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Montana Administrative Register Notice 42-2-827 No. 7   04/15/2010    
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BEFORE THE DEPARTMENT OF REVENUE

OF THE STATE OF MONTANA

 

In the matter of the adoption of New Rule I, amendment of ARM 42.4.104, 42.4.105, 42.4.110, 42.4.118, 42.4.4101, 42.4.4105, 42.4.4106, 42.4.4107, 42.4.4108, 42.4.4109, 42.4.4112, 42.4.4114, and 42.4.4115, and repeal of ARM 42.4.106, 42.4.4102, 42.4.4103, 42.4.4104, 42.4.4111, and 42.4.4113, relating to individual energy tax credits

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NOTICE OF PUBLIC HEARING ON PROPOSED ADOPTION, AMENDMENT, AND REPEAL

 

TO:  All Concerned Persons

 

1.  On May 10, 2010, at 2:30 p.m., a public hearing will be held in the Third Floor Reception Area Conference Room of the Sam W. Mitchell Building, at Helena, Montana, to consider the adoption, amendment, and repeal 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., May 3, 2010, 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.  The proposed new rule does not replace or modify any section currently found in the Administrative Rules of Montana.  The proposed new rule provides as follows:

 

NEW RULE I  INDIVIDUAL ENERGY-RELATED TAX BENEFITS  (1)  A resident individual who installs an alternative energy system that uses recognized nonfossil fuels to provide heat in their principal residence is allowed a credit for up to $500 of the cost against their individual income tax liability.  If the credit exceeds their tax liability, it is not refundable, but may be carried forward for four years.

            (a)  ARM 42.4.104 describes systems that qualify for the credit.  ARM 42.4.105 addresses standard components of conventional structures that do not qualify and the components of passive solar systems that do.

            (b)  The credit is allowed for a "low-emission wood or biomass combustion device."  For tax years beginning after 2008, the definition was expanded to include a wood burning appliance that is qualified for the phase 2 white tag under the U.S. environmental protection agency method 28 OWHH for outdoor hydronic heaters, and a wood burning appliance that uses wood pellets as its primary source of fuel without regard to any emission standard.

            (c)  Geothermal systems fall within the definition of an alternative energy system, but a separate and larger credit of up to $1,500 is allowed for part of the cost of installing a geothermal system.  Geothermal and alternative energy system credits may not be claimed for the same geothermal system or expenditures.  The geothermal credit may be claimed by a resident individual installing a geothermal system in their existing principal residence or in a new principal residence they are constructing, or by the builder constructing the new residence, but not both.

            (2)  A credit against individual income tax is also provided to resident individuals for energy conservation investments in dwellings and in buildings used for commercial, industrial, and agricultural purposes.  The credit is allowed for making some recognized energy conservation improvements to the physical attributes of existing structures, such as insulation, doors, and windows, if they meet specified energy conservation standards.  The credit is also allowed for making energy conservation improvements to water, heating, and cooling systems in existing buildings if they meet specified energy conservation standards.  The items allowed and the minimum standards are also set forth in ARM 42.4.202.  Investment in a wood burning device that does not meet the energy conserving standards in ARM 42.4.202 does not qualify for the energy conserving credit provided in 15-32-109, MCA, but may qualify for the alternative energy system credit provided in 15-32-201, MCA, and ARM 42.1.104 if it is installed to provide heat for the taxpayer's principal dwelling.

 

            AUTH:  15-1-201, 15-32-203, MCA

            IMP: 15-32-102, 15-32-109, 15-32-115, 15-32-201, 15-32-202, MCA

 

            REASONABLE NECESSITY:  The department is proposing to adopt New Rule I to help the taxpayer understand how the alternative energy credit and the energy conservation credit are different.  This rule also distinguishes the geothermal system as being available for a separate and larger credit.  The department intends to place this new rule in Title 42, chapter 4, subchapter 1.

 

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

 

42.4.104  ENERGY GENERATING SYSTEMS INSTALLED TO EXISTING STRUCTURES  (1)  For energy generating systems installed to existing structures and not integral to the structure's original construction, the energy generating system must be one that fits the description in 15-32-102, MCA, and one that is either generally recognized as a nonfossil energy generating system (recognized by the Department of Environmental Quality or the alternative energy industry) or one that the applicant can demonstrate is energy generating.  Various tax benefits are allowed for investments in "recognized nonfossil forms of energy generation."  The term "recognized nonfossil forms of energy generation" is defined in 15-32-102, MCA, and ARM 42.4.110.  The term does not include commercial or net metering systems, which may be eligible for a separate credit as described in subchapter 41 of this chapter.  In this rule, the term "alternative energy generating systems" is used generically to describe all of the recognized nonfossil forms of energy generation listed in ARM 42.4.110.

