Administrative Rules of the State of Montana

BEFORE THE DEPARTMENT OF REVENUE

OF THE STATE OF MONTANA

In the matter of the proposed adoption of New Rules I through XII relating to local government tax increment financing districts (TIFD)

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NOTICE OF PUBLIC HEARING ON PROPOSED ADOPTION

TO: All Concerned Persons

1. On April 23, 2008, at 10:00 a.m., a public hearing will be held in the Director's Office (Fourth Floor) Conference Room of the Sam W. Mitchell Building, Helena, Montana, to consider the adoption 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.

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., April 10, 2008, 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 canderson@mt.gov.

3. These rules are reasonable and necessary to provide for economic development through the use of tax increment finance districts. The rules encourage the use of such districts by providing clear information on how local governments can use these districts to achieve their economic development objectives.

The information provided in these rules is especially valuable to local governments that serve less populated areas. Historically these local governments have not used tax increment financing to the same degree as other jurisdictions. In some instances this is because these local governments do not always have the technical staff available to assist them in understanding and complying with what are complex laws. These rules constitute a helpful guide or handbook to allow all local governments the ability to properly utilize tax increment financing as an effective economic development tool.

These rules facilitate the use of TIFDs by pulling the requirements of law into one comprehensive list. The rules set timelines that integrate the TIFD statutes with the requirements for certification of values in the property tax statutes. They help ensure that the department calculates the value of districts properly for the correct number of years by asking local governments to notify the Department of Revenue of issuance of bonds, the retirement of bonds, or material changes in bond issues.

These rules clarify that local governments have the authority to amend the boundaries of districts and clarify the procedures that the department will use to calculate the base year and incremental taxable values of districts when boundaries are changed.

These rules have been developed and drafted to conform with the finding of rulemaking authority described in the memo issued by the Montana Legislative Services Division to the Revenue and Transportation Interim Committee on February 7, 2008. The rules relate to the property tax operation of tax increment financing. They do not relate to the creation or administration of the local government districts that utilize tax increment financing.

4. The proposed new rules do not replace or modify any section currently found in the Administrative Rules of Montana. The proposed new rules provide as follows:

NEW RULE I DEFINITIONS The following definitions apply to this subchapter:

(1) "Secondary value-adding industry" means an industrial process that engages in the mechanical or chemical transformation of materials or substances into new products in the manner defined as manufacturing in the North American Industry Classification System Manual prepared by the United States Office of Management and Budget, and that engages in the:

(a) processing of raw materials, such as minerals, ore, oil, gas, coal, agricultural products, and forestry products; or

(b) processing of semi-finished products that are used by the industry as a raw material in further manufacturing.

(2) "Tax increment financing district (TIFD)" means the area within the external boundaries of an urban renewal area, industrial district, technology district, or aerospace transportation and technology district that:

(a) has been legally created pursuant to the provisions of Title 7, chapter 15, parts 42 and 43, MCA; and

(b) contains a provision for the use of tax increment financing.

(3) "Value-added" means an increase in the worth of the raw or semi-finished product that results from a mechanical or chemical transformation and may not be attributable to a mere increase in existing production.

AUTH: 15-1-201, MCA

IMP: 7-15-4283, MCA

REASONABLE NECESSITY: The department is proposing to adopt New Rule I to define terms used in the subchapter as they relate to economic development through the use of tax increment finance districts. In order to avoid differences of opinion regarding terms that are common to TIFDs, definitions are needed to clarify certain terms.

NEW RULE II NOTIFICATION OF THE CREATION OR AMENDMENT OF A TAX INCREMENT FINANCING DISTRICT - TIMING (1) A local government may establish a TIFD pursuant to the provisions of Title 7, chapter 15, parts 42 and 43, MCA.

(2) Pursuant to 15-10-202, MCA, the department is required to certify the taxable value of all property located within each taxing body.

