SENATE BILL NO. 517

INTRODUCED BY A. ELLIS

A BILL FOR AN ACT ENTITLED: "AN ACT GENERALLY REVISING THE INCOME TAXATION OF INDIVIDUALS, PARTNERSHIPS, AND SUBCHAPTER S. CORPORATIONS, INCLUDING TRUSTS AND ESTATES, TO RELATE THE STATE INDIVIDUAL INCOME TAX TO FEDERAL TAXABLE INCOME; PROVIDING A HOUSEHOLD TAX CREDIT; REDUCING INCOME TAX RATES; AMENDING SECTIONS 7-13-308, 7-14-1133, 7-14-1636, 7-34-2416, 13-37-218, 15-30-101, 15-30-102, 15-30-103, 15-30-105, 15-30-106, 15-30-133, 15-30-134, 15-30-135, 15-30-137, 15-30-142, 15-30-166, 15-30-303, 15-31-131, 15-31-202, 15-32-106, 15-61-202, 15-61-203, 15-61-204, 15-62-204, 15-63-202, 15-63-203, 19-2-1004, 19-18-612, 19-19-504, 19-20-706, 19-21-212, 33-27-101, 33-27-102, 33-27-103, 37-4-104, 67-11-303, 87-2-102, AND 87-2-105, MCA; REPEALING SECTIONS 15-30-107, 15-30-110, 15-30-111, 15-30-112, 15-30-113, 15-30-114, 15-30-115, 15-30-116, 15-30-117, 15-30-121, 15-30-122, 15-30-123, 15-30-126, 15-30-127, 15-30-131, 15-30-136, 15-30-156, 15-30-159, 15-30-160, 19-7-407, MCA; AND PROVIDING AN IMMEDIATE EFFECTIVE DATE AND AN APPLICABILITY DATE."

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

Section 1. Section 7-13-308, MCA, is amended to read:

"7-13-308. Revenue bonds and obligations. (1) A joint district may borrow money for any purpose provided in this part and issue bonds, including refunding bonds, in a form and upon terms that it may determine, payable from any revenue of the joint district, including revenue from:

(a) service charges authorized in 7-13-307;

(b) grants or contributions from the state or federal government; or

(c) other sources.

(2) The bonds may be issued by resolution of the joint district without an election and without any limitation of the amount, except that bonds may not be issued at any time if the total amount of principal and interest to become due in any year on the bonds and on any then-outstanding bonds for which revenue from the same source or sources is pledged exceeds the amount of the revenue to be received in that year as estimated in the resolution authorizing the issuance of the bonds. The board shall take all action necessary and possible to impose, maintain, and collect rates, charges, rentals, and taxes, if any are pledged, sufficient to make the revenue from the pledged source in a year at least equal to the amount of the principal and interest due in that year.

(3) The bonds may be sold at public or private sale and may bear interest as provided in 17-5-102. Except as otherwise provided in this part, bonds issued pursuant to this part by a joint district may be payable in principal and interest solely from revenue of the joint district and must state on their face the applicable limitations or restrictions regarding the source from which the principal and interest are payable.

(4) Bonds issued by a joint district under this part are issued for an essential public and governmental purpose by a political subdivision .

(5) For the security of any bond, the joint district may by resolution make and enter into any covenant, agreement, or indenture. The sums required from time to time to pay principal and interest and to create and maintain a reserve for the bonds may be paid from any revenue referred to in this part prior to the payment of current costs of operation and maintenance of the solid waste management system."

Section 2. Section 7-14-1133, MCA, is amended to read:

"7-14-1133. Bonds and obligations. (1) Except for providing financial support to a private development organization, including a corporation organized under Title 32, chapter 4, whose purpose is to advance the economic development of its jurisdiction and of the state and its citizens, an authority may borrow money for any of its corporate purposes and issue bonds, including refunding bonds, for any of its corporate purposes. The bonds may be in the form and upon terms that it determines, payable out of any revenue of the authority, including revenue derived from:

(a) any port or transportation and storage facility;

(b) taxes levied pursuant to 7-14-1131 or 67-10-402;

(c) grants or contributions from the federal government; or

(d) other sources.

(2) The bonds may be issued by resolution of the authority, without an election and without any limitation of amount, except that bonds may not be issued at any time if the total amount of principal and interest to become due in any year on the bonds and on any then outstanding bonds for which revenue from the same source is pledged exceeds the amount of revenue to be received in that year, as estimated in the resolution authorizing the issuance of the bonds. The authority shall take all action necessary and possible to impose, maintain, and collect rates, charges, and rentals and to request taxes, if any are pledged, sufficient to make the revenue from the pledged source in that year at least equal to the amount of principal and interest due in that year.

