HOUSE BILL NO. 393

INTRODUCED BY D. FUCHS, R. PECK, C. AHNER, R. DALE, D. HAINES, C. HIBBARD, J. MERCER,

K. OHS, S. STANG, E. SWANSON

A BILL FOR AN ACT ENTITLED: "AN ACT AUTHORIZING A LOCAL GOVERNMENT TO IMPOSE LOCAL OPTION INCOME OR LUXURY TAXES IF APPROVED BY THE ELECTORATE OF THE LOCAL GOVERNMENT; PROVIDING THAT A LOCAL OPTION LUXURY TAX RATE MAY NOT EXCEED 3 PERCENT; PROVIDING FOR THE ADMINISTRATION AND DISTRIBUTION OF THE TAXES; PROHIBITING DOUBLE TAXATION; PROVIDING CIVIL AND CRIMINAL PENALTIES NECESSARY FOR THE ADMINISTRATION OF THE TAXES; REQUIRING THAT 50 PERCENT OF LOCAL OPTION TAX REVENUE MUST BE USED TO PROVIDE PROPERTY TAX RELIEF; PROVIDING A STATUTORY APPROPRIATION; AND AMENDING SECTIONS 7-7-4424, 7-7-4428, AND 17-7-502, MCA."

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MONTANA:

NEW SECTION. Section 1. Local option luxury tax -- definitions. As used in [sections 1 through 9], the following definitions apply:

(1) "Department" means the department of revenue.

(2) "Establishments" means businesses that sell luxury goods and services and may include any of the following:

(a) hotels, motels, and other lodging or camping facilities;

(b) restaurants, fast food stores, and other food service establishments;

(c) taverns, bars, night clubs, lounges, and other public establishments that serve beer, wine, liquor, or other alcoholic beverages by the drink;

(d) ski resorts and other recreational facilities that are not subject to the resort tax or resort community tax under Title 7, chapter 6, part 15;

(e) other establishments that sell taxable luxury goods and services.

(3) "Governing body" means the governing body of a local government.

(4) "Local government" means the government of a county or municipality.

(5) "Luxury" means any gift item, luxury item or other item, or service normally sold to the public or to transient visitors or tourists. The term does not include medicine or medical supplies and services.

(6) "Medical supplies" means items that are sold to be used for curative, prosthetic, or medical maintenance purposes, whether or not prescribed by a physician.

(7) "Municipality" means an incorporated city, town, or city-county consolidated government.

(8) "Medicine" means substances sold for curative or remedial properties, including both physician-prescribed and over-the-counter medications.

NEW SECTION. Section 2. Local option luxury tax or income tax authority -- specific delegation. As required by 7-1-112, [sections 1 through 9] specifically delegate to the electors of each local government the power to authorize their local government, within its boundaries, to impose upon its residents and upon transactions within its jurisdiction:

(a) taxes on individual income; or

(b) taxes on luxury goods or services sold, except for goods and services sold for resale, within the local government jurisdiction.

(2) The proposal to impose a tax authorized by this section may be initiated by a petition of the electorate as provided in 7-1-4130, 7-5-132, and 7-5-134 through 7-5-137 or by a resolution of the governing body of the local government.

(3) The petition or resolution referring the tax question must state:

(a) the specific type of tax the local government proposes to impose;

(b) if the tax is a local option luxury tax, the type of establishments that are required to collect the tax;

(c) the proposed tax rate;

(d) proposed exemptions, exclusions, and deductions, if any;

(e) the duration of the local option tax;

(f) the purposes that may be funded by the local option tax revenue;

(g) the estimated total annual revenue to be produced by the proposed tax; and

(h) the date when the local option tax becomes effective, which date may not be earlier than 60 days after the election.

(4) In addition to the provisions required by subsection (3), the proposal must grant the governing body authority to establish administrative procedures, rules, penalties, and other powers consistent with authority granted under [section 2].

NEW SECTION. Section 3. Local option taxes -- election required -- procedure -- notice. (1) A local government may not impose or, except as provided in [section 5 or 8], amend or repeal a local option tax unless the local option tax question has been submitted to the electorate of the local government and approved by a majority of the electors voting on the question.

