House Bill No. 606
Introduced By _______________________________________________________________________________
A Bill for an Act entitled: "An Act providing a homestead exemption for owner-occupied residences; limiting the amount of federal taxes that are deductible for the purposes of determining state individual income taxes; establishing that the state standard deduction for income taxes is the same as the federal standard deduction; providing a statutory appropriation for the reimbursement of local government property taxes lost because of the homestead exemption; amending sections 15-6-134, 15-6-201, 15-30-101, 15-30-121, 15-30-122, and 17-7-502, MCA; and providing an immediate effective date and a retroactive applicability date."
Be it enacted by the Legislature of the State of Montana:
Section 1. Section 15-6-134, MCA, is amended to read:
"15-6-134. Class four property -- description -- taxable percentage. (1) Class four property includes:
(a) all land, except that specifically included in another class;
(b) all improvements, including trailers or mobile homes used as a residence, except those specifically included in another class;
(c) the first $100,000 or less of the market value of any improvement on real property after the exemption provided in 15-6-201(1)(x), including trailers or mobile homes, and appurtenant land not exceeding 5 acres owned or under contract for deed and actually occupied for at least 7 months a year as the primary residential dwelling of any person whose total income from all sources, including net business income and otherwise tax-exempt income of all types but not including social security income paid directly to a nursing home, is not more than $15,000 for a single person or $20,000 for a married couple or a head of household, as adjusted according to subsection (2)(b)(ii). For the purposes of this subsection (1)(c), net business income is gross income less ordinary operating expenses but before deducting depreciation or depletion allowance, or both.
(d) all golf courses, including land and improvements actually and necessarily used for that purpose, that consist of at least nine holes and not less than 3,000 lineal yards; and
(e) all improvements on land that is eligible for valuation, assessment, and taxation as agricultural land under 15-7-202, including 1 acre of real property beneath improvements on land described in 15-6-133(1)(c). The 1 acre must be valued at market value.
(2) Class four property is taxed as follows:
(a) Except as provided in 15-24-1402 or 15-24-1501, property described in subsections (1)(a), (1)(b), and (1)(e) is taxed at 3.86% of its market value.
(b) (i) Property qualifying under the property tax assistance program in subsection (1)(c) is taxed at 3.86% of its market value multiplied by a percentage figure based on income and determined from the following table:
Income Income Percentage
Single Person Married Couple Multiplier
Head of Household
$ 0 - $ 6,000 $ 0 -$ 8,000 20%
6,001 - 9,200 8,001 - 14,000 50%
9,201 - 15,000 14,001 - 20,000 70%
(ii) The income levels contained in the table in subsection (2)(b)(i) must be adjusted for inflation annually by the department of revenue. The adjustment to the income levels is determined by:
(A) multiplying the appropriate dollar amount from the table in subsection (2)(b)(i) by the ratio of the PCE for the second quarter of the year prior to the year of application to the PCE for the second quarter of 1995; and
(B) rounding the product thus obtained to the nearest whole dollar amount.
(iii) "PCE" means the implicit price deflator for personal consumption expenditures as published quarterly in the Survey of Current Business by the bureau of economic analysis of the U.S. department of commerce.
(c) Property described in subsection (1)(d) is taxed at one-half the taxable percentage rate established in subsection (2)(a).
(3) Within the meaning of comparable property, as defined in 15-1-101, property assessed as commercial property is comparable only to other property assessed as commercial property and property assessed as other than commercial property is comparable only to other property assessed as other than commercial property."
Section 2. Section 15-6-201, MCA, is amended to read:
"15-6-201. Exempt categories. (1) The following categories of property are exempt from taxation:
(a) except as provided in 15-24-1203, the property of:
(i) the United States, except:
(A) if congress passes legislation that allows the state to tax property owned by the federal government or an agency created by congress; or
(B) as provided in 15-24-1103;
(ii) the state, counties, cities, towns, and school districts;
(iii) irrigation districts organized under the laws of Montana and not operating for profit;
(iv) municipal corporations;
(v) public libraries; and
(vi) rural fire districts and other entities providing fire protection under Title 7, chapter 33;
(b) buildings, with land they occupy and furnishings in the buildings, owned by a church and used for actual religious worship or for residences of the clergy, together with adjacent land reasonably necessary for convenient use of the buildings;
(c) property used exclusively for agricultural and horticultural societies, for educational purposes, and for nonprofit health care facilities, as defined in 50-5-101, licensed by the department of public health and human services and organized under Title 35, chapter 2 or 3. A health care facility that is not licensed by the department of public health and human services and organized under Title 35, chapter 2 or 3, is not exempt.
