SENATE BILL NO. 370

INTRODUCED BY S. STANG

A BILL FOR AN ACT ENTITLED: "AN ACT ALLOWING ALL MUNICIPALITIES AND COUNTIES, BY A VOTE OF THE ELECTORATE, TO ADOPT A LOCAL OPTION SALES TAX; REQUIRING THAT A MINIMUM OF 5 PERCENT OF LOCAL OPTION SALES TAX REVENUE LEVIED BY A MUNICIPALITY OR COUNTY BE USED TO REDUCE PROPERTY TAXES; PROVIDING FOR THE DISTRIBUTION OF LOCAL OPTION SALES TAX REVENUE; PROHIBITING DOUBLE TAXATION; PROVIDING THAT AN EXISTING RESORT TAX IMPOSED BY A RESORT COMMUNITY, RESORT AREA, OR RESORT AREA DISTRICT REMAINS IN EFFECT AS A LOCAL OPTION SALES TAX; AMENDING SECTIONS 7-6-1501, 7-6-1502, 7-6-1503, 7-6-1504, 7-6-1505, 7-6-1506, 7-6-1507, 7-6-1508, 7-6-1509, 7-6-1531, 7-6-1542, 7-7-4424, AND 7-7-4428, MCA; AND PROVIDING AN IMMEDIATE EFFECTIVE DATE."

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

Section 1. Section 7-6-1501, MCA, is amended to read:

"7-6-1501. Local option sales tax -- definitions. As used in 7-6-1501 through 7-6-1509 and [sections 15 through 17], the following definitions apply:

(1) "Luxuries" means any gift item, luxury item, or other item normally sold to the public or to transient visitors or tourists. The term does not include food purchased unprepared or unserved, medicine, medical supplies and services, appliances, hardware supplies and tools, or any necessities of life.

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

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

(4) "Resort area" means an area that:

(a) is an unincorporated area and is a defined contiguous geographic area;

(b) has a population of less than 2,500 according to the most recent federal census or federal estimate;

(c) derives the major portion of its economic well-being from businesses catering to the recreational and personal needs of persons traveling to or through the area for purposes not related to their income production; and

(d) has been designated by the department of commerce as a resort area prior to its establishment by the county commissioners as provided in 7-6-1508.

"

Section 2. Section 7-6-1502, MCA, is amended to read:

"7-6-1502. Local option taxing authority -- specific delegation. As required by 7-1-112, 7-6-1501 through 7-6-1507 and [sections 15 through 17] specifically delegate to the electors of each respective municipality or county the power to authorize their municipality or county to impose a local option sales tax within the county or within the corporate boundary of the municipality ."

Section 3. Section 7-6-1503, MCA, is amended to read:

"7-6-1503. Limit on local option sales tax rate -- goods and services subject to tax. (1) The rate of the local option sales tax must be established by the election petition or resolution provided for in 7-6-1504, but the rate may not exceed 3%.

(2) (a) The local option sales tax is a tax on the retail value of all goods and services sold, except for goods and services sold for resale, within the municipality or county by the following establishments:

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

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

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

(iv) destination ski resorts and other destination recreational facilities.

(b) Establishments that sell luxuries shall collect a tax on those luxuries."

Section 4. Section 7-6-1504, MCA, is amended to read:

"7-6-1504. Local option sales tax -- election required -- procedure -- notice. (1) A municipality or county may not impose or, except as provided in 7-6-1505, amend or repeal a local option sales tax unless the local option sales tax question has been submitted to the electorate of the municipality or county and approved by a majority of the electors voting on the question.

(2) The local option sales tax question may be presented to the electors of:

(a) a municipality by a petition of the electors, as provided by 7-1-4130, 7-5-132, and 7-5-134 through 7-5-137, or by a resolution of the governing body of the municipality; or

(b) a county by a resolution of the board of county commissioners, following receipt of a petition of electors as provided in 7-6-1508 or by a petition of electors as provided in 7-1-4130 and 7-5-131 through 7-5-137.

