Administrative Rules of the State of Montana

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

(a) It has ten 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
Nonflight personnel	40,000,000
Total	$100,000,000

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

(f) It has the following within state X:

(i)	10 percent of its 747 flight departures
	(.10 x 432,000,000 = $43,200,000);
(ii)	20 percent of its 727 flight departures
	(.20 x 400,000,000 = $80,000,000);
(iii)	5 percent of its nonflight tangible property
	(n.t.p.) (.05 x 200,000,000 = $10,000,000); and
(iv)	15 percent of its nonflight personnel payroll
	(.15 x 40,000,000 = $6,000,000).

(g) State X has a corporate tax rate of 10 percent. 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%

Receipts 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 (nonflight)		40,000,000 (nonflight)
+8,880,000 (14.8% x 60,000,000 flight)	+	60,000,000 (flight)
14,880,000	+	100,000,000 = 14.88%

Average Ratio Equals the sum of the property, receipts, 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

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

(a) It has the following within state Y:

(i)	6 percent of its 747 flight departures
	(.06 x 432,000,000 = $25,920,000);
(ii)	31 percent of its 727 flight departures
	(.31 x 400,000,000 = $124,000,000); and
(iii)	3 percent of its nonflight tangible property
	(n.t.p.) x (.03 x 20,000,000 = $6,000,000); and
(iv)	7 percent of its nonflight personnel payroll
	(.07 x 40,000,000 = $2,800,000)

(b) State Y has a corporate tax rate of 6.5 percent. 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%

Receipts 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 percent

Payroll Factor:
Numerator		Denominator
2,800,000 (nonflight)		40,000,000 (nonflight)
+10,811,520 (18.0192% x 60,000,000 flight)	+	60,000,000 (flight)
13,611,520	/	100,000,000 = 13.6114%

Average Ratio Equals the sum of the property, receipts, 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