(3) The bonds may be sold at public or private sale and may bear interest as provided in 17-5-102. Except as otherwise provided in this part, any bonds issued pursuant to this part by an authority may be payable as to principal and interest solely from revenue of the authority or from particular port, transportation, storage, or other facilities of the authority. The bonds must state on their face the applicable limitations or restrictions regarding the source from which principal and interest are payable.

(4) Bonds issued by an authority, county, or municipality pursuant to the provisions of this part are declared to be issued for an essential public and governmental purpose by a political subdivision .

(5) (a) For the security of bonds, the authority, county, or municipality may by resolution make and enter into any covenant, agreement, or indenture and may exercise any additional powers authorized to be exercised by a municipality under Title 7, chapter 7, parts 44 and 45. The sums required from time to time to pay principal and interest and to create and maintain a reserve for the bonds may be paid from any revenue referred to in this part, prior to the payment of current costs of operation and maintenance of the facilities.

(b) As further security for the bonds, the authority, with the approval of the governing body of the county or municipality that created the authority, may pledge, lease, sell, mortgage, or grant a security interest in all or any portion of its port, transportation, storage, or other facilities, whether or not the facilities are financed by the bonds. The instrument effecting the pledge, lease, sale, mortgage, or security interest may contain any agreements and provisions customarily contained in instruments securing bonds, as the commissioners of the authority consider advisable. The provisions must be consistent with this part and are subject to and must be in accordance with the laws of this state governing mortgages, trust indentures, security agreements, or instruments. The instrument may provide that in the event of a default in the payment of principal or interest on the bonds or in the performance of any agreement contained in the proceedings authorizing the bonds or instrument, the payment or performance may be enforced by mandamus or by the appointment of a receiver in equity. The receiver may collect charges, rental, or fees and may apply the revenue from the mortgaged property or collateral in accordance with the proceedings or the provisions of the instrument.

(6) Nothing in 7-14-1134 or this section may be construed to limit the use of port authority revenue, including federal and state money as described in 7-14-1136, to make grants and loans or to otherwise provide financial and other support to private development organizations, including corporations organized under the provisions of the development corporation act in Title 32, chapter 4. The credit of the state, county, or municipal governments or their agencies or authorities may not be pledged to provide financial support to the development organizations."

Section 3. Section 7-14-1636, MCA, is amended to read:

"7-14-1636. Bonds and obligations. (1) An authority may borrow money for any of its corporate purposes and issue bonds for its purposes, including refunding bonds, in a form and upon terms that it determines, payable out of any revenue of the authority, including revenue derived from:

(a) a railroad;

(b) taxes levied pursuant to 7-14-1632;

(c) grants or contributions from the federal government; or

(d) other sources.

(2) The bonds may be issued by resolution of the authority, without an election and without any limitation of amount, except that bonds may not be issued at any time if the total amount of principal and interest to become due in a year on the bonds and on any then-outstanding bonds for which revenue from the same source is pledged exceeds the amount of the revenue to be received in that year, as estimated in the resolution authorizing the issuance of the bonds. The authority shall take all action necessary and possible to impose, maintain, and collect rates, charges, and rentals and to request taxes, if any are pledged, sufficient to make the revenue from the pledged source in the year at least equal to the amount of principal and interest due in that year.

(3) The bonds may be sold at public or private sale and may bear interest as provided in 17-5-102. Bonds issued by an authority pursuant to this part may be payable as to principal and interest solely from revenue of the authority and must state on their face the applicable limitations or restrictions regarding the source from which the principal and interest are payable.

(4) Bonds issued by an authority pursuant to the provisions of this part are declared to be issued for an essential public and governmental purpose by a political subdivision .

(5) For the security of the bonds, the authority may by resolution make and enter into any covenant, agreement, or indenture and may exercise any additional powers authorized to be exercised by a municipality under Title 7, chapter 7, parts 44 and 45. The sums required from time to time to pay principal and interest and to create and maintain a reserve for the bonds may be paid from the revenue referred to in this part, prior to the payment of current costs of operation and maintenance of the facilities."

Section 4. Section 7-34-2416, MCA, is amended to read:

"7-34-2416. Tax-exempt status of bonds. Bonds issued by a county pursuant to the provisions of 7-34-2411 and 7-34-2413 through 7-34-2418 are declared to be issued for an essential public and governmental purpose by a political subdivision ."

Section 5. Section 13-37-218, MCA, is amended to read:

"13-37-218. Limitations on receipts from political committees. A candidate for the state senate may receive no more than $1,000 in total combined monetary contributions from all political committees contributing to the candidate's campaign, and a candidate for the state house of representatives may receive no more than $600 in total combined monetary contributions from all political committees contributing to the candidate's campaign. The limitations must be multiplied by the inflation factor, as defined in 15-30-101, for the year in which general elections are held . The resulting figure must be rounded off to the nearest $50 increment. The commissioner shall publish the revised limitations as a rule. In-kind contributions must be included in computing these limitation totals. The limitation provided in this section does not apply to contributions made by a political party eligible for a primary election under 13-10-601."

