior doors-U factor and SHGC less than or equal to 0.30;
(d) Storm doors-U factor and SHGC less than or equal to 0.30 when measured in combination with the exterior window over which it is installed;
(e) Split system central air conditioning-EER greater than or equal to 13 and SEER greater than or equal to 16;
(f) Package system central air conditioning-EER greater than or equal to 12 and SEER greater than or equal to 14;
(g) Split system air source heat pumps-HSPF greater than or equal to 8.5, EER greater than or equal to 12.5 and SEER greater than or equal to 15;
(h) Package system air source heat pumps-HSPF greater than or equal to 8, EER greater than or equal to 12.5 and SEER greater than or equal to 14;
(i) Natural gas or propane furnace-AFUE greater than or equal to 95;
(j) Oil furnace-AFUE greater than or equal to 90;
(k) Hot water boiler-AFUE greater than or equal to 90;
(l) Advanced main air circulating fan-no more than 2% of total energy use;
(m) Heat recovery ventilators-CSA C439-00 standard;
(n) Gas, oil, or propane water heater-energy factor greater than or equal to 0.82 or thermal efficiency of at least 90%;
(o) Electric heat pump water heater-energy factor greater than or equal to 2.0.
AUTH: 15-1-201, 15-32-105, MCA
IMP: 15-32-102, 15-32-105, 15-32-106, 15-32-109, MCA
REASONABLE NECESSITY: The department is proposing to adopt New Rule I to establish new standards to help taxpayers better determine whether an investment qualifies for the energy conservation credit. The ratings listed are the same as the ratings required to qualify for the 2010 federal energy credits. They apply to investments in existing structures as well as new construction so calculating the credit for a newly constructed home or building will be simpler.
4. The rules proposed to be amended provide as follows, stricken matter interlined, new matter underlined:
42.4.201 DEFINITIONS The following definitions apply to this subchapter:
(1) "AFUE" means annual fuel utilization efficiency rating for furnaces and boilers expressed as the ratio of energy output to energy input.
(2) "Building" means an enclosed structure with external walls and a roof that is used for commercial, industrial, or agricultural purposes, or a single or multiple dwelling, including a mobile, manufactured, or modular home. This includes single units within multi-unit complexes such as apartment complexes, condominiums, and commercial complexes.
(3) "Customer" is defined as a retail purchaser or distribution service provider.
(4) "Dwelling" means a building or unit that is habitually occupied as a residence. It does not include a guest house or vacation home that is occupied only occasionally. It does include a guest house or vacation home if they are usually occupied as someone's residence.
(5) "EER" means Energy Efficiency Ratio and is a measure of how efficiently a cooling system will operate when the outdoor temperature is at a specific level (95oF).
(4)(6) "Energy factor" is the efficiency rating for water heaters. A higher percentage indicates higher efficiency.
(5)(7) "ENERGY STAR" is a program of the U.S. Environmental Protection Agency, which identifies high efficiency products and equipment.
(6)(8) "GAMA" means Gas Appliance Manufacturers Association, which is an independent agency for rating space and water heating devices.
(7)(9) "Heat recovery ventilator" is a device or system designed and installed to provide balanced fresh air ventilation for homes and to transfer energy from the outgoing air stream to the incoming air stream.
(8)(10) "HSPF" means heating season performance factor, which is a measure of the heating efficiency of a heat pump system expressed as a ratio of Btu per watt-hour.
(9)(11) "HVI" means Home Ventilating Institute, which is a rating agency for home ventilation products.
(10)(12) "IECC" means the current International Energy Conservation Code, which is the current energy code version adopted by the state of Montana and enforced statewide as adopted by the Montana Department of Labor and Industry.
(11)(13) "Manufactured home" means a home built on a nonremovable steel chassis or frame. Each transportable unit of a manufactured home has a red certification label on the exterior section and is built according to Manufactured Home Construction and Safety Standards (HUD Code).
(14) "Mobile home" is defined in 15-1-101, MCA, and means a form of housing known as "trailers", "housetrailers", or "trailer coaches" exceeding eight feet in width or 45 feet in total length designed to be moved from one place to another by an independent power connected to them, or any trailer, housetrailer, or trailer coach up to eight feet in width or 45 feet in length used as a principal residence. The term does not include any trailer, housetrailer, or trailer coach unless it is a dwelling as defined in this rule.
(12)(15) "Modular home" means a home built in a factory setting in units, transported to the home site, placed on a permanent foundation, and joined.
(13)(16) "National Fenestration Rating Council" (NFRC) "NFRC" means National Fenestration Rating Council means which is the independent agency that rates windows, doors, and skylights.