(2)  Systems determined to be acceptable include, but are not limited, to the following:

(a)  Solar greenhouses, sun porches, and like structures that are properly situated, constructed, and ducted to the buildings for which they provide energy to be reasonably considered a complete or supplementary energy source for that building.

(b)  Solar collectors with systems for providing energy to existing structures (example:  solar energy panels).

(c)  Components of a structure that have been altered for energy collection, storage, and/or distribution to benefit the rest of the structure.  An example would be enclosed porches with the addition of triple glazed windows.  The value added by the triple glazed windows is exempt.

(d)  Stoves or furnaces, or catalytic converters added to stoves or furnaces which burn wood or other nonfossil biomass and which have an emission rate of less than six grams per hour.

(2)  The tax benefits for installing an alternative energy generating system are:

(a)  a credit against their individual income tax liability to resident individuals who install the generating system to provide heat for their principal dwelling (equal to the cost of the system, including installation costs, less grants received, not to exceed $500) as provided in 15-32-201, MCA;

(b)  if the system uses a "low emission wood or biomass combustion device" as defined in 15-32-102, MCA, and ARM 42.4.110, that a resident individual installs to provide heat for their principal dwelling, a credit against their individual income tax equal to the cost of the system, including installation, not to exceed $500, as provided in 15-32-201, MCA;

(c)  if the energy generating system is a geothermal system that transfers energy from the ground by way of a closed loop or from ground water by way of an open loop that a resident individual installs in their principal dwelling to heat or cool the dwelling, a credit against their individual income tax equal to a portion of the installation costs of the system, not to exceed $1,500, as provided in 15-32-115, MCA;

(d)  if the energy generating system is a geothermal system described in subsection (2)(c), that is installed by a builder constructing a new residence to heat or cool the dwelling, a credit against the builder's individual or corporation license tax liability, as applicable, equal to a portion of the installation costs of the system, not to exceed $1,500, as provided in 15-32-115, MCA;

(e)  a property tax exemption for a portion of the appraised value of a capital investment in the alternative energy generating system for ten years after installation, as described in 15-6-224, MCA, and ARM 42.19.1104 (the system may be installed in a residential dwelling or a commercial structure); and

(f)  a property tax exemption for machinery and equipment used in qualifying small electric generating systems that are powered by an alternative renewable energy source, as described in 15-6-225, MCA, and ARM 42.4.4105.

(3)  Energy generating systems which that are standard components of conventional structures do not qualify for the property tax exemption provided in 15-6-224, MCA, or the income tax alternative energy system credit provided in 15-32-201, MCA.  ARM 42.4.110 defines standard components.

(a)  Windows installed in excess of "double-glazing."

(b)  Thermal collection masses such as brick, stonework, and other types that were not present in the original structure and were not installed for a purpose other than energy storage.

(c)  Energy collection, generation, and distribution equipment related solely to recognized nonfossil energy generation systems.

(4)  To qualify for the property tax exemption provided in 15-6-224, MCA, or the alternative energy system credit provided in 15-32-201, the predominant use of the alternative energy system must be energy generation.  The predominant use of an applicant's a system will be determined as other than is not energy generating if it possesses any two of the following characteristics:

(a)  It it is a structure that will be occupied more than four hours in a day.;

(b)  It it is a structure that serves as a regularly used entry way to the building for which it provides energy.;

(c)  It it is a structure that receives heat from a source other than the energy it generates.;

(d)  It it  is a structure that contains more space than is reasonably necessary for energy collection, generation, and distribution (about 200 to 230 sq. ft. to provide heat to a building with at least 1,000 sq. ft. of living area).; or

(e)  It it is part of the living area of the structure for which it provides energy.

(5)  In determining the amount of property tax exemption and the calculation of the income tax credit for energy generating systems installed to existing structure, the following criteria must be met:

(a)  The system must qualify for the property tax exemption and the income tax credit.

(b)  The system description should be recorded on the property diagram located on the appraisal record card for property tax exemption purposes.

(c)  No value for the system should be recorded on the appraisal record card for the property tax exemption.

(6)  The property tax exemption will apply by excluding the energy system from valuation for a period as determined in ARM 42.19.1104.  Meeting the minimum system standards imposed to obtain a federal tax credit for solar energy systems, including solar water heating and photovoltaic systems, or for geothermal, wind energy, or fuel cell systems, is not a condition of qualifying for the Montana alternative energy system or geothermal system credits.