(3) In order to provide the department adequate time to certify the taxable value of property located within a newly created TIFD, the department must receive notification of the creation of the TIFD and any supporting documentation required by these rules no later than February 1 of the calendar year following the creation of the TIFD.

(4) The notification required by rule must be mailed to the Department of Revenue, Legal Services Office, at P.O. Box 7701, Helena, MT 59604-7701, with a copy to the Property Assessment Division at P.O. Box 8018, Helena, MT 59604-8018.

AUTH: 15-1-201, MCA

IMP: 7-15-4282, 7-15-4284, 15-10-202, 15-10-420, MCA

REASONABLE NECESSITY: The department is proposing to adopt New Rule II to affirm the authority for local government to establish TIFDs in accordance with law. It also integrates the TIFD statutes with the requirements for certification of values in the property tax statutes. This rule also clarifies the notification requirements to the department.

NEW RULE III NEW URBAN RENEWAL TAX INCREMENT FINANCING DISTRICTS – INFORMATION REQUIRED TO ENABLE THE DEPARTMENT TO CERTIFY BASE TAXABLE VALUE (1) The department will certify the base taxable value of a newly created urban renewal TIFD if the department determines that the following information exists and has been provided to the department:

(a) a copy of the statement of blight required under 7-15-4202, MCA, including any documentation upon which the statement of blight is based;

(b) a copy of the resolution of necessity required by 7-15-4210, MCA, adopting the statement of blight. The resolution must have an effective date prior to the date on which the TIFD is created;

(d) a copy of the local government's growth policy;

(e) a copy of the local government's urban renewal plan pursuant to 7-15-4212 and 7-15-4284, MCA, containing the tax increment provision;

(f) a copy of the local government's planning board's finding that the urban renewal plan conforms with the local government's growth policy;

(g) a copy of the notice of public hearing required under 7-15-4215, MCA;

(h) a certified copy of the ordinance approving the urban renewal plan containing the tax increment provision under 7-15-4216, MCA;

(i) a certified copy of the ordinance creating the urban renewal district including the tax increment provision;

(j) the name of the TIFD; and

(k) a list of the geocodes for all real property, the assessor codes for all personal property, and a description of all centrally assessed property located within the TIFD at the time of its creation.

(2) The local government that has created the TIFD will provide the information described in (1) to the department when it notifies the department that the TIFD has been created.

AUTH: 15-1-201, MCA

IMP: 7-15-4202, 7-15-4210, 7-15-4212, 7-15-4215, 7-15-4216, 7-15-4282, 7-15-4284, MCA

REASONABLE NECESSITY: The department is proposing to adopt New Rule III to facilitate the use of TIFDs by removing confusion regarding what's required for the department to certify the base taxable value of a newly created urban renewal TIFD.

NEW RULE IV INDUSTRIAL TAX INCREMENT FINANCING DISTRICTS – INFORMATION REQUIRED TO ENABLE THE DEPARTMENT TO CERTIFY BASE TAXABLE VALUE (1) The department will certify the base taxable value of a newly created industrial TIFD if the department determines that the following information exists and has been provided to the department:

(a) a copy of the local government's finding that the property within the TIFD consists of a continuous area with an accurately described boundary;

(b) a copy of the ordinance zoning the area within the TIFD for light or heavy industrial use;

(d) a copy of the local government's finding that the property within the TIFD is not included within an existing urban renewal district;

(e) a copy of the local government's finding that the area within the TIFD is deficient in infrastructure improvement for industrial development, including any documentation upon which the finding of deficiency is based;

(f) a copy of the local government's growth policy;

(g) a copy of the notice of public hearing required under 7-15-4299, MCA;

(h) a certified copy of the ordinance approving the industrial district and the tax increment financing provision pursuant to 7-15-4284, MCA;

(i) a map representing the TIFD's boundary including a legal description of the TIFD;

(j) the name of the TIFD; and

(2) The local government that has created the TIFD will provide the information described in (1) to the department when it notifies the department that the TIFD has been created.