Section 6. 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) "Adjusted gross income" means "adjusted gross income" as defined in section 62 of the Internal Revenue Code (26 U.S.C. 62).

(2) "Consumer price index" means the consumer price index, United States city urban average, for all items, using the 1982-84 base of 100, as published by the bureau of labor statistics of the U.S. department of labor.

(3) "Corporation" or "C. Corporation" means a corporation, limited liability company, or other entity that is not treated as a partnership, S. corporation, or trust for federal income tax purposes.

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

(5) "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.

(6) "Federal taxable income" means, when referring to an individual, "taxable income", as that term is defined and described in section 63 of the Internal Revenue Code (26 U.S.C. 63), and means, when referring to a trust or estate, "taxable income", as that term is defined and described in subtitle A, chapter 1, subchapter J, of the Internal Revenue Code (26 U.S.C., subchapter J).

(7) "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.

(8) "Foreign government" means any jurisdiction other than the one embraced within the United States, its territories, and its possessions.

(9) "Head of household" means a "head of household" as that term is defined and described in section 2(b) of the Internal Revenue Code (26 U.S.C. 2(b)).

(10) "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 2000.

(11) "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.

(12) "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended, or as it may be labeled or further amended. References to specific provisions of the Internal Revenue Code mean those provisions as they may be otherwise labeled or further amended.

(13) "Joint return" means a single return made jointly by a married individual with that individual's spouse.

(14) "Knowingly" is as defined in 45-2-101.

(15) "Limited liability company" means an entity defined in 35-8-102(11).

(16) "Married individual" means "married individual" as that term is defined and described in section 7703 of the Internal Revenue Code (26 U.S.C. 7703).

(17) (a) "Montana source income" means:

(i) wages, salary, tips and other compensation for services performed in the state or while a resident of the state;

(ii) gain attributable to the sale or other transfer of noninventory property located in the state, sold or otherwise transferred while a resident of the state, or used or held in connection with a trade, business, or occupation carried on in the state;

(iii) interest from installment sales of real property or tangible commercial or business personal property located in the state or received or accrued while a resident of the state;

(iv) that portion of dividends received or accrued during the taxable period that the period of Montana residency bears to the total taxable period;

(v) net income or loss derived from a trade, business, profession, or occupation carried on in the state or while a resident of the state;

(vi) net income or loss derived from farming activities carried on in the state or while a resident of the state;

(vii) net rents from real property and tangible personal property located in the state or received or accrued while a resident of the state;

(viii) net royalties to the extent that the property is used in the state. The extent of use in the state is determined by multiplying the royalties by a fraction, the numerator of which is the number of days of physical location of the property in the state during the royalty period in the taxable period and the denominator of which is the number of days of physical location of the property everywhere during all royalty periods in the taxable period, but if the physical location is unknown or unascertainable by the taxpayer, the property is considered used in the state in which it was located at the time that the rental or royalty payer obtained possession or at the time that the royalties were received or accrued while a resident of the state.

(ix) patent royalties to the extent that the person paying them employs the patent in the production, fabrication, manufacturing, or other processing in the state, a patented product is produced in the state, or the royalties were received or accrued while a resident of the state;

(x) net copyright royalties to the extent that printing or other publication originates in the state or the royalties were received or accrued while a resident of the state;

(xi) partnership income, gain, loss, deduction, or credit, or item of income, gain, loss, deduction, or credit, derived from a trade, business, occupation, or profession carried on in the state or derived from the sale or other transfer or the rental, lease, or other commercial exploitation of property located in the state or taken into account while a resident of the state;

(xii) an S. corporation's separately and nonseparately stated income, gain, loss, deduction, or credit, or item of income, gain, loss, deduction, or credit, derived from a trade, business, occupation, or profession carried on in the state or derived from the sale or other transfer or the rental, lease, or other commercial exploitation of property located in the state or taken into account while a resident of the state;

(xiii) income, gain, loss, deduction, or credit, or item of income, gain, loss, deduction, or credit, of an estate or trust with nexus with the state;

(xiv) that portion of social security benefits received or accrued during the taxable period that the period of Montana residency bears to the total taxable period;

(xv) that portion of taxable individual retirement account distributions, annuities, pensions, and other retirement benefits received during the taxable period that the period of Montana residency bears to the total taxable period; and

(xvi) any other income attributable to the state, including but not limited to lottery winnings, state and federal tax refunds, nonemployee compensation, recapture of tax benefits, and capital loss addbacks.