(6)  The credits against individual income tax liability described in (2)(a) and (2)(b) are claimed on form ENRG-B, Alternative Energy System Credit.  The credits for the geothermal systems described in (2)(c) and (2)(d) are claimed on form ENRG-A, Geothermal System Credit.

 

AUTH:  15-1-201, 15-32-105, 15-32-203, MCA

IMP: 15-6-201, 15-6-224, 15-6-225, 15-32-102, 15-32-105, 15-32-115, 15-32-201, 15-32-202, MCA

 

REASONABLE NECESSITY: The department is proposing to amend ARM 42.4.104 to implement legislative changes set forth in House Bill 262, (Ch. 334, L. 2009).  The rule has been reorganized to enhance understanding of the credits and to point the taxpayer to the statute and rules that cover the property tax exemptions for alternative energy generating systems.  The amendments are also necessary to explain clearly which tax benefits apply to alternative energy generation systems and the forms and procedures for claiming them.  The implementing citation for the property tax exemption was deleted because 15-6-224 and 15-6-225, MCA, not 15-6-201, MCA, provide for the property tax exemptions for certain alternative energy properties.  The implementation citation for geothermal was added (15-32-115, MCA) because it is a form of an alternative energy generation for which a credit is provided to certain individuals and builders.  The implementation cite for establishing the necessary elements of the definition of a passive solar system, including the defining standard components of conventional buildings (15-32-105, MCA), was added because this rule implements that provision.  Requirements for the property tax exemption are deleted because they are included in ARM 42.19.1104.

 

            42.4.105  ENERGY GENERATING SYSTEMS INTEGRAL TO A STRUCTURE'S ORIGINAL CONSTRUCTION STANDARD COMPONENTS AND PASSIVE SOLAR SYSTEMS  (1)  For energy generating systems that are integral to a structure's original construction, the energy generating system must be one that fits the description in 15-32-102, MCA, and one that is either generally recognized as a nonfossil energy generating system (recognized by the Department of Environmental Quality or the alternative energy industry) or one that the applicant can demonstrate is energy generating.  Energy generating systems or their components that are standard components of conventional buildings do not qualify for the alternative energy system credit.  The department is authorized to adopt rules defining standard components of conventional buildings and to establish other necessary elements of passive solar systems.

(2)  Systems that have been determined to be acceptable are:

(a)  "Envelope house" using a recognized nonfossil form of energy generation.

(b)  Structures with energy systems qualifying under ARM 42.4.104 which have been installed as part of the original construction, such as solar greenhouses.  Passive solar energy systems, or the components of those systems that have been determined to be acceptable include:

(a)  solar greenhouses, sun porches, and like structures that are properly situated, constructed, and ducted to the building for which they provide energy to be reasonably considered a complete or supplementary energy source for that building;

(b)  components of a building that have been altered for energy collection, storage, or distribution to benefit the rest of the building, such as the addition of triple glazed windows to enclosed porches;

(c)  windows installed in excess of "double-glazing;"

(d)  thermal collection masses such as brick, stonework, and other types that were not present in the original structure and were not installed for a purpose other than energy storage; and

(e)  the components of an envelope house necessary for energy generation and distribution in the "envelope house," such as the "envelope" area devoted solely to energy collection, storage, and distribution.

(3)  Energy generating systems which are components of conventional structures do not qualify for the property tax exemption or the income tax credit.

(4)  Components recognized as nonstandard are:

(a)  The components necessary for energy generation and distribution in an "envelope house," such as the "envelope" area devoted solely to energy collection, storage, and distribution.

(b)  Components  as described in ARM 42.4.104.

(5)  The predominant use of an applicant's system will be determined as other than energy generating if it does not meet the requirements described in ARM 42.4.104.

(6)  In determining the amount of property tax exemption and the calculation of the income tax credit for energy generating systems that are integral to a structure's original construction, the following criteria must be met:

(a)  The system must qualify for the property tax exemption and the income tax credit.

(b)  The size, quality, grade, condition, and other characteristics of the structure should be determined and the structure valued as a conventional building with the energy system excluded from the appraisal.

(c)  The energy components should be recorded on the property diagram on the appraisal record card for property tax exemption purposes.

(d)  A notation should be made on the appraisal record card that property tax exemption for the energy generating portion of the system has been applied.

