Montana Legislature OKs Shift on Corporate Tax Calculations

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By Tripp Baltz

A bill ( H.B. 511) providing for market-based sourcing of sales in Montana for purposes of apportioning corporate income tax is on its way to Gov. Steve Bullock (D).

The measure was approved on a final vote of 32-18 in the Senate April 19. Bullock is expected to sign the bill, which would take effect Jan. 1 and apply to tax years after Dec. 31, 2017, Lee Baerlocher, administrator of the Business and Income Taxes Division at the Montana Department of Revenue, told Bloomberg BNA April 24.

The bill is designed to bring Montana’s tax laws into uniformity with the Multistate Tax Compact. It follows a growing trend toward market-based sourcing, and away from cost of performance, as a way to apportion receipts from sales of other than tangible personal property. The legislation would make receipts from sales of other than tangible personal property subject to the same law as tangible personal property.

The bill’s fiscal note estimated Montana could generate $1.5 million in additional corporate income tax revenue from the shift, based on an examination of corporate income tax returns in recent years for companies likely to be affected.

California estimated its revenue gain after making the change to market-based sourcing resulted in $100 million in additional revenue, the note said.

Lifted From Committee

The measure almost died via a 6-6 vote in the Senate Taxation Committee April 12, but a week later the full Senate voted 49-0 to “blast” it to the floor, Baerlocher said.

“We worked hard on this, and it was one of the governor’s bills,” he said. “As an active member of the Multistate Tax Commission, we’re pleased to see uniformity of tax policy across the states as to how you source your receipts.”

The bill also helps to eliminate the possibility of double taxation, he said.

The final version of the bill included a throwout provision, which attempts to identify and tax profits earned in other states but not taxed by those states. Under the provision, such profits are ignored in calculating the state’s share of total profits by throwing them out, or subtracting them from the denominator in the apportionment formula.

Objection to Throwout

The Council On State Taxation sent a letter April 5 to the Senate Taxation Committee expressing its concerns about the throwout provision, which it has rallied against in other states.

“A company’s tax liability in one state should not be measured by its tax in another state,” said COST, a Washington, D.C.-based trade association composed of about 600 multistate corporations engaged in interstate and international business. “Throwback and throwout rules also discourage investment in a state. Such rules must not be adopted and must be repealed where they presently exist.”

To contact the reporter on this story: Tripp Baltz in Denver at abaltz@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

For More Information

Text of H.B. 511 is at http://src.bna.com/ocH.

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