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

(a) the rate of the local option sales tax;

(b) the duration of the local option sales tax;

(c) the date when the tax becomes effective, which may not be earlier than 35 days after the election; and

(d) the purposes that may be funded by the local option sales tax revenue.

(4) Upon receipt of an adequate petition, the governing body

must have the local option sales tax question placed on the ballot at the next regularly scheduled tax election.

(5) (a) Before the local option sales tax question is submitted to the electorate of a municipality or county, the governing body of the municipality or the board of county commissioners , as applicable, shall publish notice of the goods and services subject to the local option sales tax in a newspaper that meets the qualifications of subsection (5)(b). The notice must be published twice, with at least 6 days separating publications. The first publication must be no more than 30 days prior to the election and the last no less than 3 days prior to the election.

(b) The newspaper must be:

(i) of general, paid circulation with a second-class mailing permit;

(ii) published at least once a week; and

(iii) published in the county where the election will take place.

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

Section 5. Section 7-6-1504, MCA, is amended to read:

"7-6-1504. Local option sales tax -- election required -- procedure -- notice. (1) A municipality or county may not impose or, except as provided in 7-6-1505, amend or repeal a local option sales tax unless the local option sales tax question has been submitted to the electorate of the municipality or county and approved by a majority of the electors voting on the question.

(2) The local option sales tax question may be presented to the electors of:

(a) a municipality by a petition of the electors, as provided by 7-1-4130, 7-5-132, and 7-5-134 through 7-5-137, or by a resolution of the governing body of the municipality; or

(b) a county by a resolution of the board of county commissioners or by a petition of electors as provided in 7-1-4130 and 7-5-131 through 7-5-137.

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

(a) the rate of the local option sales tax;

(b) the duration of the local option sales tax;

(c) the date when the tax becomes effective, which may not be earlier than 35 days after the election; and

(d) the purposes that may be funded by the local option sales tax revenue.

(4) Upon receipt of an adequate petition, the governing body may:

(a) call a special election on the local option sales tax question; or

(b) have the local option sales tax question placed on the ballot at the next regularly scheduled election.

(5) (a) Before the local option sales tax question is submitted to the electorate of a municipality or county, the governing body of the municipality or the board of county commissioners , as applicable, shall publish notice of the goods and services subject to the local option sales tax in a newspaper that meets the qualifications of subsection (5)(b). The notice must be published twice, with at least 6 days separating publications. The first publication must be no more than 30 days prior to the election and the last no less than 3 days prior to the election.

(b) The newspaper must be:

(i) of general, paid circulation with a second-class mailing permit;

(ii) published at least once a week; and

(iii) published in the county where the election will take place.

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

Section 6. Section 7-6-1505, MCA, is amended to read:

"7-6-1505. Local option sales tax administration. (1) In this section, "governing body" means:

(a) the governing body of a municipality;

(b) if the local option sales tax has been approved by the electors of a county, the board of county commissioners; or

(c) if the electors of the resort area establish a resort area district, the district board of directors.

(2) Not less than 30 days prior to the date that the local option sales tax becomes effective, the governing body shall enact an administrative ordinance governing the collection and reporting of the local option sales taxes. This administrative ordinance may be amended at any time to effectively administer the local option sales tax.

(3) The administrative ordinance must specify:

(a) the times that 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 sales tax receipts;

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

(d) the penalties for failure to report local option sales taxes due, failure to remit taxes due, and violations of the administrative ordinance. The penalties may include:

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

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

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

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

(4) The administrative ordinance may include:

(a) further clarification and specificity in the categories of goods and services that are subject to the local option sales tax consistent with 7-6-1503;

(b) authorization for business administration and prepayment discounts. The discount authorization may allow each vendor and commercial establishment to:

(i) withhold up to 5% of the local option sales taxes collected to defray their costs for the administration of the tax collection; or

(ii) receive a refund of up to 5% of the local option sales tax payment received from them by the governing body 10 days prior to the collection due date established by the administrative ordinance.