(d) property that is:
(i) owned and held by an association or corporation organized under Title 35, chapter 2, 3, 20, or 21;
(ii) devoted exclusively to use in connection with a cemetery or cemeteries for which a permanent care and improvement fund has been established as provided for in Title 35, chapter 20, part 3; and
(iii) not maintained and operated for private or corporate profit;
(e) property owned or property that is leased from a federal, state, or local governmental entity by institutions of purely public charity if the property is directly used for purely public charitable purposes;
(f) evidence of debt secured by mortgages of record upon real or personal property in the state of Montana;
(g) public museums, art galleries, zoos, and observatories not used or held for private or corporate profit;
(h) all household goods and furniture, including but not limited to clocks, musical instruments, sewing machines, and wearing apparel of members of the family, used by the owner for personal and domestic purposes or for furnishing or equipping the family residence;
(i) a truck canopy cover or topper weighing less than 300 pounds and having no accommodations attached. This property is also exempt from taxation under 61-3-504(2) and 61-3-537.
(j) a bicycle, as defined in 61-1-123, used by the owner for personal transportation purposes;
(k) motor homes, travel trailers, and campers;
(l) all watercraft;
(m) motor vehicles, land, fixtures, buildings, and improvements owned by a cooperative association or nonprofit corporation organized to furnish potable water to its members or customers for uses other than the irrigation of agricultural land;
(n) the right of entry that is a property right reserved in land or received by mesne conveyance (exclusive of leasehold interests), devise, or succession to enter land with a surface title that is held by another to explore, prospect, or dig for oil, gas, coal, or minerals;
(o) property that is owned and used by a corporation or association organized and operated exclusively for the care of persons with developmental disabilities, the mentally ill, or the vocationally handicapped as defined in 18-5-101 and that is not operated for gain or profit and property owned and used by an organization owning and operating facilities that are for the care of the retired, aged, or chronically ill and that are not operated for gain or profit;
(p) all farm buildings with a market value of less than $500 and all agricultural implements and machinery with a market value of less than $100;
(q) property owned by a nonprofit corporation that is organized to provide facilities primarily for training and practice for or competition in international sports and athletic events and not held or used for private or corporate gain or profit. For purposes of this subsection (1)(q), "nonprofit corporation" means an organization exempt from taxation under section 501(c) of the Internal Revenue Code and incorporated and admitted under the Montana Nonprofit Corporation Act.
(r) the first $15,000 or less of market value of tools owned by the taxpayer that are customarily hand-held and that are used to:
(i) construct, repair, and maintain improvements to real property; or
(ii) repair and maintain machinery, equipment, appliances, or other personal property;
(s) harness, saddlery, and other tack equipment;
(t) a title plant owned by a title insurer or a title insurance producer, as those terms are defined in 33-25-105;
(u) timber as defined in 15-44-102;
(v) all trailers and semitrailers that have a licensed gross weight of 26,000 pounds or more or that are registered through a proportional registration agreement under 61-3-721. For purposes of this subsection (1)(v), the terms "trailer" and "semitrailer" mean a vehicle with or without motive power that is:
(i) designed and used only for carrying property;
(ii) designed and used to be drawn by a motor vehicle; and
(iii) either constructed so that no part of its weight rests upon the towing vehicle or constructed so that some part of its weight and the weight of its load rests upon or is carried by another vehicle.
(w) all vehicles registered under 61-3-456;
(x) the first $4,900 of market value of an owner-occupied residence.
(2) (a) For the purposes of subsection (1)(e), the term "institutions of purely public charity" includes any organization that meets the following requirements:
(i) The organization qualifies as a tax-exempt organization under the provisions of section 501(c)(3), Internal Revenue Code, as amended.