(2) Upon receipt of an adequate petition or upon adoption of a resolution, the governing body may have the local option tax question placed on the ballot at the next appropriate election.

(3) The question of the imposition of a local option tax may not be placed before the electors more than once in any fiscal year.

NEW SECTION. Section 4. Local option income tax -- administration -- statutory appropriation. If the tax authorized by [section 2] is a percentage of the state income tax liability of residents of a county or municipality or of persons earning or receiving income from activity in the county or municipality, the following provisions apply:

(1) A local option income tax must be administered by the department, and the department shall adopt rules for the administration of the tax. The provisions of Title 15, chapter 30, parts 2 and 3, apply to a local option income tax administered by the department.

(2) Money collected by the department must be deposited in the state special revenue fund of the state treasury.

(3) The department shall, except as provided in subsection (6), return the tax proceeds to the jurisdiction where they were collected, after deducting:

(a) the amount of refunds;

(b) a reserve for anticipated refunds; and

(c) an amount for administering the tax, not to exceed 1% of proceeds collected in each jurisdiction.

(4) The amount necessary to administer the tax is statutorily appropriated, as provided in 17-7-502, to the department.

(5) A taxpayer whose principal place of business or employment is in a jurisdiction with a local income tax but who lives outside the boundaries of that jurisdiction is liable for one-half the rate of the income tax.

(6) If there is partial payment of income taxes, the payment must first be applied to the state income tax obligation before it is applied to the local income tax obligation.

NEW SECTION. Section 5. Local option luxury tax -- rate -- goods and services subject to tax -- administration. (1) The rate of a local option luxury tax must be established by the petition or resolution to refer the tax question to the electorate as provided in [section 2], but the rate may not exceed 3%.

(2) (a) The tax is a tax on the retail value of all luxury goods and services sold as provided in the petition or resolution, except for goods and services sold for resale, within the local government jurisdiction.

(b) Establishments specified in the petition or resolution that sell luxury goods or services or both at retail shall collect the sales tax on luxury goods and services subject to tax.

(3) Not less than 30 days prior to the date on which the local option luxury tax becomes effective, the governing body shall enact an administrative ordinance governing the collection and reporting of the local option tax. The administrative ordinance may be amended at any time that is necessary to effectively administer the local option tax.

(4) The administrative ordinance must specify:

(a) the times that local option luxury taxes collected by businesses are to be remitted to the governing body;

(b) the office, officer, or employee of the governing body responsible for receiving and accounting for the local option luxury tax receipts; and

(c) the office, officer, or employee of the governing body responsible for enforcing the collection of local option luxury taxes and the methods and procedures to be used in enforcing the collection of local option sales taxes due.

(5) The administrative ordinance may include:

(a) further clarification and specificity in what constitutes the retail sale of goods and services that are subject to the local option luxury tax consistent with [section 3];

(b) authorization for business administration and discounts. The discount authorization may allow each vendor and commercial establishment to withhold a percentage of the local option luxury taxes collected to defray its costs for the administration of the tax collection. The percentage rate must be set in the ordinance but may not exceed 5%.

(c) other administrative details necessary for the efficient and effective administration of the local option luxury tax.

NEW SECTION. Section 6. Enforcement -- penalties for nonpayment -- interlocal agreements. (1) Subject to any restrictions in the petition or resolution referred to in [section 2], a governing body may enforce the provisions pertaining to the imposition and collection of the tax by establishing the penalties for failure to report local option taxes due, failure to remit those taxes due, and violations of the administrative ordinance. The penalties may include:

(a) criminal penalties not to exceed a fine of $1,000 or 6 months' imprisonment, or both;

(b) civil penalties if the governing body prevails in a suit for the collection of local option taxes, not to exceed 50% of the local option taxes found due plus the costs and attorney fees incurred by the governing body in the action;

(c) revocation of a county or municipal business license held by the offender; and

(d) any other penalties that may be applicable for violation of an ordinance.

(2) A governing body may contract or enter into interlocal agreements with other local governments or state agencies for the administration of a tax authorized by [section 2].

NEW SECTION. Section 7. Local option tax -- distribution of proceeds by countywide tax. (1) The proceeds of a tax authorized by [section 2] must be used for the purpose stated in the petition or resolution, except that the governing body may use a portion of the proceeds for the administration of the tax.