            (7)  The property tax exemption will apply by excluding the energy system from valuation for a period as determined in ARM 42.19.1104.

 

AUTH:  15-1-201, 15-32-105, 15-32-203, MCA

IMP: 15-6-201, 15-32-102, 15-32-105, 15-32-201, 15-32-202, MCA

 

            REASONABLE NECESSITY: The department is proposing to amend ARM 42.4.105 to improve readability and public understanding of the rule.  No substantive changes have been made to this rule.

            An authorization cite for the limitations on new construction and an implementation cite for this credit have been added.

 

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

(1)  "EPA" means the United States Environmental Protection Agency.

(2)  "Low emission wood or biomass devise" means:

(a)  a wood-burning appliance certified as meeting EPA standards of performance for new residential wood heaters in 40 C.F.R. 60.533;

(b)  a wood-burning out-door hydronic heater that qualifies for the EPA's phase 2 white tag (meets the EPA's Phase 2 emission levels) under EPA test method 28 OWHH;

(c)  a masonry heater constructed or installed in compliance with the requirements for masonry heaters in the International Residential Code of One- and Two-Family Dwellings; and

(d)  an appliance that uses wood pellets as its primary source of fuel, regardless of the level of emissions.

(3)  "Passive solar system" is defined in 15-32-203, MCA, and means a direct thermal energy system that uses the structure of the building and its operable components to provide heating or cooling during the appropriate times of the year by using the climate resources available at site.

(4)  "Principal dwelling" means an individual's main home and excludes second homes, vacation or recreational property, and rentals.

(5)  "Recognized nonfossil forms of energy generation" is defined in 15-32-102, MCA, and means:

(a)  a system that captures energy for use or converts energy into usable sources using:

(i)  solar energy (including a passive solar system);

(ii)  wind;

(iii)  solid waste;

(iv)  decomposition of organic wastes;

(v)  geothermal;

(vi)  fuel cells that do not require hydrocarbon fuel;

(vii)  a low emission wood or biomass device; and

(viii)  small hydropower plants under one megawatt;

(b)  a system that produces electric power from biomass or solid wood wastes; and

(c)  a system that uses water power by means of an impoundment that is not over 20 acres in surface area.

(6)  "Standard components of conventional structures" are those structures that are generally necessary for structural support, shelter, ventilation, temperature control, lighting, or maintenance of the occupant's regular life style.

 

AUTH:  15-1-201, 15-32-203, MCA

IMP:  15-6-201, 15-32-102, 15-32-115, 15-32-201, 15-32-202, MCA

 

REASONABLE NECESSITY: The department is proposing to amend ARM 42.4.110 to implement legislative changes set forth in HB 262, (Ch. 334, L. 2009), and to expand the definitions that apply to the recognized nonfossil forms of energy generation and dwellings for which an individual income tax credit is allowed.

The implementation cite that refers to entities exempt from property tax has been removed.  An implementation cite for the geothermal credit has been added.

 

42.4.118  ENERGY AND CONSERVATION MULTIPLE INVESTORS CLAIMING THE ALTERNATIVE ENERGY SYSTEM INDIVIDUAL INCOME TAX CREDITS  (1)  A Montana individual income tax credit is allowed by filing an Individual Income Tax Return and the appropriate supplemental forms developed by the department.  The return and supplemental forms must be filed by the 15th day of the fourth month following the close of the taxpayer's tax year and mailed to the Department of Revenue, P.O. Box 5805, Helena, Montana 59604-5805.

(a)  To qualify for the geothermal energy system credit allowed under 15-32-115, MCA, a taxpayer must file form ENRG A providing information as prescribed on the form at the time the Montana Individual Income Tax Return is filed.

(b)  To qualify for the alternative energy system credit using a recognized nonfossil form of energy generation or through the installation of a low-emission wood or biomass combustion device under 15-32-201, MCA, a taxpayer must file form ENRG-B providing information as prescribed on the form at the time the Montana Individual Income Tax Return is filed.

(c)  If more than one qualifying individual invests in a qualifying alternative energy system under 15-32-201, MCA, each may claim the credit provided the total of the credits claimed by all the individuals does not exceed the amount spent.  For example, if a married couple invests $1,200 in a qualifying wood stove, they can each claim $500.  However, if the same couple invests only $800 in a qualifying wood stove, the combined amount claimed cannot exceed $800.

 

AUTH:  15-1-201, 15-32-203, MCA

IMP: 15-32-115, 15-32-201

 

REASONABLE NECESSITY:  The department is proposing to amend ARM 42.4.118 because instructions on how to claim the credits is being added to ARM 42.4.104.