(ii) The organization accomplishes its activities through absolute gratuity or grants. However, the organization may solicit or raise funds by the sale of merchandise, memberships, or tickets to public performances or entertainment or by other similar types of fundraising activities.
(b) For the purposes of subsection (1)(g), the term "public museums, art galleries, zoos, and observatories" means governmental entities or nonprofit organizations whose principal purpose is to hold property for public display or for use as a museum, art gallery, zoo, or observatory. The exempt property includes all real and personal property reasonably necessary for use in connection with the public display or observatory use. Unless the property is leased for a profit to a governmental entity or nonprofit organization by an individual or for-profit organization, real and personal property owned by other persons is exempt if it is:
(i) actually used by the governmental entity or nonprofit organization as a part of its public display;
(ii) held for future display; or
(iii) used to house or store a public display.
(3) The following portions of the appraised value of a capital investment in a recognized nonfossil form of energy generation or low emission wood or biomass combustion devices, as defined in 15-32-102, are exempt from taxation for a period of 10 years following installation of the property:
(a) $20,000 in the case of a single-family residential dwelling;
(b) $100,000 in the case of a multifamily residential dwelling or a nonresidential structure."
Section 3. Section 15-30-101, MCA, is amended to read:
"15-30-101. Definitions. For the purpose of this chapter, unless otherwise required by the context, the following definitions apply:
(1) "Base year structure" means the following elements of the income tax structure:
(a) the tax brackets established in 15-30-103, but unadjusted by
subsection (2) of 15-30-103(2), in effect on June 30 of the
(b) the exemptions contained in 15-30-112, but unadjusted by 15-30-112(6), in effect on June 30 of the taxable year;
(c) the maximum standard deduction provided in 15-30-122
, but unadjusted by subsection (2) of 15-30-122, in effect on
June 30 of the taxable year.
(2) "Consumer price index" means the consumer price index, United States city average, for all items, using the 1967 base of 100 as published by the bureau of labor statistics of the U.S. department of labor.
(3) "Department" means the department of revenue.
(4) "Dividend" means any distribution made by a corporation out of its earnings or profits to its shareholders or members, whether in cash or in other property or in stock of the corporation, other than stock dividends.
(5) "Fiduciary" means a guardian, trustee, executor, administrator, receiver, conservator, or any person, whether individual or corporate, acting in any fiduciary capacity for any person, trust, or estate.
(6) "Foreign country" or "foreign government" means any jurisdiction other than the one embraced within the United States, its territories, and its possessions.
(7) "Gross income" means the taxpayer's gross income for federal income tax purposes as defined in section 61 of the Internal Revenue Code of 1954 or as that section may be labeled or amended, excluding unemployment compensation included in federal gross income under the provisions of section 85 of the Internal Revenue Code of 1954 as amended.
(8) "Inflation factor" means a number determined for each taxable year by dividing the consumer price index for June of the taxable year by the consumer price index for June 1980.
(9) "Information agents" includes all individuals, corporations, associations, and partnerships, acting in whatever capacity, including lessees or mortgagors of real or personal property, fiduciaries, brokers, real estate brokers, employers, and all officers and employees of the state or of any municipal corporation or political subdivision of the state, having the control, receipt, custody, disposal, or payment of interest, rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits, and income with respect to which any person or fiduciary is taxable under this chapter.
(10) "Knowingly" is as defined in 45-2-101.
(11) "Net income" means the adjusted gross income of a taxpayer less the deductions allowed by this chapter.
(12) "Paid", for the purposes of the deductions and credits under this chapter, means paid or accrued or paid or incurred, and the terms "paid or accrued" and "paid or incurred" must be construed according to the method of accounting upon the basis of which the taxable income is computed under this chapter.