AUTH: 15-1-201, MCA

IMP: 7-15-4282, 7-15-4284, 7-15-4299, MCA

REASONABLE NECESSITY: The department is proposing to adopt New Rule IV to facilitate the use of TIFDs by removing confusion regarding what's required for the department to certify the base taxable value of a newly created industrial TIFD.

NEW RULE V NEW TECHNOLOGY TAX INCREMENT FINANCING DISTRICTS – INFORMATION REQUIRED TO ENABLE THE DEPARTMENT TO CERTIFY BASE TAXABLE VALUE (1) The department will certify the base taxable value of a newly created technology TIFD if the department determines that the following information exists and has been provided to the department:

(a) a copy of the comprehensive development plan required by 7-15-4295, MCA, that was adopted by the local government prior to the creation of the TIFD;

(b) a copy of the local government's finding, made prior to the creation of the TIFD, that the area is deficient in infrastructure improvements necessary for technology development;

(d) a copy of the notice of public hearing required under 7-15-4295, MCA;

(e) a copy of the ordinance zoning the area within the TIFD for use in accordance with the local government's growth policy;

(f) a copy of the local government's growth policy;

(g) a certified copy of the ordinance approving the technology district and the tax increment provision under 7-15-4216, MCA, and including:

(i) a statement that the purpose of the TIFD complies with the requirements of 7-15-4295, MCA;

(ii) a statement that the tenants will comply with the requirements of 7-15-4295, MCA;

(iii) a statement that the district has not been designed to serve the needs of a single tenant or group of nonindependent tenants; and

(iv) a statement that the TIFD does not include any property included in an urban renewal district or an industrial district;

(h) the name of the TIFD; and

(i) a list of the geocodes for all real property, the assessor codes for all personal property, and a description of all centrally assessed property located within the TIFD at the time of its creation.

(2) The local government that has created the TIFD will provide the information described in (1) to the department when it notifies the department that the TIFD has been created.

AUTH: 15-1-201, MCA

IMP: 7-15-4216, 7-15-4282, 7-15-4284, 7-15-4295, MCA

REASONABLE NECESSITY: The department is proposing to adopt New Rule V to facilitate the use of TIFDs by removing confusion regarding what's required for the department to certify the base taxable value of a newly created new technology TIFD.

NEW RULE VI NEW AEROSPACE TRANSPORTATION AND TECHNOLOGY TAX INCREMENT FINANCING DISTRICTS – INFORMATION REQUIRED TO ENABLE THE DEPARTMENT TO CERTIFY BASE TAXABLE VALUE (1) The department will certify the base taxable value of a newly created aerospace technology and transportation TIFD if the department determines that the following information exists and has been provided to the department:

(a) a map representing the TIFD's boundary including a legal description of the TIFD;

(b) a copy of the ordinance zoning the area within the TIFD for use in accordance with the local government's growth policy;

(d) a copy of the notice of public hearing required under 7-15-4296, MCA;

(e) a certified copy of the ordinance approving the technology district and the tax increment provision under 7-15-4216, MCA, and including:

(i) a statement that the TIFD does not include any property included in an urban renewal district or an industrial district; and

(ii) a statement that the purpose of the TIFD complies with the requirements of 7-15-4296, MCA;

(f) the name of the TIFD; and

(g) a list of the geocodes for all real property, the assessor codes for all personal property, and a description of all centrally assessed property located within the TIFD at the time of its creation.

(2) The local government that has created the TIFD will provide the information described in (1) to the department when it notifies the department that the TIFD has been created.

AUTH: 15-1-201, MCA

IMP: 7-15-4216, 7-15-4282, 7-15-4284, 7-15-4296, MCA

REASONABLE NECESSITY: The department is proposing to adopt New Rule VI to facilitate the use of TIFDs by removing confusion regarding what's required for the department to certify the base taxable value of a newly created new aerospace transportation and technology TIFD.

