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Rule Title: AIRLINE REGULATION EXAMPLES
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Department: REVENUE
Chapter: CORPORATE MULTISTATE ACTIVITIES
Subchapter: Airlines
 
Latest version of the adopted rule presented in Administrative Rules of Montana (ARM):

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42.26.807    AIRLINE REGULATION EXAMPLES

(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.

(c) It has nonflight tangible property (n.t.p.) valued at original cost of $200,000,000.

(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

 

History: 15-1-201, 15-31-313, 15-31-501, MCA; IMP, 15-1-601, 15-31-301, 15-31-302, 15-31-303, 15-31-304, 15-31-305, 15-31-306, 15-31-307, 15-31-308, 15-31-309, 15-31-310, 15-31-311, 15-31-312, MCA; NEW, 1988 MAR p. 401, Eff. 2/26/88; AMD, 1993 MAR p. 572, Eff. 4/16/93; TRANS, from 42.26.286 and AMD, 2001 MAR p. 2469, Eff. 12/21/01; AMD, 2017 MAR p. 2328, Eff. 1/1/18.


 

 
MAR Notices Effective From Effective To History Notes
42-2-985 1/1/2018 Current History: 15-1-201, 15-31-313, 15-31-501, MCA; IMP, 15-1-601, 15-31-301, 15-31-302, 15-31-303, 15-31-304, 15-31-305, 15-31-306, 15-31-307, 15-31-308, 15-31-309, 15-31-310, 15-31-311, 15-31-312, MCA; NEW, 1988 MAR p. 401, Eff. 2/26/88; AMD, 1993 MAR p. 572, Eff. 4/16/93; TRANS, from 42.26.286 and AMD, 2001 MAR p. 2469, Eff. 12/21/01; AMD, 2017 MAR p. 2328, Eff. 1/1/18.
12/21/2001 1/1/2018 History: Sec. 15-1-201, 15-31-313, and 15-31-501, MCA; IMP, Sec. 15-1-601, 15-31-301, 15-31-302, 15-31-303, 15-31-304, 15-31-305, 15-31-306, 15-31-307, 15-31-308, 15-31-309, 15-31-310, 15-31-311, and 15-31-312, MCA; NEW, 1988 MAR p. 401, Eff. 2/26/88; AMD, 1993 MAR p. 572, Eff. 4/16/93; TRANS, from 42.26.286 and AMD, 2001 MAR p. 2469, Eff. 12/21/01.
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