BEFORE THE DEPARTMENT OF REVENUE
OF THE STATE OF MONTANA
TO: All Concerned Persons
1. On December 12, 2007, at 10:00 a.m., a public hearing will be held in the Director's Office (Fourth Floor) Conference Room of the Sam W. Mitchell Building, at Helena, Montana, to consider the amendment 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., December 5, 2007, 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 email@example.com.
3. The rules proposed to be amended provide as follows, stricken matter interlined, new matter underlined:
42.4.118 ENERGY AND CONSERVATION INDIVIDUAL INCOME TAX CREDITS (1) A Montana individual income tax credit is allowed by filing an Individual Income Tax Return
Form 2 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-B providing information as prescribed on the form at the time the Montana Individual Income Tax Return
Form 2 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
Form 2 is filed.
(c) If more than one 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: 15-32-109, 15-32-115, 15-32-201, MCA
REASONABLE NECESSITY: The department is proposing to amend ARM 42.4.118 to provide for an application of the maximum credit amount that is consistent with the credit for Energy Conserving Expenditures under 15-32-109, MCA. A ruling by the department's hearings officer determined that the language in 15-32-109, MCA, stating the maximum credit allowed of $500 "per taxpayer" allows a married couple to each claim $500 provided enough was expended on energy conserving measures. The department has determined that the language in 15-32-201(2), MCA, is similar enough to allow the same interpretation.
42.4.201 DEFINITIONS The following definitions apply to this subchapter:
(1) through (10) remain the same.
(11) "Manufactured home" means a home built on a nonremovable steel chassis or frame. Each transportable unit of a manufactured home has a red certification label on the exterior section and is built according to Manufactured Home Construction and Safety Standards (HUD Code).
(12) "Modular home" means a home built in a factory setting in units, transported to the home site, placed on a permanent foundation, and joined.
(11)(13) "National Fenestration Rating Council" (NFRC) means the independent agency that rates windows, doors, and skylights.
(12)(14) "New construction" means construction of, or additions to, buildings, living areas, or attached garages that comply with the established standards of new construction as determined by the building code statutes in Title 50, MCA.
(15) "Prescriptive path" refers to the structural components of a building or residence that enclose the habitable space and includes:
(b) exterior doors;
(d) exterior walls;
(e) floors over unconditioned spaces;
(f) the walls of a crawlspace below a conditioned space;
(g) the walls of a finished basement;
AUTH: 15-1-201, 15-32-105, MCA
IMP: 15-32-105, 15-32-109, MCA
REASONABLE NECESSITY: The department is proposing to amend ARM 42.4.201 to add new definitions of terms used in the rules in this subchapter.
42.4.203 CREDIT FOR ENERGY CONSERVATION INVESTMENT
(1) Eligible investments for the energy conservation credit in new construction are the investments that exceed the requirements of the IECC with Montana amendments as described in ARM 42.4.206.
An example of a correct application is: The amount of credit can be calculated using one of the following provisions:
(a) The credit can be based on the actual additional amount expended to exceed the requirements of the IECC with the Montana amendments. For
Eexample, if a taxpayer installs an ENERGY STAR qualified furnace in a new construction project, the incremental cost of equipment and installation costs above a conventional furnace required by code qualifies for the energy conservation credit.
(b) The purchase by the first owner or construction of a new ENERGY STAR Qualified home can be considered the equivalent of investing $2,000 for energy conservation purposes resulting in a total credit of $500 ($2,000 * 25%). The $500 may be allocated among the individuals who purchased the home. Verification must be made by a third party accredited by the federal Environmental Protection Agency to rate homes under the ENERGY STAR program. The resale of an ENERGY STAR home does not qualify for the credit.
(2) through (5) remain the same.
AUTH: 15-32-105, MCA
IMP: 15-32-105, 15-32-109, MCA
REASONABLE NECESSITY: The department is proposing to amend ARM 42.4.203 to provide guidance in calculating the energy conservation credit when taxpayers build a new home or purchase a new manufactured or modular home.
42.4.204 DETERMINATION OF CAPITAL INVESTMENT FOR ENERGY CONSERVATION (1) The following capital investments are among those that can result in the conservation of energy:
(a) through (c) remain the same.
(d) special insulating siding with a certified insulating factor substantially in excess of that of normal siding;
(e) through (p) remain the same but are renumbered (d) through (o).
(2) (3) If the new system described in (1) (p)(o) differs in style or type from the previous system, such as, if one or more window air-conditioning units is replaced with a central air system, the new system must exceed the requirement in ARM 42.4.206(1)(c).
(3) If the replacement system exceeds the established standards, only the additional cost shall be considered when computing the credit.
This is not to be considered an exhaustive list of qualifying capital investments. The lists outlined in (1) and (2) are not to be considered exhaustive. The department will consider other investments in the prescriptive path of a building or residence that substantially reduce the waste or dissipation of energy, or reduce the amount of energy required for the heating, cooling, or lighting of buildings by at least 5% when compared to the prior year. The department may review energy bills, energy audits, or other documentation to verify the energy savings of 5%. The usage of the structure must be comparable in both years. The department may consider the cost of the investment against the expected savings in determining whether the investment qualifies including whether a reasonable person would make the investment for energy savings when the expected savings could be achieved through a less expensive option.