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

Section 7. Section 7-6-1506, MCA, is amended to read:

"7-6-1506. Use of local option sales tax revenue -- bond issue -- pledge. (1) Unless otherwise restricted by the voter-approved tax authorization provided for in 7-6-1504 and except as provided in 7-6-1507, a municipality or county may appropriate and expend revenue derived from a local option sales tax for any activity, undertaking, or administrative service that the municipality or county is authorized by law to perform, including costs resulting from the imposition of the tax.

(2) A municipality or county may issue bonds to provide, install, or construct any of the public facilities, improvements, or undertakings authorized under 7-7-4101, 7-7-4404, and 7-12-4102. Bonds issued under this section must be authorized by a resolution of the governing body, stating the terms, conditions, and covenants of the municipality or county as the governing body considers appropriate. The bonds may be sold at a discount at a public or private sale.

(3) A municipality or county may pledge for repayment of bonds issued under this section the revenue derived from a local option sales tax, special assessments levied for and revenue collected from the facilities, improvements, or undertakings for which the bonds are issued, and any other source of revenue authorized by the legislature to be imposed or collected by the municipality or county. The bonds do not constitute debt for purposes of any statutory debt limitation, provided that in the resolution authorizing the issuance of the bonds, the municipality or county determines that the local option sales tax revenue, special assessments levied for and revenue from the facilities, improvements or undertakings, or other sources of revenue, if any, pledged to the payment of the bonds will be sufficient in each year to pay the principal of the bonds and interest on the bonds when due. Bonds may not be issued pledging proceeds of the local option sales tax for repayment unless the municipality or county in the resolution authorizing issuance of the bonds determines that in any fiscal year, the annual revenue expected to be derived from the local option sales tax, less the amount required to reduce property taxes pursuant to 7-6-1507, equals not less than 125% of the average amount of the principal and interest payable from the local option sales tax revenue on the bonds and any other outstanding bonds payable from the local option sales tax except any bonds to be refunded upon the issuance of the proposed bonds."

Section 8. Section 7-6-1507, MCA, is amended to read:

"7-6-1507. Local option sales tax -- municipal or county property tax relief. (1) Annually anticipated receipts from the local option sales tax imposed by a municipality or by a county must be applied to reduce the municipal or county property tax levy for the fiscal year in an amount equal to at least 5% of the local option sales tax revenue derived during the preceding fiscal year.

(2) A municipality or county that received more local option sales tax revenue than had been included in the annual budget shall establish a property tax relief fund. All local option sales tax revenue received in excess of the budget amount must be placed in the fund. The entire fund must be used to replace property taxes in the ensuing fiscal year."

Section 9. Section 7-6-1508, MCA, is amended to read:

"7-6-1508. Establishment of resort area -- taxing authority -- approval by electorate. (1) The establishment of a resort area for the purpose of imposing a local option sales tax may be initiated by a written petition to the board of county commissioners of the county in which the area is located. The petition must contain a description of the proposed resort area and must be signed by at least 15% of the electors residing in the proposed area.

(2) The petition must include a proposal to impose a local option sales tax within the proposed resort area, including the rate, duration, effective date, and purpose of the tax as provided in 7-6-1504.

(3) Upon receiving a petition to establish a resort area, the board of county commissioners shall present the question to the electors residing in the proposed resort area as provided in 7-6-1504."

Section 10. Section 7-6-1509, MCA, is amended to read:

"7-6-1509. Use of resort area local option sales tax. (1) (a) Except as provided in subsection (1)(b) or unless otherwise provided by the resolution approved by the electors under 7-6-1504, the board of county commissioners shall appropriate and spend revenue derived from a local option sales tax for the purpose stated in the resolution.

(b) If the electors of a resort area have established a resort area district, the district board of directors shall appropriate and spend revenue derived from a local option sales tax for the purpose stated in the resolution.

(2) If the electors of a resort area have not established a resort area district, the resort area shall reimburse the board of county commissioners for costs associated with the collection, administration, and litigation of the local option sales tax."