 

42.4.4101  ALTERNATIVE ENERGY PRODUCTION CREDIT DEFINITIONS

The following definitions apply to this subchapter:

(1)  "Appropriate time period" as referenced in 15-32-403, MCA, is defined as a one-year period beginning January 1 and ending December 31.  "Alternative renewable energy source" is defined in 15-6-225, MCA, and means an inexhaustible source of energy that is not in general commercial use and specifically includes:

(a)  solar, wind, and geothermal energy;

(b)  the conversion of biomass;

(c)  fuel cells that do not require hydrocarbon fuel;

(d)  small hydroelectric generators producing less than one megawatt of electricity; and

(e)  methane from solid waste.

(2)  "Customer" is defined as a retail purchase or distribution service provider.  "Commercial system" means a depreciable system that generates, by means of an alternative renewable energy source, electricity for the purpose of sale and includes the generating equipment, safety devices and storage components, transmission lines needed to connect with existing transmission facilities, and transmission lines needed to connect directly to the purchaser of the electricity when no other transmission facilities are available.

(3)  "Net metering system" is defined in 69-8-103, MCA, and means a depreciable electrical energy generating facility with a generating capacity of 50 kilowatts or less that:

(a)  is located on a customer-generator's premises;

(b)  uses solar, wind, or hydropower as its fuel;

(c)  operates in parallel with a public or cooperative utility's distribution facilities; and

(d)  is intended primarily to offset part or all of the customer-generator's needs for electricity.

(3)(4)  "Placed in service" as referenced in 15-32-404, MCA, shall begin when the new industry endeavor begins commercial operation. means the tax year the commercial system or net metering system is placed in a condition or state of readiness to generate electricity by means of an alternative renewable energy source.

 

          AUTH:  15-1-201, 15-30-305, 15-30-2620, 15-31-501, 15-32-105, 15-32-407, MCA

          IMP: 15-30-304, 15-32-109, 15-32-402, 15-32-404, 15-35-103, MCA

 

REASONABLE NECESSITY:  The department is proposing to amend ARM 42.4.4101 to define the terms used to describe the two categories of systems that are, since 2001, eligible for the alternative energy production tax credit (commercial and net metering systems).

In addition, two obsolete definitions have been deleted.  The definitions relate to section 15-32-403, MCA, which has been repealed and ARM 42.4.4102, which is being repealed in this notice.

The department is proposing to amend ARM 42.4.4101 to update the authority and implementing citations to reflect the recodification of Title 15, chapter 30 in HB 24, (Ch.147, L. 2009), to include the corporation license tax rule-making authority and the specific authority for this credit, and to remove incorrect cites to provisions related to the energy conservation credit and the coal severance tax.

The implementation cites are being amended to remove incorrect references to the energy conservation credit, the individual income tax requirement of providing federal tax returns, and the coal severance tax.  An implementing cite has been added to reflect the substantive changes made to the rule.

 

            42.4.4105  ALTERNATE RENEWABLE ENERGY GENERATION FACILITIES PROPERTY TAX EXEMPTION - LESS THAN ONE MEGAWATT  (1) and (2) remain the same.

 

AUTH: 15-1-201, 15-1-217, MCA

IMP: 15-6-225, 15-31-501, MCA

 

            REASONABLE NECESSITY:  The department is proposing to amend ARM 42.4.4105 to help differentiate between the property tax incentives and the income tax incentives in this subchapter.  In addition, an incorrect implementation cite for corporation license tax has been removed.

 

            42.4.4106  APPEAL RIGHTS  (1)  For energy-related property tax exemptions or property tax rate reductions, an applicant may appeal the department's decision to the State Tax Appeal Board within 30 days of receiving notice of denial from the department.

            (2)  For energy-related income tax or reduced tax rate credits, an applicant may appeal the department's decision to the Office of Dispute Resolution in accordance with ARM 42.2.311 through 42.2.326 within 30 days of receiving notice from the department.

 

            AUTH: 15-1-201, MCA

            IMP: 15-1-211, 15-2-302, 15-31-501, MCA

 

            REASONABLE NECESSITY:  The department is proposing to amend ARM 42.4.4106 to remove the reference to a reduced tax rate credit, which does not exist under the current statute, and to distinguish between property tax incentives and income tax incentives in this subchapter.