(13) "Pension and annuity income" means:
(a) systematic payments of a definitely determinable amount from a qualified pension plan, as that term is used in section 401 of the Internal Revenue Code, or systematic payments received as the result of contributions made to a qualified pension plan that are paid to the recipient or recipient's beneficiary upon the cessation of employment;
(b) payments received as the result of past service and cessation of employment in the uniformed services of the United States;
(c) lump-sum distributions from pension or
profitsharing profit-sharing plans to the extent that the distributions are
included in federal adjusted gross income;
(d) distributions from individual retirement, deferred compensation, and self-employed retirement plans recognized under sections 401 through 408 of the Internal Revenue Code to the extent that the distributions are not considered to be premature distributions for federal income tax purposes; or
(e) amounts received from fully matured, privately purchased annuity contracts after cessation of regular employment.
(14) "Purposely" is as defined in 45-2-101.
(15) "Received", for the purpose of computation of taxable income under this chapter, means received or accrued, and the term "received or accrued" must be construed according to the method of accounting upon the basis of which the taxable income is computed under this chapter.
(16) "Resident" applies only to natural persons and includes, for the purpose of determining liability to the tax imposed by this chapter with reference to the income of any taxable year, any person domiciled in the state of Montana and any other person who maintains a permanent place of abode within the state even though temporarily absent from the state and who has not established a residence elsewhere.
(17) "Stock dividends" means new stock issued, for surplus or profits capitalized, to shareholders in proportion to their previous holdings.
(18) "Taxable income" means the adjusted gross income of a taxpayer less the deductions and exemptions provided for in this chapter.
(19) "Taxable year" or "tax year" means the taxpayer's taxable year for federal income tax purposes.
(20) "Taxpayer" includes any person or fiduciary, resident or nonresident, subject to a tax imposed by this chapter and does not include corporations."
Section 4. Section 15-30-121, MCA, is amended to read:
"15-30-121. Deductions allowed in computing net income. In computing net income, there are allowed as deductions:
(1) the items referred to in sections 161, including the contributions referred to in 33-15-201(5)(b), and 211 of the Internal Revenue Code of 1954, or as sections 161 and 211 are labeled or amended, subject to the following exceptions, which are not deductible:
(a) items provided for in 15-30-123;
(b) state income tax paid;
(c) one-half of premium payments for medical care as provided in subsection (9);
(2) federal income tax paid within the tax year, not to exceed $15,000 for a single taxpayer or $22,500 for married taxpayers filing jointly and for a head of household;
(3) expenses of household and dependent care services as outlined in subsections (3)(a) through (3)(c) and (9) and subject to the limitations and rules as set out in subsections (3)(d) through (3)(f), as follows:
(a) expenses for household and dependent care services necessary for gainful employment incurred for:
(i) a dependent under 15 years of age for whom an exemption can be claimed;
(ii) a dependent as allowable under 15-30-112(5), except that the limitations for age and gross income do not apply, who is unable to provide self-care because of physical or mental illness; and
(iii) a spouse who is unable to provide self-care because of physical or mental illness;
(b) employment-related expenses incurred for the following services, but only if the expenses are incurred to enable the taxpayer to be gainfully employed:
(i) household services that are attributable to the care of the qualifying individual; and
(ii) care of an individual who qualifies under subsection (3)(a);
(c) expenses incurred in maintaining a household if over half of the cost of maintaining the household is furnished by an individual or, if the individual is married during the applicable period, is furnished by the individual and the individual's spouse;
(d) the amounts deductible in subsections (3)(a) through (3)(c), subject to the following limitations:
(i) a deduction is allowed under subsection (3)(a) for employment-related expenses incurred during the year only to the extent that the expenses do not exceed $4,800;
(ii) expenses for services in the household are deductible under subsection (3)(a) for employment-related expenses only if they are incurred for services in the taxpayer's household, except that employment-related expenses incurred for services outside the taxpayer's household are deductible, but only if incurred for the care of a qualifying individual described in subsection (3)(a)(i) and only to the extent that the expenses incurred during the year do not exceed:
(A) $2,400 in the case of one qualifying individual;
(B) $3,600 in the case of two qualifying individuals; and
(C) $4,800 in the case of three or more qualifying individuals;
(e) if the combined adjusted gross income of the taxpayers exceeds $18,000 for the tax year during which the expenses are incurred, the amount of the employment-related expenses incurred, to be reduced by one-half of the excess of the combined adjusted gross income over $18,000;