(b) The term does not include compensation for military service of members of the armed services of the United States who are not Montana residents and who are residing in Montana solely by reason of compliance with military orders and does not include income derived from their personal property located in the state except with respect to personal property used in or arising from a trade or business carried on in Montana.

(18) (a) "Montana taxable income" means federal taxable income as determined for federal income tax purposes, less, to the extent that it is included in federal taxable income but exempt from taxation by the state under federal law, the following:

(i) interest from obligations of the United States government and exempt-interest dividends attributable to the interest that are exempt from taxation by the state under federal law;

(ii) railroad retirement benefits; and

(iii) tribal source income.

(b) In determining Montana taxable income, partners of a partnership shall increase federal taxable income by their distributive share of the partnership's loss and deduction, or item of loss and deduction, if the partnership does not file a return as required by 15-30-133.

(c) In determining Montana taxable income, shareholders of S. corporations shall increase federal taxable income by their percentage of ownership of separately and nonseparately stated loss and deduction, or item of loss and deduction, if the S. corporation does not file a return as required by [section 18].

(19) "Paid", for the purposes of 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 federal taxable income is computed .

(20) "Partnership" means a partnership, a limited liability company, or other entity that is treated as a partnership for federal income tax purposes, and "partner" means a member of a partnership or other entity that is treated as a partnership.

(21) "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 (26 U.S.C. 401), 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 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 (26 U.S.C. 401 through 408) 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.

(22) "Purposely" is as defined in 45-2-101.

(23) "Received", for the purpose of 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 federal taxable income is computed .

(24) "Resident" means, when referring to the taxes imposed in this chapter, an individual who has a residence in the state pursuant to the rules set forth in 1-1-215.

(25) "S. corporation" means an S. corporation, limited liability company, or other entity that is treated as an S. corporation for federal income tax purposes, and "shareholder" means a shareholder or member of an S. corporation or other entity treated as an S. corporation.

(26) "Stock dividends" means new stock issued, for surplus or profits capitalized, to shareholders in proportion to their previous holdings.

(27) "Surviving spouse" means a "surviving spouse" as that term is defined and described in section 2(a) of the Internal Revenue Code (26 U.S.C. 2(a)).

(28) "Taxable year" or "tax year" means the taxpayer's taxable year for federal income tax purposes.

(29) "Taxpayer" includes any person or fiduciary, resident or nonresident, subject to a tax imposed by this chapter and does not include a C. corporation."

Section 7. Section 15-30-102, MCA, is amended to read:

"15-30-102. Construction of income. For the purpose of raising revenue, the income required to be shown on returns under this chapter and taken as the basis for determining the tax may not be classified or held or construed to be property. All income except what has been expressly exempted under the provisions of this chapter or the Internal Revenue Code and income not permitted to be taxed under the constitution of this state or the constitution or laws of the United States must be included and considered in determining the income of taxpayers subject to tax within the provisions of this chapter."

Section 8. Section 15-30-103, MCA, is amended to read:

"15-30-103. Rate of tax. (1) There must be levied, collected, and paid for each taxable year commencing on or after January 1, 2000, upon the Montana taxable income of every taxpayer subject to this tax, a tax on the following brackets of Montana taxable income as adjusted under subsection (2) at the following rates:

(a) for every married individual who makes a joint return and every surviving spouse:

(i) on the first $15,000 of Montana taxable income or any part of that income, 4%;

(ii) on the next $45,000 of Montana taxable income or any part of that income, 5%;

(iii) on the next $40,000 of Montana taxable income or any part of that income, 6%; and

(iv) on any Montana taxable income in excess of $100,000 or any part of that income, 7%;

(b) for every head of household:

(i) on the first $12,000 of Montana taxable income or any part of that income, 4%;

(ii) on the next $36,000 of Montana taxable income or any part of that income, 5%;

(iii) on the next $32,000 of Montana taxable income or any part of that income, 6%; and

(iv) on any Montana taxable income in excess of $80,000 or any part of that income, 7%;

(c) for every individual other than a surviving spouse or head of household who is not a married individual:

(i) on the first $9,000 of Montana taxable income or any part of that income, 4%;

(ii) on the next $27,000 of Montana taxable income or any part of that income, 5%;

(iii) on the next $24,000 of Montana taxable income or any part of that income, 6%; and

(iv) on any Montana taxable income in excess of $60,000 or any part of that income, 7%;

(d) for every married individual who does not make a joint return:

(i) on the first $7,500 of Montana taxable income or any part of that income, 4%;

(ii) on the next $22,500 of Montana taxable income or any part of that income, 5%;

(iii) on the next $20,000 of Montana taxable income or any part of that income, 6%; and

(iv) on any Montana taxable income in excess of $50,000 or any part of that income, 7%;

(e) for every estate and every trust not exempt from taxation under the Internal Revenue Code:

(i) on the first $9,000 of Montana taxable income or any part of that income, 4%;

(ii) on the next $27,000 of Montana taxable income or any part of that income, 5%;

(iii) on the next $24,000 of Montana taxable income or any part of that income, 6%; and

(iv) on any Montana taxable income in excess of $60,000 or any part of that income, 7%.