 

            42.4.4107  COMMERCIAL USE AND OTHER REQUIREMENTS FOR COMMERCIAL AND NET METERING SYSTEMS ELIGIBLE FOR THE INCOME TAX CREDIT  (1)  With regard to 15-32-404, MCA, the investment must be made in certain depreciable property qualifying under section 38 of the IRC of 1986, as amended, for a commercial system or a net metering system, as defined in 69-8-103, MCA.  The credit against individual income and corporation license taxes provided in 15-32-402, MCA, is limited to 35% of the eligible costs for investments in depreciable commercial systems and net metering systems.  Property placed in service for personal use does not qualify for this credit, but may qualify for the alternative energy system credit provided in 15-32-201, MCA, and ARM 42.4.104.

            (2)  The credit may not be claimed against taxes generally, but can only be applied against taxes due as a result of Montana taxable or net income produced by certain manufacturing plants, energy sales to new or expanded business facilities, or the alternative energy generating equipment itself.  The determination of this income and associated tax is made on form AEPC, Alternative Energy Production Credit.  Examples of qualification for the credit are:

            (a)  Company A manufactures windmills in Montana.  Company A invests in and installs windmills to supplement the electricity needs of its manufacturing plant.  Company A can claim the credit to offset taxes on income from sale of the windmills.

            (b)  Company B invests in a windmill farm.  Company C is a new manufacturing plant in Montana.  Company B enters into a direct sales contract to sell electricity to Company C.  Company B is eligible to claim the credit to offset taxes on income from the sale of electricity to Company C.

            (c)  Company D invests in a windmill farm.  Company D sells the electricity generated by its windmill farm to the power grid.  The credit is available for Company D to offset taxes on income from the sale of the electricity.

            (3)  The alternative energy production credit is not available to offset taxes on income from new or expanded business facilities.  The following example describes nonqualification for the credit:

            (a)  Company E invests in a new business facility in Montana.  Company E installs a windmill that is connected to a net metering system.  The windmill provides energy for the new business facility.  The credit is not available for Company E to offset taxes on income from the operations of the new business facility.

 

            AUTH: 15-30-305, 15-30-2620, 15-31-501, 15-32-407, MCA

            IMP: 15-31-501, 15-32-402, 15-32-403, 15-32-404, 15-32-406 69-8-103, MCA

 

            REASONABLE NECESSITY:  The department is proposing to amend ARM 42.4.4107 to give taxpayers a summary and examples of the income tax credit and its limitations according to the language in the statute.  The department has had several questions about the circumstances described in example (3)(a) in recent months.  The wording of the 15-32-402(1)(b), on first reading seems to imply that the credit is available to offset income from a new or expanded business.  However, careful reading of the statute clearly shows that the income available for offset is from the sales of energy to the new or expanded business, as described in Example (2)(b).

            The authority citations are being updated to reflect the recodification of Title 15, chapter 30 in HB 24, (Ch. 147, L. 2009).  The implementation citations are being amended to remove an incorrect reference to the corporation license tax rule-making authorization and a repealed statute, and they are being updated to include the income tax allocation code section because the rule is being substantively expanded to address the requirements for claiming the credit.

 

            42.4.4108  PROPERTY TAX EXEMPTION - NONCOMMERCIAL ELECTRICAL GENERATION MACHINERY AND EQUIPMENT  (1) and (2) remain the same.

 

            AUTH:  15-1-201, MCA

            IMP:  15-6-225, 15-6-226, 15-31-501, 75-2-211, 75-2-215, MCA

           

            REASONABLE NECESSITY:  The department is proposing to amend ARM 42.4.4108 to change the implementing cite to correct the statute that provides the exemption because 15-6-226, MCA, was repealed in 2001.  Sections 75-2-211, and 75-2-215, MCA apply to air quality standards.

 

            42.4.4109  WIND ALTERNATIVE ENERGY INCOME TAX CREDITS FOR GENERATION FACILITIES LOCATED WITHIN EXTERIOR BOUNDARIES OF A MONTANA INDIAN RESERVATION - TRIBAL EMPLOYMENT AGREEMENT

            (1)  To qualify for the 15-year carry-forward provision authorized in 15-32-404, MCA, for investing in a five megawatt or larger commercial system located within the exterior boundaries of a Montana Indian reservation, a copy of the signed agreement with the tribal government of the reservation must be attached to the applicable tax return filed for the first taxable period for which the credit is reported.

            (2)  remains the same.

