Administrative Rules of the State of Montana

(1) Assume the following facts for an airline for the tax year:

(a) It has 10 747s ready for flight and in revenue service at an average per unit cost of $40,000,000 for nine of the aircraft. It rents the remaining 747 from another airline for $9,000,000 per year. At eight times rents, the latter is valued at $72,000,000 for apportionment purposes. Total 747 valuation is, therefore, $432,000,000 for property factor denominator purposes.

(b) It has 20 727s ready for flight and in revenue service at an average per unit cost of $20,000,000. Total 727 valuation is, therefore, $400,000,000 for property factor denominator purposes.

(d) It has the following annual payroll:

Flight personnel $ 60,000,000

Non-flight personnel 40,000,000

Total $100,000,000

(e) From its operations, it has total receipts of $50,000,000, business net income of $1,000,000 and no non-business income. The total $50,000,000 is flight revenue; there is no non-flight revenue.

(f) It has the following within state X:

(i) 10% of its 747 flight departures

(.10 x 432,000,000 = $43,200,000) ;

(ii) 20% of its 727 flight departures

(.20 x 400,000,000 = $80,000,000) ;

(iii) 5% of its non-flight tangible property

(n.t.p.) (.05 x 200,000,000 = $10,000,000) ; and

(iv) 15% of its non-flight personnel payroll

(.15 x 40,000,000 = $6,000,000) .

(g) State X has a corporate tax rate of 10%. The airline's tax liability to state X would be determined as follows:

Property Factor:

Numerator Denominator

43,200,000 (747s) 432,000,000 (747s)

+ 80,000,000 (727s) + 400,000,000 (727s)

+ 10,000,000 (n.t.p.) + 200,000,000 (n.t.p.)

133,200,000 / 1,032,000,000 = 12.91%

Sales Factor:

Numerator Denominator

43,200,000 (747s) 432,000,000 (747s)

+ 80,000,000 (727s) + 400,000,000 (727s)

123,200,000 / 832,000,000 = 14.8%

departure ratio = 14.8%

7,403,846 (14.8% x 50,000,000) / 50,000,000 = 14.81%

Payroll Factor:

Numerator Denominator

6,000,000 (non-flight) 40,000,000(non-flight)

+ 8,880,000 (14.8%x60,000,000 flight) + 60,000,000 (flight)

14,880,000 + 100,000,000 = 14.88%

Average Ratio Equals the sum of the property, sales and payroll factors divided by 3.

(12.91% + 14.81% + 14.88% ) /3 = 14.20%

Taxable Income in state X: .1420 x 1,000,000 = $142,000

Tax Liability to state X: .10 x $142,000 = $14,200.00

(2) Same facts except (1) (f) is changed to read:

(a) It has the following within state Y:

(i) 6% of its 747 flight departures

(.06 x 432,000,000 = $25,920,000) ;

(ii) 31% of its 727 flight departures

(iii) 3% of its non-flight tangible property

(n.t.p.) x (.03 x 20,000,000 = $6,000,000) ; and

(iv) % of its non-flight personnel payroll

(.07 x 40,000,000 = $2,800,000)

(b) State Y has a corporate tax rate of 6½%. The airline's tax liability to state Y would be determined as follows:

Property Factor:

Numerator Denominator

25,920,000 (747s) 432,000,000 (747s)

+ 124,000,000 (727s) + 400,000,000 (727s)

+ 6,000,000 (n.t.p.) + 200,000,000 (n.t.p.)

155,920,000 / 1,032,000,000 = 15.1085%

Sales Factor:

Numerator Denominator

25,920,000 (747s) 432,000,000 (747s)

+ 124,000,000 (727s) + 400,000,000 (727s)

149,920,000 / 832,000,000 = 18.0192%

departure ratio = 18.0192%

9,009,600 (18.0192% x 50,000,000) / 50,000,000 = 18.0192% Payroll Factor:

Numerator Denominator

2,800,000 (non-flight) 40,000,000(non-flight)

+ 10,811,520(18.0192%x60,000,000 flight) + 60,000,000(flight)

13,611,520 / 100,000,000=13.6114%

Average Ratio Equals the sum of the property, sales and payroll factors divided by 3.

(15.1085% + 18.0192% + 13.6114% ) /3 = 15.5797%

Taxable Income in state Y: .155797 x 1,000,000 = $155,797

Tax Liability to state Y: .065 x $155,797 = $10,127