NEW RULE VII DETERMINATION OF BASE YEAR TAXABLE VALUE OF A NEWLY CREATED TIFD (1) The base year taxable value for the tax increment financing district (TIFD) will be determined as follows:

(a) If the notice or supporting documentation, or both, required by [NEW RULE III] through [NEW RULE VI] is received by the department on or before February 1 of the calendar year following the creation of a valid TIFD, the department will determine the base year taxable value of the district as of January 1 of the year in which the valid TIFD was created.

(b) If the notice or supporting documentation, or both, required by [NEW RULE III] through [NEW RULE VI] is received after February 1 of the calendar year following the creation of a valid TIFD, the department will calculate the base year taxable value of the district as of January 1 of the year in which the documentation was received. In these instances, the base year will be reported to the affected taxing jurisdictions by the first Monday in August of the calendar year following receipt of the notification.

AUTH: 15-1-201, MCA

IMP: 7-15-4284, 7-15-4285, 15-10-420, MCA

REASONABLE NECESSITY: The department is proposing to adopt New Rule VII to set timelines that integrate the determination of base taxable values in the TIFD statutes with the requirements for the certification of values in the property tax statutes. Without these timelines the department will be unable to meet the needs of local governments as they create TIFDs and issue bonds. Local government officials have indicated that examples of how the timelines will affect the determination of base taxable values, actual taxable values, and incremental taxable values would be helpful. The rule provides those examples.

NEW RULE VIII DETERMINATION AND REPORT OF BASE YEAR, ACTUAL, AND INCREMENTAL TAXABLE VALUES – TIMING (1) The base year taxable value of a newly created TIFD shall be determined pursuant to [NEW RULE VII].

(2) The actual taxable value of all property within a TIFD shall be determined as of January 1 each year.

(3) The incremental taxable value for all property within a TIFD shall be determined by deducting the base taxable value from the actual taxable value each year.

(4) The base year, actual, and incremental taxable values shall be reported to all affected taxing bodies by the first Monday of August each year when the department certifies values pursuant to 15-10-202, MCA.

AUTH: 15-1-201, MCA

IMP: 7-15-4284, 7-15-4285, 15-10-202, 15-10-420, MCA

REASONABLE NECESSITY: The department is proposing to adopt New Rule VIII because rules are reasonable and necessary to provide for economic development through the use of tax increment finance districts. This rule sets timelines that integrate the determination of base taxable values in the TIFD statutes with the requirements for the certification of values in the property tax statutes. Without these timelines the department will be unable to meet the needs of local governments as they create TIFDs and issue bonds. The rule also specifies how incremental taxable values will be determined.

NEW RULE IX NOTIFICATION OF AMENDMENT OF BOUNDARIES OR CHANGES WITHIN AN EXISTING TAX INCREMENT FINANCE DISTRICT – NEWLY TAXABLE PROPERTY (1) A local government that has amended the boundaries of or made changes within a valid TIFD pursuant to the provisions of Title 7, chapter 15, parts 42 and 43, MCA, shall report the amendment to the department in the manner described in [NEW RULE II].

(2) Property that is removed from a TIFD as a result of an amendment or change shall be considered newly taxable property pursuant to 15-10-420, MCA.

AUTH: 15-1-201, MCA

IMP: 7-15-4282, 7-15-4284, 15-10-420, MCA

REASONABLE NECESSITY: The department is proposing to adopt New Rule IX because it has not been clear whether local governments have statutory authority to amend the boundaries of existing TIFDs or make changes to valid TIFDs. The rule clarifies that local governments have the authority to amend the boundaries of or make changes to valid TIF districts, indicates how those amendments and changes are to be reported, and specifies that property removed from the TIFD as a result of an amendment or change will be newly taxable property.