(14)(17) "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.
(18) "SEER" means Seasonal Energy Efficiency Ratio and is a measure of equipment the total cooling of a central air conditioner or heat pump (in Btu) during the normal cooling season as compared to the total electric energy input (in watt-hours) consumed during the same period.
(19) "SHGC" refers to the solar heat gain coefficient, and is a measure of how well a window blocks heat from sunlight. The SHGC is the fraction of the heat from the sun that enters through a window.
(20) "U-factor" refers how well a product prevents heat from escaping. The rate of heat loss is indicated in terms of the U-factor of a window assembly.
AUTH: 15-1-201, 15-32-105, MCA
IMP: 15-32-105, 15-32-109, MCA
REASONABLE NECESSITY: The department is proposing to amend ARM 42.4.201 to add definitions for SEER, SHGC, and U-factor so that taxpayers can better understand the terms used when the minimum rating or standard of an item is listed. Definitions of the terms "dwelling" and "mobile home" are being added and the definition of "building" enhanced so that taxpayers can more easily determine which structures they can make improvements to that qualify for the credit.
42.4.203 CREDIT FOR ENERGY CONSERVATION INVESTMENT
(1) For new construction, items installed prior to July 1, 2010, Eligible are eligible investments for the energy conservation credit in new construction are the if the investments that meet or exceed the requirements described in ARM 42.4.206. The amount of credit can be calculated using one of the following provisions:
(a) The credit can be based on the actual additional amount expended to exceed the requirements of the IECC with the Montana amendments. For example, if a taxpayer installs an ENERGY STAR qualified furnace in a new construction project, the incremental cost of equipment and installation costs above a conventional furnace required by code qualifies for the energy conservation credit.
(b) The purchase by the first owner or construction of a new ENERGY STAR qualified site-built home can be considered the equivalent of investing $2,000 for energy conservation purposes resulting in a total credit of $500 ($2,000 * 25%). The $500 may be allocated among the individuals who purchased the home. Verification must be made by a third party accredited by the federal Environmental Protection Agency to rate homes under the ENERGY STAR program. The resale of an ENERGY STAR home does not qualify for the credit.
(c) The purchase by the first owner or construction of a new site-built home certified as attaining a Silver or Gold level under the Montana Building Industry Association Green Building program and having an ENERGY STAR heating system can be considered the equivalent of investing $2,000 for energy conservation purposes resulting in a total credit of $500 ($2,000 * 25%). The $500 may be allocated among the individuals who purchased the home. Certification must be made by a National Green Building Certification verifier accredited by the National Association of Home Builders. The resale of a Montana Building Industry Association Green Building certified home does not qualify for the credit.
(2) For new construction, items installed on or after July 1, 2010, are eligible investments for the energy conservation credit if the investments meet or exceed the specifications described in [NEW RULE I]. A taxpayer may still calculate the amount of credit using the provisions described in (1).
(2)(3) For investments in existing buildings installed prior to July 1, 2010, 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.
(4) For investments in existing buildings installed on or after July 1, 2010, a credit will be given for capital investments listed in ARM 42.4.204, which meet or exceed the specifications described in [NEW RULE I] where applicable.
(3)(5) A credit under 15-32-109, MCA, will not be allowed for an investment for which a credit under 15-32-115 or 15-32-201, MCA, is claimed.
(4)(6) A credit will not be allowed for capital investments that are directly used in a production or manufacturing processor rendering a service to customers.
(5)(7) Only investments in buildings located in Montana qualify for the energy conservation credit.
(6) See ARM 42.4.118 for filing requirements.
AUTH: 15-1-201, 15-32-105, MCA
IMP: 15-32-102, 15-32-105, 15-32-106, 15-32-109, MCA
REASONABLE NECESSITY: The department is proposing to amend ARM 42.4.203 to coordinate the language with the adoption of NEW RULE I. The ratings for the federal energy credits listed in NEW RULE I are higher than the current IECC standards so investments in items that qualify for the federal credit will clearly qualify for the Montana credit. The changes make it easier for taxpayers to determine whether the investment qualifies and how much credit they may be entitled to claim.