(5) (2) Investments in an existing building or new construction for which no capital investment for energy conservation purposes is substantiated do not qualify for the energy conservation credit. For example, the investments do not qualify for the energy conservation credit when the taxpayer installs an insulated garage door in an existing building or during new construction and this building does not consume any energy other than electrical energy for lighting purposes.
(a) In addition, standard components of conventional buildings will typically not qualify for the energy conservation credit. Examples of such standard components that do not qualify for the credit include but are not limited to:
(i) carpeting, padding, or other flooring of any type;
(iii) roof vents;
(iv) awnings that are not a component of a qualified "passive solar system";
(v) garage doors, whether insulated or not, that are installed in an existing or new building that does not consume any energy; or
(vi) any item with an R-value of less than 1.
(b) Expenditures for maintenance and repairs to a building do not qualify for the credit. Examples of such expenditures include, but are not limited to patching holes, replacing a foundation, replacing or reshingling a roof, or replacing existing asbestos insulation around heating pipes with other insulation.
(c) Space heaters, portable air conditioners, and appliances such as ovens, stoves, refrigerators, dishwashers, clothes washers, and dryers that are not attached fixtures are not capital expenditures, and therefore do not qualify for the credit.
(d) In determining the validity of energy conservation credit claims, the department will consider whether the claimed expenditure will reduce energy consumption because the item of investment produces the energy savings without any human action required. If human action, whether on a regular or irregular basis, is required to achieve energy savings, the department will not allow the investment for purposes of the credit. Accordingly, new nonprogrammable thermostats, moveable shades, decks, outdoor grills installed as fixtures to the real estate, and like investments which may or may not achieve any energy savings depending on whether the owner or occupant chooses to use the investment to save energy will ordinarily be disallowed.
(6) remains the same but is renumbered (5).
AUTH: 15-32-105, MCA
IMP: 15-32-105, 15-32-109, MCA
REASONABLE NECESSITY: The department is proposing to amend ARM 42.4.204 in order to provide further guidance about what qualifies for the energy conservation credit outlined in 15-32-109, MCA. The current rules list several examples of what qualifies but comments received from taxpayers and during the course of the 2007 Montana Legislature indicate a need to provide more examples of nonqualifying expenditures.
Additionally, ARM 42.4.204(1)(d) lists "special insulating siding with a certified insulating factor substantially in excess of that of normal siding" as an example of a qualifying expenditure. Based on information from the Department of Environmental Quality, normal siding does not have a certified insulating factor. Without a baseline for comparison, there is no means to determine if "special insulating siding" is "substantially in excess of that of normal siding." This example is being removed because it could be confusing or misleading. A taxpayer may be eligible for the credit based on the cost of adding additional insulation when installing siding.
42.4.205 CALCULATION OF THE ENERGY CONSERVATION CREDIT
(1) remains the same.
(2) For an existing building, an example of how the credit would be applied is:
(a) remains the same.
(b) The taxpayer purchased a qualifying hot water heater in 2006 but did not have it installed until spring 2007. The energy conservation credit is available in 2007 only and the taxpayer can include the money expended in 2006 to purchase the hot water heater in calculating the credit.
(c) The taxpayer made a down payment in December 2006 to have qualifying windows installed in the spring of 2007. After the installation was completed in the spring, final payment was made. The energy conservation credit is available in 2007 only and the taxpayer can include the money expended in 2006 for the down payment in calculating the credit.
(3) remains the same.
(4) A taxpayer who purchases a newly constructed manufactured or modular home may claim the credit if they purchase the ENERGY STAR upgrade package. The amount paid for the package is considered the qualifying expenditure for the purpose of determining the amount of credit. For example, a taxpayer who spends an additional $1,800 for an ENERGY STAR upgrade can claim a credit of $450.
(4) and (5) remain the same but are renumbered (5) and (6).
AUTH: 15-32-105, MCA
IMP: 15-32-105, 15-32-109, MCA
REASONABLE NECESSITY: The department is proposing to amend ARM 42.4.205 in order to provide further guidance for calculating the amount of credit when expenditures for one improvement are made in different tax years. A taxpayer could make a down payment or deposit in one year for an energy conserving expenditure but not have the item installed until the next year. The amendment provides clarification for calculating the credit in these instances.
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) 444-3696; or e-mail firstname.lastname@example.org and must be received no later than December 21, 2007.
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 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.
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) 444-3696, or may be made by completing a request form at any rules hearing held by the Department of Revenue.
8. The bill sponsor notice requirements of 2-4-302, MCA, do not apply.
/s/ Cleo Anderson /s/ Dan R. Bucks
CLEO ANDERSON DAN R. BUCKS
Rule Reviewer Director of Revenue
Certified to Secretary of State November 13, 2007