NEW RULE X INFORMATION REQUIRED BY THE DEPARTMENT TO CERTIFY BASE YEAR TAXABLE VALUES OF AN AMENDED OR CHANGED TAX INCREMENT FINANCE DISTRICT (1) The department will certify the base year taxable values of an amended or changed TIFD if the department determines, as it relates to property that is added to a TIFD, that the following information exists:

(a) if the amended district is an urban renewal TIFD, the evidence required by [NEW RULE III];

(b) if the amended district is an industrial TIFD, the evidence required by [NEW RULE IV];

(d) if the amended district is an aerospace technology and transportation TIFD, the evidence required by [NEW RULE VI].

AUTH: 15-1-201, MCA

IMP: 7-15-4282, 7-15-4284, 7-15-4285, 15-10-420, MCA

REASONABLE NECESSITY: The department is proposing to adopt New Rule X to facilitate the use of TIFDs by removing confusion regarding what's required for the department to certify the base taxable value of a TIFD that has been amended or changed by a local government.

NEW RULE XI DETERMINATION OF BASE YEAR TAXABLE VALUES OF AN AMENDED TIFD – REPORTING OF BASE YEAR, ACTUAL, AND INCREMENTAL TAXABLE VALUES (1) In cases where a TIFD boundary amendment adds new property to an existing TIFD:

(a) the base year taxable value of the properties located within the original existing TIFD will not change; and

(b) the base year taxable value of the property being added to the TIFD by the boundary amendment will be calculated pursuant to [NEW RULE VII].

(2) In cases where a TIFD boundary amendment removes property from an existing TIFD:

(a) the base year taxable value of the original TIFD will not change; and

(b) the total actual taxable value of the TIFD will be reduced by the value of the property that has been amended out of the TIFD. The value of the property being amended out of the TIFD will be the actual taxable value determined by the department for ad valorem tax purposes as of January 1 of the year in which the department is notified of the amendment. An amendment that removes property from a TIFD will cause a reduction in the incremental taxable value of the TIFD.

(3) The department shall report the base year, actual, and incremental taxable values of an amended or changed TIFD to all affected taxing bodies pursuant to [NEW RULE VIII].

AUTH: 15-1-201, MCA

IMP: 7-15-4282, 7-15-4284, 7-15-4285, 15-10-420, MCA

REASONABLE NECESSITY: The department is proposing to adopt New Rule XI to specify how base taxable value, actual taxable value, and incremental values will be calculated when property is either added to or removed from a valid TIFD by local governments.

NEW RULE XII REPORTING OF ISSUANCE OF BONDS OR RETIREMENT OF BONDS (1) To allow the department to determine the value of the newly taxable property as required under 15-10-420, MCA, a local governing body that authorizes urban renewal bonds, industrial infrastructure development bonds, aerospace transportation and technology infrastructure development bonds, technology infrastructure development bonds, or refunding bonds shall, no later than February 1 of each year, provide the department with a copy of each resolution or ordinance required under 7-15-4301, MCA.

(2) A local governing body that retires any bonds secured by tax increment, shall, no later than February 1 of each year, notify the department of the retirement.

(3) The documentation required by this rule shall be mailed to the Department of Revenue Legal Services Office at P.O. Box 7701, Helena, MT 59604-7701, with a copy to the Property Assessment Division at P.O. Box 8018, Helena, MT 59604-8018.

AUTH: 15-1-201, MCA

IMP: 7-15-4282, 7-15-4284, 7-15-4286, 7-15-4290, 7-15-4301, 15-10-420, MCA

REASONABLE NECESSITY: The department is proposing to adopt New Rule XII to require that local governments notify the Department of Revenue of issuance of bonds, the retirement of bonds, or material changes in bond issues so that the department can certify the value of districts for the correct number of years.

5. Concerned persons may submit their data, views, or arguments concerning the proposed action, 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 canderson@mt.gov and must be received no later than April 29, 2008.

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

7. 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.

8. 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 5 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.

9. The bill sponsor notice requirements of 2-4-302, MCA, do not apply.

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

CLEO ANDERSON DAN R. BUCKS

Rule Reviewer Director of Revenue

Certified to Secretary of State March 17, 2008