BEFORE THE DEPARTMENT OF REVENUE

OF THE STATE OF MONTANA

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TO: All Concerned Persons

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1. On December 13, 2007, at 3:00 p.m., a public hearing will be held in the Director's Office (Fourth Floor) Conference Room of the Sam W. Mitchell Building, at Helena, Montana, to consider the 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.

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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., December 5, 2007, 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 [email protected].

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3. The rules proposed to be amended provide as follows, stricken matter interlined, new matter underlined:

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42.4.3301 DEFINITIONS The following definitions apply to terms used in this subchapter:

(1) "Compensation" is defined in 15-31-903, MCA. This definition includes the Social Security wages and any other compensation reported on federal Form W-2. Reimbursed expenses, per diems, or employer paid benefits and taxes are not included in aggregate payroll unless such amounts are included as wages, tips, or other compensation in the employee's Form W-2 "Wage and Tax Statement". This does not include compensation paid to persons for contract labor, as a loan out, or extras that may be reported on a federal Form 1099-MISC.

(2) remains the same.

(3) "Film production credit" means the credits allowed by the Big Sky on the Big Screen Act, enacted by the 2005 Legislature and amended by the 2007 Legislature.

(4) "Loan outs" are resident independent contractors registered to do business in Montana. Loan outs are typically organized as a limited liability company, a corporation/, S-corporation, or a partnership having a single individual member/shareholder/partner.

(5) through (7) remain the same.

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AUTH: 15-31-911, MCA

IMP: 15-31-906, 15-31-907, 15-31-908, 15-31-911, MCA

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REASONABLE NECESSITY: The department is proposing clarification of the definition of compensation by expanding the definition. There are also housekeeping corrections.

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42.4.3303 SUBMISSION OF COSTS AND APPLICATION FOR TAX CREDIT (1) through (3) remain the same.

(4) Allowed credits shall be claimed against the tax imposed under 15-30-103, or 15-31-121, MCA, for the income year in which the production expenses or costs were incurred.

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AUTH: 15-31-911, MCA

IMP: 15-31-906, 15-31-907, 15-31-908, 15-31-911, MCA

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REASONABLE NECESSITY: The department is proposing to amend ARM 42.4.3303 to clarify the time period when the credit(s) must be claimed.

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42.4.3304 CERTIFICATION FOR EMPLOYMENT PRODUCTION TAX CREDIT (1) and (2) remain the same.

(3) If the amounts paid to Montana residents who serve as extras on a state certified production qualify as "compensation" as defined in ARM 42.4.3301, the production company may choose to include the amounts as a qualified expenditure, as provided in 15-31-908, MCA, or as compensation under the employment production tax credit outlined in 15-31-907, MCA. If the production company chooses to treat the amounts as a qualified expenditure, those amounts are not included when calculating the application fee required in 15-31-906, MCA.

(4) Unless the total compensation paid to Montana residents exceeds $30,000, excluding compensation paid for the services of extras, tThe total application fee required to be paid for a state certified production is $500.

(5) remains the same.

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AUTH: 15-31-911, MCA

IMP: 15-30-101, 15-31-906, 15-31-907, 15-31-908, MCA

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REASONABLE NECESSITY: The department is proposing to amend ARM 42.4.3304 to address the change in requirements for the application fee made by the 60th Legislature in House Bill 40,

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42.4.3305 QUALIFIED EXPENDITURES (1) through (4) remain the same.

(5) Qualified expenditures may include reimbursed expenses to the extent the original expenditure met the conditions under (2)(b), (c), and (d). The expenditure must:

(a) have occurred in Montana;

(b) was not made for goods and services obtained outside Montana; and

(c) was directly tied to the state certified production.

(6) Unsubstantiated per diem allowances, for example, $20 per day to cover gas or other incidentals, paid to employees, contract labor, or extras while working in Montana, are considered to be qualified expenditures.

(7) The credit may not be claimed unless the production company certifies, in writing, that each vendor in Montana has been paid in full for all goods and services purchased in connection with the production.

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AUTH: 15-31-911, MCA

IMP: 15-30-101, 15-31-906, 15-31-907, 15-31-908, MCA

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REASONABLE NECESSITY: The department is proposing to amend ARM 42.4.3305 to clarify what qualifies as reimbursed expenses and unsubstantiated per diem allowances and address the change in requirements for expenditures made by the 60th Legislature in House Bill 40.

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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: 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 [email protected] and must be received no later than December 21, 2007.

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5. Cleo Anderson, Department of Revenue, Director's Office, has been designated to preside over and conduct the hearing.

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6. 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.

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7. 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 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.

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8. The bill sponsor notice requirements of 2-4-302, MCA, apply and have been fulfilled. The primary bill sponsor, Representative Dave Gallik, was notified on November 6, 2007, by regular mail.

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���������������� /s/ Cleo Anderson��������������������������������� /s/ Dan R. Bucks

���������������� CLEO ANDERSON���������������������������� �DAN R. BUCKS

���������������� Rule Reviewer��������������������������������������� Director of Revenue

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Certified to Secretary of State November 13, 2007