(2) By November 1 of each year, the department shall multiply the bracket amounts contained in subsection (1) by the inflation factor for that taxable year and round the cumulative brackets to the nearest $100. The resulting adjusted brackets are effective for that taxable year and must be used as the basis for imposition of the tax in subsection (1) ."

Section 9. Section 15-30-105, MCA, is amended to read:

"15-30-105. Tax on nonresident -- alternative tax based on gross sales. (1) (a) A tax is imposed on every nonresident equal to the tax computed under 15-30-103 as if the nonresident were a resident during the entire taxable period, multiplied by the ratio of:

(i) Montana source income; to

(ii) total income from all sources as determined for federal income tax purposes.

(b) This subsection (1) does not permit any item of income, gain, loss, deduction, or credit to be counted more than once in determining the amount of Montana source income, and the department is authorized to adopt rules that are reasonably necessary to prevent duplication or to provide for allocation of particular items of income, gain, loss, deduction, or credit.

(2) Pursuant to the provisions of Article III, section 2, of the Multistate Tax Compact, every nonresident taxpayer required to file a return and whose only activity in Montana consists of making sales and who does not own or rent real estate or tangible personal property within Montana and whose annual gross volume of sales made in Montana during the taxable year does not exceed $100,000 may elect to pay an income tax of 1/2 of 1% of the dollar volume of gross sales made in Montana during the taxable year. The tax is in lieu of the tax imposed under 15-30-103 and subsection (1)(a) of this section. The gross volume of sales made in Montana during the taxable year must be determined according to the provisions of Article IV, sections 16 and 17, of the Multistate Tax Compact."

Section 10. Section 15-30-106, MCA, is amended to read:

"15-30-106. Tax on lump-sum distributions and includable gain. (1) There is imposed a separate tax on lump-sum distributions.

(2) The tax is 10% of the amount of tax determined under section 402(e) of the Internal Revenue Code (26 U.S.C. 402(e)).

(3) A tax equal to 10% of the amount of tax determined under section 644 of the Internal Revenue Code (26 U.S.C. 644) is imposed on the recipient of the includable gain.

(4) All means available for the administration and enforcement of income taxes must be applied to the taxes on lump-sum distributions and includable gain."

Section 11. Section 15-30-133, MCA, is amended to read:

"15-30-133. Income tax involving partnership -- partnership statements required. (1) Partners and not partnerships are subject to tax. A partnership that has Montana source income shall file an information return on forms prescribed by the department on or before the 15th day of the 4th month following the close of the partnership's annual accounting period and, at the request of the department, shall furnish a copy of its federal partnership return.

(2) A partner of a partnership that has Montana source income and a resident who is a partner of a partnership during any part of the taxable period shall include a copy of the partner's federal schedule of the partner's share of income, deductions, and credits, when filing the Montana individual income tax return.

(3) If two or more nonresident partners whose only Montana source income derives from the partnership consent, a partnership with resident and nonresident partners may elect to file a composite tax return and remit a composite tax payment on behalf of all consenting nonresident partners whose only Montana source income derives from the partnership, as provided in [section 19]. The electing partnership and the consenting nonresident partners are not required to file the returns otherwise required by this section or pay the income taxes otherwise imposed in this chapter.

(4) A partner's distributive share of loss, deduction, or credit, or item of loss, deduction, or credit, of a partnership is not allowed if the partnership does not file a return as required by subsection (1)."

Section 12. Section 15-30-134, MCA, is amended to read:

"15-30-134. Determination of status and effect of federal status elections. For purposes of this chapter:

(1) marital status, dependent status, and any other status must be determined as provided in the Internal Revenue Code;

(2) any status that a taxpayer claims or elects in a federal income tax return with respect to the taxpayer or another individual conclusively determines the status of that individual for the purposes of this chapter; and

(3) a joint Montana individual income tax return must be filed for any tax year in which a joint federal income tax return is filed."

NEW SECTION. Section 13. Household credit. (1) An individual who maintains a household and whose federal adjusted gross income is less than $50,000 must be allowed a nonrefundable credit against the tax imposed by 15-30-103(1)(a),(b),(c), or (d).