Section 11. Section 7-6-1531, MCA, is amended to read:

"7-6-1531. Resort area district -- definitions. For the purposes of 7-6-1531 through 7-6-1550, unless the context requires otherwise, the following definitions apply:

(1) "Board" means the board of directors of the resort area district.

(2) "Resort area" means a resort area created under 7-6-1508 that:

(a) is an unincorporated area and a defined geographic area;

(b) has a population of less than 2,500 according to the most recent federal census or federal estimate;

(c) derives the major portion of its economic well-being from businesses catering to the recreational and personal needs of persons traveling to or through the area for purposes not related to the persons' income production; and

(d) has been designated by the department of commerce as a resort area prior to its establishment by the board of county commissioners as provided in 7-6-1508.

(3) "Resort area district" means a district created under 7-6-1531 through 7-6-1550 that has been established as a resort area under 7-6-1508."

Section 12. Section 7-6-1542, MCA, is amended to read:

"7-6-1542. Resort area district board powers related to administration and expenditure of local option sales tax revenue. The board of a resort area district created under 7-6-1531 through 7-6-1550 may:

(1) appropriate and expend revenue from a local option sales tax for any activity, undertaking, or administrative service authorized in the resolution creating a resort area and adopting a local option sales tax; and

(2) adopt administrative ordinances necessary to aid in the collection or reporting of local option sales taxes and in the expenditure of local option sales tax revenue."

Section 13. 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 or local option sales taxes approved, levied, and appropriated to an undertaking in compliance with 7-6-1501 through 7-6-1509 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 or local option sales 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 14. 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 local option sales 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."

NEW SECTION. Section 15. Distribution of local option sales tax proceeds. (1) A local option sales tax imposed by the county must be levied countywide. Unless otherwise provided by agreement with municipalities, the county shall distribute local option sales tax revenue to the municipalities in the following manner:

(a) 50% of the amount collected in the county, based on the ratio of population of the municipality to the population of the county derived from the most recent estimates by the U.S. bureau of the census or if estimates are not available, derived from the most recent decennial U.S. census; and

(b) 50% based on the point of origin of the local option sales tax revenue.

(2) For purposes of revenue distribution under this section, a resort area or resort area district must be treated in the same manner as a municipality.

NEW SECTION. Section 16. Double taxation prohibited. (1) A local option sales tax may not be levied on the same person or transaction by more than one local government, including a resort area or resort area district.

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

(3) A municipality, resort area, or resort area district may not enact a local option sales tax if a local option sales tax is in effect in the county within which the municipality, resort area, or resort area district lies.

NEW SECTION. Section 17. Transition. A resort tax that was enacted in a resort community, resort area, or resort area district prior to [the effective date of this act] remains in effect as a local option sales tax under the provisions of [this act] until:

(1) the rights and duties that matured, penalties that were incurred, or proceedings that were begun before [the effective date of this act] have been satisfied, resolved, or otherwise terminated under the original requirements authorizing the resort tax;

(2) the electorate of the municipality, resort area, or resort area district repeals the original authority to enact a resort tax and enacts instead a local option sales tax under the provisions of [this act] or dissolves the resort area district; or

(3) the electorate of the county enacts a local option sales tax under the provisions of [this act].

NEW SECTION. Section 18. Codification instruction. [Sections 15 through 17] are intended to be codified as an integral part of Title 7, chapter 6, part 15, and the provisions of Title 7, chapter 6, part 15, apply to [sections 15 through 17].

NEW SECTION. Section 19. Saving clause. [This act] does not affect rights and duties that matured, penalties that were incurred, or proceedings that were begun before [the effective date of this act].

NEW SECTION. Section 20. Contingent voidness. If Constitutional Initiative No. 75, enacting Article VIII, section 17, of the Montana constitution, is declared invalid, then [section 4] is void.

NEW SECTION. Section 21. Effective date. (1) Except as provided in subsection (2), [this act] is effective on passage and approval.

(2) If Constitutional Initiative No. 75, enacting Article VIII, section 17, of the Montana constitution, is declared invalid, then [section 5] is effective on the date of declaration.

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