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| Montana Administrative Register Notice 42-2-962 | No. 18 09/23/2016 | |
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BEFORE THE DEPARTMENT OF REVENUE OF THE STATE OF MONTANA
TO: All Concerned Persons
1. On October 13, 2016, at 9 a.m., the Department of Revenue will hold a public hearing in the Third Floor East Conference Room of the Sam W. Mitchell Building, located at 125 North Roberts, Helena, Montana, to consider the proposed amendment of the above-stated rules. The hearing room is most readily accessed by entering through the east doors of the building facing Sanders Street.
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 no later than 5 p.m. on October 3, 2016, to advise us of the nature of the accommodation you need. Please contact Laurie Logan, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-7905; fax (406) 444-3696; or e-mail [email protected].
3. The rules proposed to be amended provide as follows, new matter underlined, deleted matter interlined:
42.9.110 PASS-THROUGH ENTITIES – AUDIT ADJUSTMENTS (1) through (3) remain the same. (4) If the audit adjustments resulting from an audit or other review of a pass-through entity's information return affect Montana tax returns that partners, shareholders, and other owners have not filed, the department may request that the owners file tax returns. If an owner does not file a tax return, the department may estimate the owner's tax liability in accordance with (5) through (7)(a) remain the same. (b) estimate the indirect owner's tax liability in accordance with
AUTH: 15-1-201, 15-30-3312, MCA IMP:
REASON: The department proposes amending ARM 42.9.110 to correctly reference the relevant section of statute in the language and to remove an incorrect reference from the implementing section of the rule. The previous reference to 15-30-2512, MCA, refers to estimated taxes paid by the taxpayer but more properly needs to refer to the department's authority to estimate tax in 15-30-2605, MCA.
42.9.111 PASS-THROUGH ENTITIES – STATUTE OF LIMITATIONS FOR AUDIT ADJUSTMENTS (1) remains the same. (2) If a revision to a pass-through entity's information return changes the owners' distributive share of Montana source income, gain, loss, deduction, or credit or item of income, gain, loss, deduction, or credit, the department will review the owners' tax returns and determine if additional tax is due. If additional tax is due, the department may assess tax, penalties, and interest as follows: (a) if the additional tax, penalties, and interest are due on a return filed by an individual, trust, or estate, it may be assessed within: (i) five years of when the return was filed, if it pertains to a tax period beginning before January 1, 2015; or (ii) three years after the return was filed if it pertains to a tax period beginning after December 31, 2014; or (b) remains the same. (3) If a revision to a pass-through entity's composite return changes the amount of tax, penalties, and interest due on a composite return filed by the pass-through entity, the tax, penalties, and interest may be assessed within: (a) five years of when the composite return was filed (b) three years after the return was filed if it pertains to a tax period beginning after December 31, 2014. (4) through (6) remain the same.
AUTH: 15-1-201, MCA IMP: 15-30-2605, 15-30-2606, 15-30-2607, 15-30-3302, 15-30-3312, 15-31-509, MCA
REASON: The department proposes amending ARM 42.9.111 to implement House Bill 379, L. 2015, which, in part, reduced the statute of limitations of pass-through entities from five years to three years. As proposed to be amended, the rule covers periods with the previous statute of limitation and periods with the new statute of limitation. To keep it clear for taxpayers, the previous five-year statute of limitation must be kept in rule for any amended returns and audits involving periods not covered by the current three-year limitation.
42.9.203 COMPUTATION OF COMPOSITE TAX (1) remains the same. (2) (3) The composite return liability of each eligible consenting participant is calculated as follows: (a) compute the entity's composite tax ratio, used to determine the Montana portion of the tax, by: (i) calculating the entity's federal income (ii) and (iii) remain the same. (b) compute each participant's share of federal income by multiplying the entity's federal income by the ratio of the participant's distributive share of Montana source income over the entity's total Montana source income;
(d) apply 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 on each participant's adjusted share of federal income to obtain the amount of tentative tax used to determine the Montana composite tax; and
(4) Examples of the computations in (3) are as follows:
(c) Example 1c. Participant's share of adjusted federal income: 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.
(d) Example 1d. Participant's tentative tax: Using the tax rates (e) Example 1e. Participant's Montana composite tax liability: Multiply the resulting tentative tax by the composite tax ratio determined in Example 1a.
(3) remains the same, but is renumbered (5). (6) Separately stated deductions subjected to election or limitation on the participant's federal income tax return cannot be subtracted from the participant's share of the federal income for the purpose of calculating composite tax.
(5) remains the same, but is renumbered (8). (9) For the purposes of this rule, "federal income" means an entity's income from all sources as determined for federal income tax purposes.