(2) A local option tax imposed by a county must be levied countywide, and unless otherwise provided by agreement with municipalities, the county shall distribute:

(a) except as provided in subsection (4), local option luxury tax revenue in the following manner:

(i) 50% of the amount collected must be distributed to the municipalities and the county based on the ratio of the population of the municipalities to the population of the county as derived from the most recent population estimates provided by the U.S. bureau of the census or, if estimates are not available, as derived from the most recent decennial U.S. census; and

(ii) 50% of the amount collected must be distributed to the municipalities and the county based on the point of origin of the local option sales tax revenue; and

(b) income tax revenue based on the ratio of the population of the municipalities to the population of the county as derived from the most recent population estimates provided by the U.S. bureau of the census or, if estimates are not available, as derived from the most recent decennial U.S. census.

(3) Before making a distribution under subsection (2), a county shall make a pro rata deduction for its administrative expenses.

(4) A distribution of local option luxury tax revenue may not be made to a resort community that imposes a resort tax under Title 7, chapter 6, part 15.

NEW SECTION. Section 8. Local option tax -- double taxation prohibited. (1) A local option tax may not be levied on the same person or transaction by more than one local government.

(2) If the electorate of a county approves a local option tax after the electorate of a municipality in the county has approved a local option tax on the same person or transaction at the same or a higher rate, persons and transactions in the municipality are exempt from the county tax as long as the municipal tax is in effect. If the municipal tax is at a lower rate than the county tax, the governing body of the municipality shall repeal its tax without a vote of the electorate.

(3) A local option luxury tax may not be adopted by a jurisdiction that levies a resort tax under the provisions of 7-6-1501 through 7-6-1507. If a local option luxury tax is imposed in a county, the transactions in a resort area or resort community that imposes a resort tax are exempt from the local option luxury tax.

(4) The department shall adopt rules to prevent the double taxation under local option income taxes and to resolve the administration and allocation of taxes among local governments for local option income taxes administered by the department.

NEW SECTION. Section 9. Local option tax -- property tax relief. (1) Annually anticipated receipts from a local option tax must be applied to reduce the local government property tax levy for the fiscal year in an amount not less than 50% of the local option tax revenue derived during the preceding fiscal year. The property tax reduction may be implemented only by a reduction in the number of mills levied.

(2) A local government that received more local option tax revenue than had been included in the annual budget shall establish a local government property tax relief fund. All local option tax revenue received in excess of the budget amount must be placed in the fund. The entire fund must be used to replace local government property taxes by a reduction in the number of mills levied by the local government in the ensuing fiscal year.

Section 10. Section 7-7-4424, MCA, is amended to read:

"7-7-4424. Undertakings to be self-supporting. (1) The governing body of a municipality issuing bonds pursuant to this part shall prescribe and collect reasonable rates, fees, or charges for the services, facilities, and commodities of the undertaking and shall revise the rates, fees, or charges from time to time whenever necessary so that the undertaking is and remains self-supporting. The property taxes specifically authorized to be levied for the general purpose served by an undertaking, resort taxes approved, levied, and appropriated to an undertaking in compliance with 7-6-1501 through 7-6-1509, or local option taxes approved, levied, and appropriated to an undertaking in compliance with [sections 1 through 9] constitute revenue of the undertaking and may not result in an undertaking being considered not self-supporting.

(2) The rates, fees, or charges prescribed, along with any appropriated property, resort tax, or local option tax collections, must produce revenue at least sufficient to:

(a) pay when due all bonds and interest on the bonds, the payment of which the revenue has been pledged, charged, or otherwise encumbered, including reserves for the bonds; and

(b) provide for all expenses of operation and maintenance of the undertaking, including reserves."