 

            AUTH:  15-1-201, 15-30-2620, 15-31-501, 15-32-407, MCA

            IMP:  15-31-501, 15-32-402, 15-32-403, 15-32-404, MCA

 

            REASONABLE NECESSITY:  The department is proposing to amend ARM 42.4.4109 to change the title of the rule to inform taxpayers about the 2001 amendment to 15-32-402, MCA, which expanded the credit to apply to systems that produce energy from "alternative energy sources" rather than "wind power", and to define this as an income tax incentive.  The 2001 amendment also allows for the extension of the credit carryforward under certain circumstances and the change to the rule describes those conditions.

            The authorization statutes have been updated to add rulemaking authority for individual income tax and corporation license tax.  The implementing cite has been changed to correctly reflect the repeal of 15-32-403 and to delete the implementing cite for corporation license tax.

 

            42.4.4112  RECORDS REQUIRED - AUDIT  (1)  Taxpayers shall maintain records necessary to support the application for tax exemption, reduced tax rate, or their entitlement to and qualification for the property tax exemption, property tax abatement, or income tax credit.

            (2)  Such For the Alternative Energy Production Credit, such records shall must include: specified documentation set forth in ARM 42.4.4104.

            (a)  if the alternative energy renewable source is a small hydroelectric generator producing less than one megawatt of electricity or the commercial system is a five megawatt or larger system located within the exterior boundaries of a Montana Indian reservation, source documents detailing the total capacity of the system;

            (b)  total investment in the commercial or net metering system;

            (c)  gross revenues associated with the commercial or net metering system;

            (d)  expenses associated with the commercial or net metering system; and

            (e)  if the alternative energy equipment supplies the basic energy needed to a new or expanded business facility as referenced in 15-32-402(1)(b), MCA, a copy of the direct sales contract.

            (3)  The records shall be maintained by the taxpayer for the appropriate statutory period of time that the property tax exemption, reduced tax rate, property tax abatement, or income tax credit may be received by the taxpayer, plus one year.  Such records shall be subject to audit by the department at any time during the period to determine whether the provisions of the contract are being met.

 

            AUTH: 15-1-201, 15-30-305, 15-30-2620, 15-31-501, 15-32-407, MCA

            IMP:  15-24-3001, 15-31-501, 15-32-403, 15-35-103, 15-32-402, 15-32-404, 15-32-405, 15-32-406, MCA

 

            REASONABLE NECESSITY:  The department is proposing to amend ARM 42.4.4112 to reflect that this rule does not include the Electrical Generation and Transmission Facility benefits outlined in 42.4.4102 and 42.4.4104 because 15-24-3001, MCA is allowed only for facilities constructed before January 1, 2006, and no facilities are currently eligible for the exemption.  Rules 42.4.4102 and 42.4.4104 are being repealed in this notice.

            The rule expands the language to describe the types of incentives available as related either to property tax or to income tax.

            In order to prevent any unanticipated problems for the taxpayer, the changes provide the taxpayer information about the types of records that will be needed during an audit of the Alternative Energy Production Credit.  Corrections were also made to the authorization and implementation citations.

 

            42.4.4114  ENERGY PRODUCTION OR DEVELOPMENT - PROPERTY TAX ABATEMENT ELIGIBILITY FOR NEW INVESTMENT IN THE CONVERSION, TRANSPORT, MANUFACTURE, RESEARCH, AND DEVELOPMENT OF RENEWABLE ENERGY, CLEAN COAL ENERGY, AND CARBON DIOXIDE EQUIPMENT AND FACILITIES  (1)  through (6) remain the same.

 

AUTH: 15-24-3116, MCA

IMP: 15-6-141, 15-6-157, 15-6-158, 15-6-159, 15-24-3101, 15-24-3102, 15-24-3111, 15-24-3112, 15-24-3116, MCA

 

            REASONABLE NECESSITY:  The department is proposing to amend ARM 42.4.4114 to change title and distinguish between property tax incentives and income tax incentives in this subchapter.

 

            42.4.4115  PROPERTY TAX EXEMPTION FOR LAND ADJACENT TO TRANSMISSION LINE RIGHT-OF-WAY OR EASEMENT  (1) through (5) remain the same.

 

AUTH: 15-24-3116, MCA

IMP: 2-15-1763, 15-6-229, MCA

 

            REASONABLE NECESSITY:  The department is proposing to amend ARM 42.4.4115 to change title and to distinguish between property tax incentives and income tax incentives in this subchapter.