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 2009:
(a) insulation in existing buildings of floors, walls, ceilings, and roofs;
(b) insulation in new construction of floors, walls, ceilings, and roofs, to the extent it exceeds the requirements of the IECC with Montana amendments;
(c) insulation of heating and air conditioning pipes, insulation and sealing of heating, ventilation, and air conditioning (HVAC) ducts, and insulation of hot-water heaters and tanks;
(d) windows that result in reduction of energy consumption;
(e) storm doors;
(f) insulated exterior doors;
(g) caulking and weather stripping except when it is a standard component in the construction or maintenance of the structure such as the chinking and caulking in a log home;
(h) devices which limit the flow of hot water from shower heads and lavatories;
(i) heat recovery ventilators (HRV);
(j) glass fireplace doors installed in an existing conventional fireplace;
(k) exhaust fans used to reduce air conditioning requirements;
(l) replacement of incandescent light fixtures with light fixtures of a more efficient type such as those with electronic ballast and compact or linear fluorescent lamps and LED lights;
(m) lighting controls with cutoff switches to permit selective use of lights;
(n) programmable thermostats;
(o) replacement of an existing domestic water heater or heating or cooling system with:
(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) 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.
(3) For capital investments made on or after July 1, 2010, the items listed in (1)(a) through (p) must meet or exceed the standards as described in [NEW RULE I]. The new construction provisions described in (1)(o)(ii) and (1)(p) are not applicable to investments made on or after July 1, 2010.
AUTH: 15-1-201, 15-32-105, MCA
IMP: 15-32-102, 15-32-105, 15-32-106, 15-32-109, MCA
REASONABLE NECESSITY: The department is proposing to amend ARM 42.4.204 to add detail to the description of two items on the list of qualifying investments based on common questions from taxpayers. The changes add more precise descriptions and conform the specific items with the initial intent of the credit. The department is also proposing to amend ARM 42.2.204 to coordinate the language with the adoption of NEW RULE I.
42.4.205 CALCULATION OF THE TAX YEAR FOR CLAIMING THE ENERGY CONSERVATION CREDIT AND MULTIPLE UNITS OR INVESTORS
(1) Taxpayers are entitled to an energy conservation credit for energy conservation investments made to existing buildings and new construction. The energy conservation credit is available in the tax year that the taxpayer paid for and completed the installation of the energy conservation investments.
(2) For an existing building, an example of how the credit would be applied is:
(a) The taxpayer purchased and completed installation of an ENERGY STAR qualifying furnace in the taxpayer's home during October 2005 of year one, half of the total price of the furnace was paid for in 2005 year one and the other half in 2006 year two. The energy conservation credit is available in tax year 2005 year one only and the taxpayer is not entitled to an additional energy conservation credit for the second half payment made in 2006 year two.
(b) The taxpayer purchased a qualifying hot water heater in 2006 year one but did not have it installed until spring 2007 of year two. The energy conservation credit is available in 2007 year two only and the taxpayer can include the money expended in 2006 year one to purchase the hot water heater in calculating the credit.
(c) The taxpayer made a down payment in December 2006 of year one to have qualifying windows installed in the spring of 2007 year two. After the installation was completed in the spring, final payment was made. The energy conservation credit is available in 2007 year two only and the taxpayer can include the money expended in 2006 year one for the down payment in calculating the credit.
(3) For new construction, the energy conservation credit is available in the tax year that the construction is completed. An example of how the credit would be applied is:
(a) The taxpayer began construction of a new home in 2004 year one and finished it in 2005 year two. The taxpayer invested made investments in energy conservation measures that exceeded the 2003 International Energy Conservation Code with Montana amendments qualify for the credit according to the rules in this subchapter. The energy conservation credit is available in tax year 2005 year two only and the taxpayer is not entitled to an energy conservation credit for tax year 2004 year one even though the construction began in 2004 year one.
(4) A taxpayer who purchases a newly constructed manufactured or modular home may claim the credit if they purchase the ENERGY STAR upgrade package. The amount paid for the package is considered the qualifying expenditure for the purpose of determining the amount of credit. For example, a taxpayer who spends an additional $1,800 for an ENERGY STAR upgrade can claim a credit of $450.
(5) For multi-unit buildings such as apartment complexes and condominiums, an energy conservation credit will be allowed for each unit when it can be demonstrated that the expense was attributed to a specific unit. Examples of these expenditures are:
(a) an ENERGY STAR qualifying furnace that only serves one unit of a multi-unit building would qualify as one expenditure and one credit;
(b) an ENERGY STAR qualifying furnace that serves all units of a multi-unit building is considered only one energy conservation investment and would qualify as one expenditure and one credit; or
(c) installation of an ENERGY STAR qualifying furnace in each unit of a multi-unit building would qualify as a separate expenditure and credit for each unit.
