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Montana Administrative Register Notice 42-2-868 No. 18   09/22/2011    
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BEFORE THE DEPARTMENT OF REVENUE

OF THE STATE OF MONTANA

 

In the matter of the adoption of New Rule I relating to issuing tax certificates to LLCs following administrative dissolution

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NOTICE OF PUBLIC HEARING ON PROPOSED ADOPTION

 

TO:  All Concerned Persons

 

1.  On October 17, 2011, at 1:00 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 of the above-stated rule.

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., October 11, 2011, 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) 444-4375; 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  TAX CERTIFICATES – REQUIREMENTS  (1)  The department may issue a tax certificate, referred to as a "Title 15 Certificate," to a domestic corporation or limited liability company (LLC) that has been involuntarily dissolved by the Montana Secretary of State (MSOS) if the business has filed all required tax returns and reports and has paid all taxes, including interest and penalties, owed by the entity.  Effective May 6, 2011, an LLC that has only one member and has not elected to be taxed as a corporation is not required to provide a Title 15 certificate from the department to be reinstated under 35-8-912, MCA.

(2)  The department may issue a tax certificate, referred to as a "Dissolution/Withdrawal Certificate" to a domestic C or S corporation that wishes to voluntarily dissolve, and to a foreign C or S corporation and LLC that wishes to voluntarily withdraw, if the business has filed all required tax returns and reports and has paid all taxes, including interest and penalties, up to the date of the request.

(3)  The department may issue a tax certificate, referred to as a "Tax Clearance Certificate" to a domestic C or S corporation that has completed its dissolution or to a foreign C or S corporation that has completed its withdrawal, verifying that the corporation has filed all applicable returns, including a final return, and that all taxes owed by the corporation, including interest and penalties, have been paid through and including the corporation's final year of existence in Montana.

(4)  The department will issue a tax certificate, referred to as a "Reviver Certificate" to a domestic C corporation whose corporate powers have been suspended or to a foreign C corporation whose right to do intrastate business in the state has been forfeited as provided in 15-31-523, MCA, for failure to file a corporation license tax return or to pay a corporation license tax and that is seeking to be relieved from the suspension or forfeiture as follows:

(a)  if the application for relief from the suspension or forfeiture is made within one year or less after the date of the suspension or forfeiture and if the suspension was made because the corporation failed to file a required corporation license tax return, then the department will issue the certificate if the corporation has filed the required return and paid any associated tax, interest and penalties; or

(b)  if the application for relief from the suspension or forfeiture is made within one year or less after the date of the suspension or forfeiture and if the suspension was made because the corporation failed to pay all or any part of its corporation license tax liability, then the department will issue the certificate if the corporation has paid the tax, interest and penalties.

(5)  The department will also issue a tax certificate, referred to as a "Reviver Certificate" to a domestic C corporation whose corporate powers have been suspended or to a foreign C corporation whose right to do intrastate business in the state has been forfeited as provided in 15-31-523, MCA, for failure to file a corporation license tax return or to pay a corporation license tax and that is seeking to be relieved from the suspension or forfeiture as follows:

(a)  if the application for relief from the suspension or forfeiture is made more than one year after the date of the suspension or forfeiture and if the suspension was made because the corporation failed to file a required return, then the department will issue the certificate if the corporation has filed the required return and paid twice the amount of any associated tax and penalties; or

(b)  if the application for relief from the suspension or forfeiture is made more than one year after the date of the suspension or forfeiture and if the suspension was made because the corporation failed to pay all or any part of its corporation license tax liability, then the department will issue the certificate if the corporation has paid twice the amount of tax and penalties.

(6)  The department may issue a tax certificate, referred to as a "Certificate of Good Standing," to any entity wishing to show that it filed required tax returns and paid all tax, interest, and penalties.  The Certificate of Good Standing will be issued when the department has all the information it needs to determine that all required returns have been filed and all taxes, penalties, and interest have been paid.

(7)  The department will not issue any tax certificate unless the application contains the name, mailing address, and federal employer identification number (FEIN) of the entity.  If the entity is a single member LLC that has no employees and does not have an FEIN, the single member LLC shall use its owner's social security number (SSN) or FEIN.

(8)  Except as provided in (9), the tax filing requirements of the single member LLC for purposes of obtaining a tax certificate, are separate from the tax filing requirements of its owner.  Because an entity that is disregarded for tax purposes may, and usually does, have an obligation to file an information return (Form DER-1, Montana Disregarded Entity Information Return) with the department, a single member LLC cannot claim to be current on its tax filing requirements on the basis that its owner is current on the owner's tax filing requirements.

(9)  For wage withholding purposes a single member LLC that has not elected to be taxed as a corporation and its owner are considered to be the same employer.  The department will not issue a tax certificate for the single member LLC unless all withholding taxes have been paid by the single member LLC and the owner.

 

AUTH:  15-1-201, MCA

IMP:  15-31-524, 15-31-552, 35-1-944, 35-1-1037, 35-6-201, 35-8-912, 35-8-1010, 35-8-912, MCA

 

REASONABLE NECESSITY:  The department proposes the adoption of New Rule I to help taxpayers determine how the Legislature's enactment of Chapter 355, L. 2011, affects the department's issuance of tax certificates.  The department issues "tax certificates" at the request of various legal entities and for a variety of reasons.  While most tax certificates the department issues are filed with the MSOS and are required before an entity can be restored to various legal benefits or privileges, the department also issues tax certificates an entity requests so that the tax certificate can be provided to a lender or other third party.  New Rule I explains the various types of tax certificates.

The proposed new rule confirms that Ch. 355, L. 2011, does not prevent the department from issuing a "good standing" tax certificate to a single member LLC that has not elected to be taxed as a corporation when the entity requests the certificate to be provided to a lender or other third party.  The department is also proposing to adopt New Rule I to guide its employees in administering tax certificates.  Because there can be confusion about whether the tax liability of the owner(s) of an entity is considered when the department issues tax certificates, the proposed rule will detail the limited circumstances when the liability for wage withholding of the owner of a disregarded entity is considered.

New Rule I is also being proposed in order to help taxpayers understand the importance of providing tax identification number(s) when applying for a tax certificate.  The department cannot determine whether all required tax filings have been filed and taxes paid by an entity unless the relevant parties are identified, and an identification number ensures that the department can match up each LLC with their respective activities and verify compliance.  Beginning in 2009, the Internal Revenue Service began requiring all single member LLCs with employees to obtain an FEIN while allowing those without employees to elect to file under their own FEIN or their owner's SSN or FEIN.

The department is including Title 35, MCA, in its list of statutes being implemented, only because these statutes require that a tax certificate issued by the department be filed with the MSOS.  The department does not purport to assert that it has any power to implement any substantive requirement in Title 35, MCA.

 

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) 444-4375; or e-mail canderson@mt.gov and must be received no later than October 21, 2011.

 

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

 

6.  An electronic copy of this notice is available on the department's web site at www.revenue.mt.gov.  Locate "Legal Resources" in the left hand column, select the "Rules" link and view the options under the "Notice of Proposed Rulemaking" heading.  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.  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.

 

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) 444-4375, or may be made by completing a request form at any rules hearing held by the Department of Revenue.

 

8.  The bill sponsor contact requirements of 2-4-302, MCA, apply and have been fulfilled.  The primary bill sponsor of SB 429 (2011) Senator Art Wittich, was notified by electronic mail on August 29, 2011, and subsequently on September 2, 2011.

 

 

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

CLEO ANDERSON                         DAN R. BUCKS

Rule Reviewer                                 Director of Revenue

 

Certified to Secretary of State September 12, 2011

 

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