42.26.807 : AIRLINE REGULATION EXAMPLES - Administrative Rules of the State of Montana

42.26.807 AIRLINE REGULATION EXAMPLES

(1) Assume the following facts for an airline for the tax year:

(a) It has ten 747s ready for flight and in revenue service at an average per unit cost of $40,000,000 for nine of the aircraft. It rents the remaining 747 from another airline for $9,000,000 per year. At eight times rents, the latter is valued at $72,000,000 for apportionment purposes. Total 747 valuation is, therefore, $432,000,000 for property factor denominator purposes.

(b) It has 20 727s ready for flight and in revenue service at an average per unit cost of $20,000,000. Total 727 valuation is, therefore, $400,000,000 for property factor denominator purposes.

(d) It has the following annual payroll:

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Flight personnel	$ 60,000,000
Nonflight personnel	�� 40,000,000
Total	$100,000,000

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(e) From its operations, it has total receipts of $50,000,000, apportionable net income of $1,000,000 and no nonapportionable income. The total $50,000,000 is flight revenue; there is no nonflight revenue.

(f) It has the following within state X:

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(i)	10 percent of its 747 flight departures
�	(.10 x 432,000,000 = $43,200,000);
(ii)	20 percent of its 727 flight departures
�	(.20 x 400,000,000 = $80,000,000);
(iii)	5 percent of its nonflight tangible property
�	(n.t.p.) (.05 x 200,000,000 = $10,000,000); and
(iv)	15 percent of its nonflight personnel payroll
�	(.15 x 40,000,000 = $6,000,000). �

(g) State X has a corporate tax rate of 10 percent. The airline's tax liability to state X would be determined as follows:

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Property Factor:
�Numerator	�	Denominator
��43,200,000 (747s)	�	�432,000,000 (747s)
�+80,000,000 (727s)	+	�400,000,000 (727s)
�+10,000,000 (n.t.p.)	+	�200,000,000 (n.t.p.)
�133,200,000	/	1,032,000,000 = 12.91%

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Receipts Factor:
�Numerator	�	Denominator
��43,200,000 (747s)	�	�432,000,000 (747s)
�+80,000,000 (727s)	+	�400,000,000 (727s)
�123,200,000	/	832,000,000 = 14.8%

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departure ratio = 14.8%

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7,403,846 (14.8% x 50,000,000) / 50,000,000 = 14.81%

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Payroll Factor:
�Numerator	�	Denominator
�6,000,000 (nonflight)	�	40,000,000 (nonflight)
+8,880,000 (14.8% x 60,000,000 flight)	+	60,000,000 (flight)
�14,880,000	+	100,000,000 = 14.88%

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Average Ratio Equals the sum of the property, receipts, and payroll factors divided by 3.

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(12.91% + 14.81% + 14.88%) /3 = 14.20%

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Taxable Income in state X: .1420 x 1,000,000 = $142,000

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Tax Liability to state X: .10 x $142,000 = $14,200

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(2) Same facts except (1)(f) is changed to read:

(a) It has the following within state Y:

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(i)	6 percent of its 747 flight departures
�	(.06 x 432,000,000 = $25,920,000);
(ii)	31 percent of its 727 flight departures
�	(.31 x 400,000,000 = $124,000,000); and
(iii)	3 percent of its nonflight tangible property
�	(n.t.p.) x (.03 x 20,000,000 = $6,000,000); and
(iv)	7 percent of its nonflight personnel payroll
�	(.07 x 40,000,000 = $2,800,000) �

(b) State Y has a corporate tax rate of 6.5 percent. The airline's tax liability to state Y would be determined as follows:

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Property Factor:
�Numerator	�	Denominator
�� 25,920,000 (747s)	�	�� 432,000,000 (747s)
+124,000,000 (727s)	+	�� 400,000,000 (727s)
+�� 6,000,000 (n.t.p.)	+	��200,000,000 (n.t.p.)
�155,920,000	/	1,032,000,000 = 15.1085%

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Receipts Factor:
�Numerator	�	Denominator
�� 25,920,000 (747s)	�	�� 432,000,000 (747s)
+124,000,000 (727s)	+	�� 400,000,000 (727s)
�149,920,000	/	�� 832,000,000 = 18.0192%
�	�	�

departure ratio = 18.0192%

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9,009,600 (18.0192% x 50,000,000) / 50,000,000 = 18.0192 percent

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Payroll Factor:
�Numerator	�	Denominator
�� 2,800,000 (nonflight)	�	�40,000,000 (nonflight)
�+10,811,520 (18.0192% x 60,000,000 flight)	+	�60,000,000 (flight)
�� 13,611,520	/	100,000,000 = 13.6114%

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Average Ratio Equals the sum of the property, receipts, and payroll factors divided by 3.

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(15.1085% + 18.0192% + 13.6114%) / 3 = 15.5797%

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Taxable Income in state Y: .155797 x 1,000,000 = $155,797

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Tax Liability to state Y: .065 x $155,797 = $10,127

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History: 15-1-201, 15-31-313, 15-31-501, MCA; IMP, 15-1-601, 15-31-301, 15-31-302, 15-31-303, 15-31-304, 15-31-305, 15-31-306, 15-31-307, 15-31-308, 15-31-309, 15-31-310, 15-31-311, 15-31-312, MCA; NEW, 1988 MAR p. 401, Eff. 2/26/88; AMD, 1993 MAR p. 572, Eff. 4/16/93; TRANS, from 42.26.286 and AMD, 2001 MAR p. 2469, Eff. 12/21/01; AMD, 2017 MAR p. 2328, Eff. 1/1/18.