(6) The energy conservation credit is available to all owners of a building who invest in energy conservation expenditures. Examples of this application are:
(a) A husband and wife replace windows and exterior doors with qualifying investments in their existing home for a total cost of $6,000. Each spouse is entitled to a maximum $500 energy conservation credit. ($6,000 x .25 = $1,500 with a maximum credit of $500 per individual.)
(b) Four individuals who own a commercial building replace windows, exterior doors and the heating system with qualifying investments for a total cost of $20,000. Each individual is entitled to a maximum $500 energy conservation credit. ($20,000 x .25 = $5,000 with a maximum credit of $500 for each individual.)
AUTH: 15-1-201, 15-32-105, MCA
IMP: 15-32-102, 15-32-105, 15-32-106, 15-32-109, MCA
Reasonable necessity: The department is proposing to amend ARM 42.4.205 in to remove specific years included in the examples. The examples are also being updated because ENERGY STAR products may not always qualify for the credit.
42.4.206 NEW CONSTRUCTION STANDARDS (1) For new construction, expenditures for energy-conserving items installed prior to July 1, 2010, 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 SEER 14.5, EER 12 and HSPF 8.2 or single package system - greater than or equal to SEER 14, EER 11 and HSPF 8) - reference (ENERGY STAR qualified);
(b) boilers - specification (rating of 85% AFUE or greater) - reference (ENERGY STAR qualified);
(c) central air conditioners - specification (split systems - greater than or equal to 13 SEER - single package system - greater than or equal to 12 SEER) - reference (ENERGY STAR qualified);
(d) demand or instantaneous water heaters - specifications (gas-fired instantaneous - .82 or greater energy factor and electronic ignition) - reference (GAMA directory rating certified);
(e) furnaces - specifications (rating of 90% AFUE or greater) - reference (ENERGY STAR qualified);
(f) heat recovery ventilators - specifications (CSA C439-00 standard) - reference (HVI certified product);
(g) indirect water heaters - specifications (high efficiency) - reference (minimum of two inches foam insulation);
(h) light fixtures - specifications (electronic ballast and compact or linear fluorescent lamp) - reference (ENERGY STAR qualified);
(i) skylights - specifications (skylights must have a U-factor of .60 or less and meet ENERGY STAR qualifications) - reference (National Fenestration Rating Council (NFRC) window label);
(j) thermostats - specifications (programmable thermostat) - reference (ENERGY STAR qualified); and
(k) windows and doors - specifications (windows and doors must have a U-factor of .35 or less and meet ENERGY STAR qualifications - reference (National Fenestration Rating Council (NFRC) window label.
(2) In order to qualify for energy conservation credits for new construction, energy-conserving expenditures for items installed prior to July 1, 2010, the energy-conserving expenditure must exceed the following Montana prescriptive path requirements:
(a) ceilings - R-49;
(b) crawlspace walls - R-20;
(c) exterior walls - R-21;
(d) finished basement walls - R-11;
(e) floors over unconditioned spaces - R-21;
(f) heating/cooling equipment - federal minimum standards;
(g) slab perimeter area four feet vertical or horizontal - R-13; and
(h) windows U-factor - U-.35.
AUTH: 15-32-105, MCA
IMP: 15-32-105, 15-32-109, MCA
REASONABLE NECESSITY: The department is proposing to amend ARM 42.2.206 to coordinate the language with the adoption of NEW RULE I. For investments made on or after July 1, 2010, the standards in this rule will no longer apply and the standards in NEW RULE I will apply.
42.4.207 RECORD RETENTION REQUIREMENTS (1) In order to claim the energy conservation credit, the A taxpayer claiming the credit is required to retain invoices, sales agreements, or receipts that document the work done and the equipment installed. The records should clearly state the equipment manufacturer, make and model number of any installed item or product that will determine the qualifications for the energy conservation credit.
AUTH: 15-1-201, 15-32-105, MCA
IMP: 15-32-105, 15-32-106, 15-32-109, MCA
Reasonable necessity: The department is proposing to amend ARM 42.4.207 to make the rule easier to read and understand.
5. 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) 444-3696; or e-mail canderson@mt.gov and must be received no later than May 14, 2010.
6. Cleo Anderson, Department of Revenue, Director's Office, has been designated to preside over and conduct the hearing.
7. 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.
8. 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 5 above or faxed to the office at (406) 444-3696, or may be made by completing a request form at any rules hearing held by the Department of Revenue.
9. The bill sponsor contact requirements of 2-4-302, MCA, do not apply.
/s/ Cleo Anderson /s/ Alan Peura
CLEO ANDERSON ALAN PEURA
Rule Reviewer Deputy Director of Revenue
Certified to Secretary of State April 5, 2010