 

5.  The department proposes to repeal the following rules:

 

42.4.106  OTHER ENERGY GENERATING SYSTEMS which can be found on page 42-425 of the Administrative Rules of Montana.

 

AUTH: 15-1-201, 15-32-203, MCA

IMP: 15-6-201, 15-32-201, 15-32-202, MCA

 

            REASONABLE NECESSITY:  The department is proposing to repeal ARM 42.4.106 because this rule's content is being added to 42.4.104 and 42.4.105.

 

42.4.4102  ELECTRICAL GENERATION AND TRANSMISSION FACILITY - QUALIFICATION AND PUBLICATION which can be found on page 42-641 of the Administrative Rules of Montana.

 

             AUTH: 15-1-201, 15-30-305, 15-31-501, 15-32-407, MCA

             IMP: 15-24-3001, 15-32-403, 15-35-103, MCA

 

REASONABLE NECESSITY:  The department is proposing to repeal ARM 42.4.4102 because the property tax exemption provided in 15-24-3001, MCA, is allowed only for facilities constructed before January 1, 2006, and no tax credit or reduced tax rate applies to these facilities.  ARM 42.4.4107 governs the credit for commercial and net metering systems that generate electricity using alternative energy sources.

 

42.4.4103  ELECTRICAL GENERATION AND TRANSMISSION FACILITY - REPORTING which can be found on page 42-642 of the Administrative Rules of Montana.

 

            AUTH: 15-1-201, 15-30-305, 15-31-501, 15-32-407, MCA

            IMP: 15-24-3001, 15-32-403, 15-35-103, MCA

 

REASONABLE NECESSITY:  The department is proposing to repeal ARM 42.4.4103 because the property tax exemption provided in 15-24-3001, MCA, is allowed only for facilities constructed before January 1, 2006, and no tax credit or reduced tax rate applies to these facilities.  ARM 42.4.4107 governs the credit for commercial and net metering systems that generate electricity using alternative energy sources.

 

42.4.4104  ELECTRICAL GENERATION AND TRANSMISSION FACILITY - VERIFICATION which can be found on page 42-642 of the Administrative Rules of Montana.

 

            AUTH: 15-1-201, 15-30-305, 15-31-501, 15-32-407, MCA

            IMP: 15-24-3001, 15-32-4003, 15-35-103, MCA

 

REASONABLE NECESSITY:  The department is proposing to repeal ARM 42.4.4104 because the property tax exemption provided in 15-24-3001, MCA, is allowed only for facilities constructed before January 1, 2006, and no tax credit or reduced tax rate applies to these facilities.  ARM 42.4.4107 governs the credit for commercial and net metering systems that generate electricity using alternative energy sources.

 

42.4.4111  DEDUCTIBILITY OF IMPACT FEE FOR LOCAL GOVERNMENT AND SCHOOL DISTRICTS which can be found on page 42-645 of the Administrative Rules of Montana.

 

            AUTH: 15-30-305, 15-31-501, MCA

            IMP: 15-24-3005, 15-30-111, 15-30-121, 15-31-501, MCA

 

            REASONABLE NECESSITY:  The department is proposing to repeal ARM 42.4.4111 because it has nothing to do with the alternative energy production credit and should be adopted, if needed because the impact fee is required to be capitalized for federal income tax purposes, in ARM Title 42, chapter 15, part 2, for individual income tax, and in ARM Title 42, chapter 23, part 4 for corporation license tax purposes.

 

42.4.4113  REQUEST FOR INFORMATION which can be found on page 42-645 of the Administrative Rules of Montana.

 

AUTH: 15-1-201, 15-30-305, 15-32-407, MCA

IMP: 15-24-3001, 15-31-501, 15-32-403, 15-35-103, MCA

 

REASONABLE NECESSITY:  The department is proposing to repeal ARM 42.4.4113 because the property tax exemption provided in 15-24-3001, MCA, is allowed only for facilities constructed before January 1, 2006, and no facilities are eligible for this incentive.  ARM 42.4.4104 which addresses for the exemption is also being repealed.

 

6.  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 canderson@mt.gov and must be received no later than May 14, 2010.

 

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

 

8.  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.

 

9.  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 6 above or faxed to the office at (406) 444-4375, or may be made by completing a request form at any rules hearing held by the Department of Revenue.

 

10.  The bill sponsor contact requirements of 2-4-302, MCA, apply and have been fulfilled.  The primary bill sponsor, Representative Bob Ebinger was contacted on July 14, 2009, by regular mail.

 

 

 

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

CLEO ANDERSON                          DAN R. BUCKS

Rule Reviewer                                   Director of Revenue

 

Certified to Secretary of State April 5, 2010

 

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