Section 11. Section 7-7-4428, MCA, is amended to read:

"7-7-4428. Covenants in resolution authorizing issuance of bonds. Any resolution or resolutions authorizing the issuance of bonds under this part may contain covenants as to:

(1) the purpose or purposes to which the proceeds of sale of the bonds may be applied and the disposition of the proceeds;

(2) the use and disposition of the revenue of the undertaking for which the bonds are to be issued, including the creation and maintenance of reserves and including the pledge or appropriation of all or a portion of the property and resort tax or local option tax revenue referred to in 7-7-4424;

(3) the transfer, from the general fund of the municipality to the account or accounts of the undertaking, of an amount equal to the cost of furnishing the municipality or any of its departments, boards, or agencies with the services, facilities, or commodities of the undertaking;

(4) the issuance of other or additional bonds payable from the revenue of the undertaking;

(5) the operation and maintenance of the undertaking;

(6) the insurance to be carried on the undertaking and the use and disposition of insurance money;

(7) books of account and the inspection and audit of the books; and

(8) the terms and conditions upon which the holders or trustees of the bonds or any proportion of the bonds are entitled to the appointment of a receiver by the district court having jurisdiction. The receiver may:

(a) enter and take possession of the undertaking;

(b) operate and maintain the undertaking;

(c) prescribe rates, fees, or charges, subject to the approval of the public service commission; and

(d) collect, receive, and apply all revenue thereafter arising from the undertaking in the same manner as the municipality itself might do."

Section 12. Section 17-7-502, MCA, is amended to read:

"17-7-502. (Temporary) 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: 2-17-105; 3-5-901; 5-13-403; [section 4], 10-3-203; 10-3-310; 10-3-312; 10-3-314; 10-4-301; 15-1-111; 15-23-706; 15-30-195; 15-31-702; 15-36-324; 15-36-325; 15-37-117; 15-38-202; 15-65-121; 15-70-101; 16-1-404; 16-1-406; 16-1-411; 16-11-308; 17-3-106; 17-3-212; 17-3-222; 17-6-101; 17-7-304; 18-11-112; 19-3-319; 19-6-709; 19-9-702; 19-13-604; 19-17-301; 19-18-512; 19-19-305; 19-19-506; 20-8-107; 20-8-111; 20-26-1503; 22-3-1004; 23-5-136; 23-5-306; 23-5-409; 23-5-610; 23-5-612; 23-5-631; 23-7-301; 23-7-402; 37-43-204; 37-51-501; 39-71-503; 39-71-907; 39-71-2321; 42-2-105; 44-12-206; 44-13-102; 50-4-623; 53-6-703; 53-24-206; 67-3-205; 75-1-1101; 75-5-1108; 75-6-214; 75-11-313; 77-1-131; 80-2-103; 80-2-222; 80-4-416; 81-5-111; 82-11-161; 85-20-402; 87-1-513; 90-3-301; 90-4-215; 90-6-331; 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; pursuant to sec. 7(2), Ch. 29, L. 1995, the inclusion of 15-30-195 terminates July 1, 2001; pursuant to sec. 5, Ch. 461, L. 1997, the inclusion of 77-1-131 terminates October 1, 2003; and pursuant to secs. 13, 16(1), Ch. 549, L. 1997, the inclusion of 90-3-301 terminates July 1, 1999.)

17-7-502. (Effective July 1, 2008) 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: 2-17-105; 3-5-901; 5-13-403; [section 4], 10-3-203; 10-3-310; 10-3-312; 10-3-314; 10-4-301; 15-23-706; 15-30-195; 15-31-702; 15-36-324; 15-36-325; 15-37-117; 15-38-202; 15-65-121; 15-70-101; 16-1-404; [16-1-406;] 16-1-411; 16-11-308; 17-3-106; 17-3-212; 17-3-222; 17-5-404; 17-5-804; 17-6-101; 17-7-304; 18-11-112; 19-3-319; 19-6-709; 19-9-702; 19-13-604; 19-17-301; 19-18-512; 19-19-205; 19-19-305; 19-19-506; 20-8-107; 20-9-361; 20-26-1503; 22-3-1004; 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; 42-2-105; 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; 75-5-1108; 75-6-214; 75-11-313; 77-1-505; 80-2-103; 80-2-222; 80-4-416; 81-5-111; 82-11-136; 82-11-161; 85-1-220; 85-20-402; 87-1-513; 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. 68(2), Ch. 422, L. 1997, this version becomes effective July 1, 2008.)"

NEW SECTION. Section 13. Codification instruction. [Sections 1 through 9] are intended to be codified as an integral part of Title 7, chapter 6, and the provisions of Title 7, chapter 6, apply to [sections 1 through 9].

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