(2) With respect to any individual whose federal adjusted gross income is less than $25,000, the amount of the credit is as follows:

(a) in the case of a married individual who makes a joint return or in the case of a surviving spouse, the credit is $500, plus $100 for each dependent child for whom an exemption is allowed by section 151(c) of the Internal Revenue Code (26 U.S.C. 151(c));

(b) in the case of a head of a household, the credit is $400, plus $100 for each dependent child for whom an exemption is allowed by section 151(c) of the Internal Revenue Code (26 U.S.C. 151(c));

(c) in the case of an individual who is not a surviving spouse, the head of a household, or a married individual, the credit is $300.

(3) With respect to any individual whose federal adjusted gross income is at least $25,000 but less than $50,000, the credit is the amount determined under subsection (2) multiplied by the decimal amount determined by dividing the difference between $50,000 and the individual's federal adjusted gross income, by $25,000.

(4) An individual must be treated as maintaining a household for any period only if more than half the cost of maintaining a household for the period is furnished by the individual or, if the individual is married during the period, is furnished by the individual and that individual's spouse.

(5) If the taxpayer is married at the close of the taxable year, the credit is allowed only if the taxpayer and spouse file a joint return for the year.

(6) A nonresident must be allowed the proportion of the credit that the nonresident's Montana source income bears to their total adjusted gross income as determined for federal income tax purposes.

(7) The department may adopt rules that are necessary to implement and administer this section.

Section 14. Section 15-30-135, MCA, is amended to read:

"15-30-135. Tax on beneficiaries or fiduciaries of estates or trusts. (1) A tax is imposed on either the fiduciaries or the beneficiaries of estates and trusts

in the same manner and to the same extent as federal income tax is imposed on them under the Internal Revenue Code.

(2) The fiduciary is responsible for making the return of income for the estate or trust for which the fiduciary acts, whether the fiduciary or the beneficiaries are taxable with reference to the income of the estate or trust. The fiduciary shall include in the return a statement of each beneficiary's distributive share of net income, whether or not distributed before the close of the taxable year for which the return is made and, at the request of the department, shall furnish a copy of the federal income tax return for the estate or trust. A beneficiary of an estate or trust shall include a copy of the federal schedule of the beneficiary's share of income, deductions, and credits when filing the Montana individual income tax return.

( The tax imposed by 15-30-103(1)(e) is imposed on the fiduciary of the estate or trust and must be paid by the fiduciary.

"

Section 15. Section 15-30-137, MCA, is amended to read:

"15-30-137. Determination of tax of estates and trusts. The amount of tax is determined from Montana taxable income of an estate or trust by applying the rates contained in 15-30-103(1)(e). Credits allowed individuals under Title 15, chapter 30, also apply to estates and trusts when applicable."

Section 16. Section 15-30-142, MCA, is amended to read:

"15-30-142. Returns and payment of tax -- penalty and interest -- refunds -- credits. (1) Each individual and each estate or trust required to file a federal income tax return pursuant to the Internal Revenue Code is liable for a return to be filed on forms and according to rules that the department may prescribe. A nonresident shall file a return if the nonresident's Montana taxable income for the tax year exceeds the exemption amount that the nonresident is entitled to claim for the nonresident and the nonresident's spouse under section 151(d) of the Internal Revenue Code (26 U.S.C. 151(d)).

(2) In accordance with instructions set forth by the department, each taxpayer who is married and living with the taxpayer's husband or wife and who is required to file a return may, at the taxpayer's option, file a joint return with the taxpayer's husband or wife even though one of the spouses has neither gross income nor deductions. If a joint return is made, the tax must be computed on the aggregate Montana taxable income and the liability with respect to the tax is joint and several. If a joint return has been filed for a tax year, the spouses may not file separate returns after the time for filing the return of either has expired unless the department consents.

(3) If a taxpayer is unable to make the taxpayer's own return, the return must be made by an authorized agent or by a guardian or other person charged with the care of the person or property of the taxpayer.

(4) All taxpayers, including but not limited to those subject to the provisions of 15-30-202 and 15-30-241, shall compute the amount of income tax payable and shall, at the time of filing the return required by this chapter, pay to the department any balance of income tax remaining unpaid after crediting the amount withheld, as provided by 15-30-202, and any payment made by reason of an estimated tax return provided for in 15-30-241. However, the tax computed must be greater by $1 than the amount withheld and paid by estimated return as provided in this chapter. If the amount of tax withheld and the payment of estimated tax exceed by more than $1 the amount of income tax as computed, the taxpayer is entitled to a refund of the excess.

(5) As soon as practicable after the return is filed, the department shall examine and verify the tax.

(6) If the amount of tax as verified is greater than the amount paid, the excess must be paid by the taxpayer to the department within 60 days after notice of the amount of the tax as computed, with interest added as provided in [section 17]. In that case, there may not be a penalty because of the understatement if the deficiency is paid within 60 days after the first notice of the amount is mailed to the taxpayer.