AUTH: 15-1-201, 15-30-2620, 15-30-3312, MCA IMP: 15-30-2103, 15-30-2512, 15-30-3302, 15-30-3312, 15-31-121, MCA
REASON: The department proposes amending ARM 42.9.203 to reflect the modification in the steps that need to be taken when calculating the composite tax on the Montana pass-through returns. This modification does not change the composite tax and matches the calculation done on the pass-through returns. It is driven by practical concerns about availability of data and takes into account the possible discrepancies between allocations of share of federal income and allocation of Montana source income. As proposed to be amended, the rule continues to provide a step-by-step approach for computing the composite tax, but the steps have been expanded to remove any uncertainty about the calculation and to serve as a better guide for taxpayers. The examples in the rule are also proposed to be restructured and updated to reflect current amounts included in House Bill 359, L. 2015, which revised laws related to inflation indexing of income taxes. The department further proposes adding a definition of "federal income" for use in this rule to simplify the terminology used when referring to such income. Frequently using the complete phrase "income from all sources as determined for federal income tax purposes" throughout the rule would otherwise make it unnecessarily lengthy and cumbersome.
42.15.219 PENSION AND ANNUITY INCOME EXCLUSION (1) For tax years beginning (a) The exclusion (b) (2) remains the same. (3) When married taxpayers file separately, each spouse's exclusion and phase-out are computed independently and a spouse's exclusion begins to be phased out only when his or her federal adjusted gross income exceeds the amount allowed in (1)(a). Examples for tax years beginning (a) Jane, a single taxpayer, has federal adjusted gross income of (b) Frank and Edith, a married couple, file a joint income tax return and both receive pension and annuity income. Frank's taxable pension included in federal adjusted gross income is (c) John, a single taxpayer, has federal adjusted gross income of (d) John and Barbara, a married couple, file a joint income tax return and both report federal taxable pension income. John's federal taxable pension is $5,600 and Barbara's federal taxable pension income is $3,000. Their combined federal adjusted gross income is
AUTH: 15-30-2620, MCA IMP: 15-30-2110, MCA
REASON: The department proposes amending ARM 42.15.219 to update thresholds of pension and annuity exclusion in the rule to correspond with the modifications that occurred with the enactment of House Bill 359, L. 2015, which revised laws related to inflation indexing of income taxes. The department also proposes updating the examples in the rule to reflect the changes in threshold that will be used going forward. The department further proposes modifying the initial figures in the situations set forth in the examples in order to provide examples that fit every situation.
42.15.526 SMALL BUSINESS LIABILITY FUNDS (1) through (3) remain the same. (4) Upon termination of the independent liability fund the trustee shall file with the department a copy of the
AUTH: 15-30-2620, 15-31-501, MCA IMP: 15-30-2118, 15-30-2141, 15-31-117, 15-31-118, MCA
REASON: The department proposes amending ARM 42.15.526(4) as a matter of housekeeping to make a grammatical correction. The word federal is an adjective and therefore should not be capitalized in this situation.
4. 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: Laurie Logan, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-7905; fax (406) 444-3696; or e-mail [email protected] and must be received no later than October 27, 2016.
5. Laurie Logan, Department of Revenue, Director's Office, has been designated to preside over and conduct this hearing.
6. 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 that includes the name and e-mail or mailing address of the person to receive notices and specifies that the person wishes to receive notice regarding a particular subject matter or matters. Notices will be sent by e-mail unless a mailing preference is noted in the request. A written request may be mailed or delivered to the person in 4 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.
7. An electronic copy of this notice is available on the department's web site at revenue.mt.gov/rules. The department strives to make the electronic copy of this notice 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. While the department also strives to keep its web site accessible at all times, in some instances it may be temporarily unavailable due to system maintenance or technical problems.
8. The bill sponsor contact requirements of 2-4-302, MCA, apply and have been fulfilled. The primary sponsor of House Bill 359, Representative Ed Lieser, was contacted by letter on June 28, 2016 and subsequently contacted by letter on August 25, 2016; and the primary sponsor of House Bill 379, Representative Greg Hertz, was contacted by letter on May 6, 2016 and subsequently contacted by letter on August 25, 2016.
9. With regard to the requirements of 2-4-111, MCA, the department has determined that the amendment of the above-referenced rules will not significantly and directly impact small businesses. Documentation of the department's determination is available at revenue.mt.gov/rules or upon request from the person in 4.
/s/ Laurie Logan /s/ Mike Kadas Laurie Logan Mike Kadas Rule Reviewer Director of Revenue
Certified to the Secretary of State September 12, 2016
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A directory of state agencies is available online at http://www.mt.gov/govt/agencylisting.asp.
For questions about the organization of the ARM or this web site, contact [email protected].