(f) for purposes of this subsection (3):
(i) married couples shall file a joint return or file separately on the same form;
(ii) if the taxpayer is married during any period of the tax year, employment-related expenses incurred are deductible only if:
(A) both spouses are gainfully employed, in which case the expenses are deductible only to the extent that they are a direct result of the employment; or
(B) the spouse is a qualifying individual described in subsection (3)(a)(iii);
(iii) an individual legally separated from the individual's spouse under a decree of divorce or of separate maintenance may not be considered as married;
(iv) the deduction for employment-related expenses must be divided equally between the spouses when filing separately on the same form;
(v) payment made to a child of the taxpayer who is under 19 years of age at the close of the tax year and payments made to an individual with respect to whom a deduction is allowable under 15-30-112(5) are not deductible as employment-related expenses;
(4) in the case of an individual, political contributions determined in accordance with the provisions of section 218(a) and (b) of the Internal Revenue Code that were in effect for the tax year ended December 31, 1978;
(5) that portion of expenses for organic fertilizer allowed as a deduction under 15-32-303 that was not otherwise deducted in computing taxable income;
(6) contributions to the child abuse and neglect prevention program provided for in 41-3-701, subject to the conditions set forth in 15-30-156;
(7) one-half of premium payments, except premiums deducted in determining Montana adjusted gross income, for:
(a) insurance for medical care made directly by the taxpayer; and
(b) long-term care insurance with benefits that meet or exceed the minimum standards as established by the state insurance commissioner; and
(8) contributions to the Montana drug abuse resistance education program provided for in 44-2-702, subject to the conditions set forth in 15-30-159.
(9) For the purpose of subsection (7)(a), deductible medical insurance premiums are those premiums that provide payment for medical care as defined by 26 U.S.C. 213(d).
(10) (a) Subject to the conditions of subsection (3), a taxpayer who operates a family day-care home or a group day-care home, as these terms are defined in 52-2-703, and who cares for the taxpayer's own child and at least one unrelated child in the ordinary course of business may deduct employment-related expenses considered to have been paid for the care of the child.
(b) The amount of employment-related expenses considered to have been paid by the taxpayer is equal to the amount that the taxpayer charges for the care of a child of the same age for the same number of hours of care. The employment-related expenses apply regardless of whether any expenses actually have been paid. Employment-related expenses may not exceed the amounts specified in subsection (3)(d)(ii).
(c) Only a day-care operator who is licensed and registered as required in 52-2-721 is allowed the deduction under this subsection (10). (Subsection (8) terminates on occurrence of contingency--sec. 12, Ch. 808, L. 1991.)"
Section 5. Section 15-30-122, MCA, is amended to read:
"15-30-122. Standard deduction.
(1) A An individual who does not itemize deductions is entitled to a standard
deduction in the amounts set forth in 26 U.S.C. 63(c), as adjusted for inflation under that subsection, for the filing status of
the individual. equal to 20% of adjusted gross income is allowed if elected by the taxpayer on a return. The standard
deduction is in lieu of all deductions allowed under 15-30-121. The minimum standard deduction is $665, as adjusted under
the provisions of subsection (2), or 20% of adjusted gross income, whichever is greater, to a maximum standard deduction
of $1,500, as adjusted under the provisions of subsection (2). However, in the case of a single joint return of husband and
wife or in the case of a single individual who qualifies to file as a head of household on the federal income tax return, the
minimum standard deduction is $1,330, as adjusted under the provisions of subsection (2), or 20% of adjusted gross
income, whichever is greater, to a maximum standard deduction of $3,000, as adjusted under the provisions of subsection
(2). The standard deduction may not be allowed to either the husband or the wife if the tax of one of the spouses is
determined without regard to the standard deduction. For purposes of this section, the determination of whether an
individual is married must be made as of the last day of the tax year unless one of the spouses dies during the tax year, in
which case the determination must be made as of the date of death. (2) By November 1 of each year, the department shall multiply both the minimum and the maximum standard deduction
for single returns by the inflation factor for that tax year and round the product to the nearest $10. The minimum and
maximum standard deduction for joint returns and qualified head of household returns must be twice the amount of the
minimum and maximum standard deduction for single returns. The resulting adjusted deductions are effective for that tax
year and must be used in calculating the tax imposed in 15-30-103."
