Montana Administrative Register Notice 42-2-910 No. 18   09/18/2014    
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In the matter of the amendment of ARM 42.22.101 and 42.22.110 implementing a Montana Supreme Court decision pertaining to centrally assessed property








TO: All Concerned Persons


1. On June 12, 2014, the Department of Revenue published MAR Notice Number 42-2-910 pertaining to the public hearing on the proposed amendment of the above-stated rules at page 1212 of the 2014 Montana Administrative Register, Issue Number 11.


2. On July 8, 2014, a public hearing was held to consider the proposed amendment. Robert Story, President of the Montana Taxpayers Association, and Dave Galt, of the Montana Petroleum Association, appeared and testified at the hearing and also provided written comments.


3. The department has amended ARM 42.22.110 as proposed.


4. Based upon the comments received and after further review, the department has amended the following rule as proposed, but with the following changes from the original proposal, new matter underlined, deleted matter interlined:


42.22.101 DEFINITIONS The following definitions apply to this chapter:

(1) through (4) remain as proposed.

(5) "Book depreciation" shall be determined by the department by using information that most accurately reflects the depreciation cost of the Montana property being assessed. This information may be gathered from documentation such as reported to the regulatory filings, agency or acquired from independently audited financial statements, or other reliable and recognized sources.

(6) through (33) remain as proposed.


5. The department has thoroughly considered the comments and testimony received. A summary of the comments received and the department's responses are as follows:


COMMENT NO. 1: Mr. Story stated that they appreciate the department amending the rules to comply with the court's decision and commented that while they believe the legislation is fairly broad, the whole process of valuing intangible things like goodwill and property were not meant to be built into the value of unit assessment. The amendments to the rules are a good first step in addressing this issue.

Mr. Story also commented about the department's use of independently audited financial statements in current practice. He stated that this practice probably should have been in the rules so that people would know how those values are derived. He added that while this is better than having nothing and the department using whatever methodology it chooses to arrive at depreciated value of equipment, their concern is whether the independently audited financial statements are actually set up for that purpose to begin with.


RESPONSE NO. 1: The department appreciates these comments and understands the Montana Taxpayers Association's concern about using the independent financial statements' book depreciation. However, the cost approach to determine fair market value was developed to use financial statement information. The cost method is a valuation standard used by financial institutions, as well as by state and local governments. The department has used financial statements in the past and has found them to be a good source of information.


COMMENT NO. 2: Mr. Story asked the department to consider wording the amendment to ARM 42.22.101(5) differently, and offered to provide suggestions for changing the language after having further discussion with department staff.

In his written comments, Mr. Story stated that upon learning the department's goal of amending the rule was to more closely reflect current practice, he would suggest amending the language in (5) to read "In determining 'book depreciation,' the department shall use information that most accurately reflects the value of the Montana property being assessed. This information may be gathered from documentation such as regulatory filings, independently audited financial statements, or other pertinent information voluntarily provided by the taxpayer."

Mr. Galt stated the Montana Petroleum Association's (MPA) concerns were similar to those being raised at the hearing. In his written comments, he stated that the MPA appreciates the opportunity to offer its comments and that the members have given this considerable thought. For those to whom this rule applies, the general belief is that current practice has been working but they do have some concern about the department's proposed addition of the language "or acquired from independently audited financial statements" in (5).

In reference to statements made by department staff at the public hearing regarding the current language in the rule not reflecting the spectrum of the entities this apples to, and the need for the department to find the best method to establish value, Mr. Galt commented that the MPA does not want to see the process getting more difficult and requiring more time to provide than it does already.

Mr. Galt noted the department's willingness to accept alternative language suggestions, provided it would accomplish the stated goal of applying to non-regulated facilities, and stated that therefore the MPA supports the comment from the Montana Taxpayers Association and he provided the same language revision for the department to consider for defining book depreciation.


RESPONSE NO. 2: The department appreciates these comments and finds the suggested language revisions for the definition of book depreciation helpful and acceptable. 

In making the further amendments, the department did not want to limit the use of good information to only that voluntarily provided by the taxpayer. Therefore, the rule has been further amended to incorporate a slightly modified version of the suggested language.




/s/ Laurie Logan                                           /s/ Mike Kadas

Laurie Logan                                               Mike Kadas

Rule Reviewer                                             Director of Revenue



Certified to the Secretary of State September 8, 2014.



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