(7) Individual income tax forms distributed by the department for each tax year must contain instructions and tables based on the adjusted base year structure for that tax year."

NEW SECTION. Section 17. Uniform penalty and interest assessments for violation of tax provisions -- applicability -- exceptions. (1) (a) A person who fails to file a required tax return or other report with the department by the due date, including any extension of time, of the return or report must be assessed a late filing penalty of $50.

(b) A person who purposely fails to file a required return, statement, or other report must be assessed an additional late filing penalty of $200.

(c) A person who fails to pay a tax when due must be assessed a late payment penalty of 2% a month or fraction of a month on the unpaid tax. The penalty may not exceed 24% of the tax due.

(d) A person who purposely fails to pay a tax when due must be assessed an additional penalty equal to 25% of the tax due or $200, whichever is greater, plus interest as provided in subsection (2).

(2) Interest on taxes not paid when due must be assessed at the rate of 12% a year, accrued at 1% a month or fraction of a month, on the unpaid tax. Interest on delinquent taxes and on deficiency assessments is computed from the original due date of the return until the tax is paid.

(3) (a) Except as provided in subsection (3)(b), this section applies to taxes, fees, and other assessments imposed under Titles 15 and 16.

(b) This section does not apply to:

(i) property taxes;

(ii) gasoline and vehicle fuel taxes collected by the department of transportation pursuant to Title 15, chapter 70; or

(iii) taxes, fees, and other assessments subject to other penalty or interest charges as provided by law.

NEW SECTION. Section 18. Taxation of S. corporations and shareholders. (1) Shareholders and not S. corporations are subject to tax. An S. corporation that has Montana source income shall file an information return on forms prescribed by the department on or before the 15th day of the 4th month following the close of the corporation's annual accounting period and, at the request of the department, shall furnish a copy of its federal income tax return for an S. corporation.

(2) A shareholder of an S. corporation that has Montana source income and a resident who is a shareholder of an S. corporation during any part of the taxable period shall include a copy of the federal schedule of the shareholder's share of income, deductions, and credits when filing the Montana individual income tax return.

(3) In the case of two or more nonresident shareholders whose only Montana source income derives from the S. corporation consent, an S. corporation with resident and nonresident shareholders may elect to file a composite tax return and remit a composite tax payment, as provided in [section 19], on behalf of all consenting nonresident shareholders whose only Montana source income derives from the S. corporation. The electing S. corporation and the consenting nonresident shareholders are not required to file the returns otherwise required by this section or to pay the income taxes otherwise imposed in this chapter.

(4) A shareholder's percentage of ownership of any separately or nonseparately stated loss, deduction, or credit, or item of loss, deduction, or credit, of an S. corporation is not allowed if the S. corporation does not file a return as required by subsection (1).

NEW SECTION. Section 19. Composite returns and tax. (1) Prior written permission from the department is required to file a composite return. The return must be made on forms that the department prescribes and must be filed on or before the due date for filing a Montana individual income tax return, subject to extension as provided for individual income tax returns.

(2) For the purposes of this section, a "participant" is a consenting nonresident partner or S. corporation shareholder.

(3) A tax on each participant is determined as follows:

(a) Each participant's distributive or allocable share of the entity's income, gain, loss, and deduction as determined for federal income tax purposes must be aggregated, and that aggregate amount for each participant must be reduced by the basic standard deduction of an individual who is not married and who is not a surviving spouse or head of household, as determined under section 63(c)(2) of the Internal Revenue Code (26 U.S.C. 63(c)(2)), and by the personal exemption for one individual, as determined under section 151(d) of the Internal Revenue Code (26 U.S.C. 151(d)), to determine each participant's composite return federal taxable income.

(b) The entity shall determine:

(i) each item of income, gain, loss, and deduction that is Montana source income or otherwise attributable to Montana; and

(ii) each participant's distributive or allocable share of those items listed in subsection (3)(b)(i).

(c) The distributive or allocable share of the items described in subsection (3)(b)(i) must be aggregated for each participant to determine each participant's composite return Montana source income.

(d) A preliminary tax is calculated for each participant on the composite return federal taxable income determined under subsection (3)(a) in accordance with the following table, the bracket amounts of which must be adjusted as provided in subsection (4);

(i) on the first $9,000 of composite return federal taxable income or any part of that income, 4%;

(ii) on the next $27,000 of composite return federal taxable income or any part of that income, 5%;

(iii) on the next $24,000 of composite return federal taxable income or any part of that income, 6%; and

(iv) on any composite return federal taxable income in excess of $60,000 or any part of that income, 7%.

(e) The tax determined under subsection (3)(d) for each participant is multiplied by a fraction, the numerator of which is the participant's composite return Montana source income and the denominator of which is the participant's composite return federal taxable income, to determine the amount of tax assessed with respect to that participant.