Section 6. Section 17-7-502, MCA, is amended to read:
"17-7-502. Statutory appropriations -- definition -- requisites for validity. (1) A statutory appropriation is an appropriation made by permanent law that authorizes spending by a state agency without the need for a biennial legislative appropriation or budget amendment.
(2) Except as provided in subsection (4), to be effective, a statutory appropriation must comply with both of the following provisions:
(a) The law containing the statutory authority must be listed in subsection (3).
(b) The law or portion of the law making a statutory appropriation must specifically state that a statutory appropriation is made as provided in this section.
(3) The following laws are the only laws containing statutory appropriations: 2-9-202; 2-17-105; 2-18-812; 3-5-901; 5-13-403; 10-3-203; 10-3-310; 10-3-312; 10-3-314; 10-4-301; 15-1-111; [section 7]; 15-23-706; 15-30-195; 15-31-702; 15-37-117; 15-38-202; 15-65-121; 15-70-101; 16-1-404; 16-1-410; 16-1-411; 16-11-308; 17-3-106; 17-3-212; 17-5-404; 17-5-424; 17-5-804; 17-6-101; 17-6-201; 17-7-304; 18-11-112; 19-2-502; 19-6-709; 19-9-1007; 19-17-301; 19-18-512; 19-18-513; 19-18-606; 19-19-205; 19-19-305; 19-19-506; 20-8-107; 20-8-111; 20-9-361; 20-26-1503; 23-5-136; 23-5-306; 23-5-409; 23-5-610; 23-5-612; 23-5-631; 23-7-301; 23-7-402; 32-1-537; 37-43-204; 37-51-501; 39-71-503; 39-71-907; 39-71-2321; 39-71-2504; 44-12-206; 44-13-102; 50-4-623; 50-5-232; 50-40-206; 53-6-150; 53-6-703; 53-24-206; 60-2-220; 67-3-205; 75-1-1101; 75-5-1108; 75-6-214; 75-11-313; 76-12-123; 80-2-103; 80-2-222; 80-4-416; 81-5-111; 82-11-136; 82-11-161; 85-1-220; 85-20-402; 90-3-301; 90-4-215; 90-6-331; 90-7-220; 90-7-221; and 90-9-306.
(4) There is a statutory appropriation to pay the principal, interest, premiums, and costs of issuing, paying, and securing all bonds, notes, or other obligations, as due, that have been authorized and issued pursuant to the laws of Montana. Agencies that have entered into agreements authorized by the laws of Montana to pay the state treasurer, for deposit in accordance with 17-2-101 through 17-2-107, as determined by the state treasurer, an amount sufficient to pay the principal and interest as due on the bonds or notes have statutory appropriation authority for the payments. (In subsection (3): pursuant to sec. 7, Ch. 567, L. 1991, the inclusion of 19-6-709 terminates upon death of last recipient eligible for supplemental benefit; and pursuant to sec. 7(2), Ch. 29, L. 1995, the inclusion of 15-30-195 terminates July 1, 2001.)"
NEW SECTION. Section 7. Homestead tax exemption reimbursement. Beginning in 1998, by each April 16 of each year, the department shall determine the amount of nonstatewide property tax revenue that was foregone because of the homestead exemption provided for in 15-6-201(1)(x) in the previous tax year. An amount equal to the amount of foregone tax revenue is statutorily appropriated, as provided in 17-7-502, for allocation to the counties of the state. The allocation must be made by May 15 and must be based on the percentage of the taxable valuation of class four property within the county to that of the state as a whole. The county treasurer shall distribute the county's allocation to the taxing jurisdictions within the county based upon their mill levies for the tax year in which the reimbursement is distributed.
NEW SECTION. Section 8. Codification instruction. [Section 7] is intended to be codified as an integral part of Title 15, chapter 1, and the provisions of Title 15, chapter 1, apply to [section 7].
NEW SECTION. Section 9. Effective date -- retroactive applicability. [This act] is effective on passage and approval and applies retroactively, within the meaning of 1-2-109, to tax years beginning after December 31, 1996.