(4) By November 1 of each year, the department shall multiply the bracket amounts contained in subsection (3)(d) by the inflation factor for that tax year and round the cumulative brackets to the nearest $100. The resulting adjusted brackets are effective for that tax year and must be used as the basis for imposition of the tax calculated in subsection (3)(e).

(5) The electing entity:

(a) shall remit to the department the total of all taxes determined under subsection (3)(e) for each participant;

(b) must be responsible for any assessments of additional tax, penalties, and interest, which additional assessments must be based on the total liability reflected in the composite return;

(c) shall represent the participants in any appeals, claims for refund, hearing, or court proceeding in any matters relating to the filing of the composite return;

(d) shall make quarterly estimated tax payments as prescribed by 15-30-241; and

(e) shall maintain a file of powers of attorney executed by each participant included in the composite return, authorizing the entity to file the composite return and to act on behalf of each.

(6) The department may adopt rules that are necessary to implement and administer this section.

Section 20. Section 15-30-166, MCA, is amended to read:

"15-30-166. (Temporary) Credit for contributions to qualified endowment. (1) A taxpayer is allowed a tax credit against the taxes imposed by 15-30-103 or 15-31-101 in an amount equal to 50% of the present value of the aggregate amount of the charitable gift portion of a planned gift made by the taxpayer during the year to any qualified endowment. The maximum credit that may be claimed by a taxpayer for contributions made from all sources in a year is $10,000. The credit allowed under this section may not exceed the taxpayer's income tax liability.

(2) The credit allowed under this section may not be claimed by an individual taxpayer if the taxpayer has deducted the contribution upon which the amount of the credit was computed in the taxpayer's federal income tax return.

(3) There is no carryback or carryforward of the credit permitted under this section, and the credit must be applied to the tax year in which the contribution is made. (Terminates December 31, 2001--sec. 9, Ch. 537, L. 1997.)"

Section 21. Section 15-30-303, MCA, is amended to read:

"15-30-303. Confidentiality of tax records. (1) Except as provided in subsections (7) and (8) or in accordance with a proper judicial order or as otherwise provided by law, it is unlawful to divulge or make known in any manner:

(a) the amount of income or any particulars set forth or disclosed in any individual report or individual return required under this chapter or any other information secured in the administration of this chapter; or

(b) any federal return or federal return information disclosed on any return or report required by rule of the department or under this chapter.

(2) (a) The officers charged with the custody of the reports and returns may not be required to produce them or evidence of anything contained in them in an action or proceeding in a court, except in an action or proceeding:

(i) to which the department is a party under the provisions of this chapter or any other taxing act; or

(ii) on behalf of a party to any action or proceedings under the provisions of this chapter or other taxes when the reports or facts shown by the reports are directly involved in the action or proceedings.

(b) The court may require the production of and may admit in evidence only as much of the reports or of the facts shown by the reports as are pertinent to the action or proceedings.

(3) This section does not prohibit:

(a) the delivery to a taxpayer or the taxpayer's authorized representative of a certified copy of any return or report filed in connection with the taxpayer's tax;

(b) the publication of statistics classified to prevent the identification of particular reports or returns and the items of particular reports or returns; or

(c) the inspection by the attorney general or other legal representative of the state of the report or return of any taxpayer who brings an action to set aside or review the tax based on the report or return or against whom an action or proceeding has been instituted in accordance with the provisions of 15-30-311.

(4) Reports and returns must be preserved for at least 3 years and may be preserved until the department orders them to be destroyed.

(5) Any offense against subsections (1) through (4) is punishable by a fine not exceeding $1,000 or by imprisonment in the county jail for a term not exceeding 1 year, or both. If the offender is an officer or employee of the state, the offender must be dismissed from office and may not hold any public office in this state for a period of 1 year after dismissal.

(6) This section may not be construed to prohibit the department from providing taxpayer return information and information from employers' payroll withholding reports to:

(a) the department of labor and industry to be used for the purpose of investigation and prevention of noncompliance, tax evasion, fraud, and abuse under the unemployment insurance laws; or

(b) the state fund to be used for the purpose of investigation and prevention of noncompliance, fraud, and abuse under the workers' compensation program.

(7) The department may permit the commissioner of internal revenue of the United States or the proper officer of any state imposing a tax upon the incomes of individuals or the authorized representative of either officer to inspect the return of income of any individual or may furnish to the officer or an authorized representative an abstract of the return of income of any individual or supply the officer with information concerning an item of income contained in a return or disclosed by the report of an investigation of the income or return of income of an individual, but the permission may be granted or information furnished only if the statutes of the United States or of the other state grant substantially similar privileges to the proper officer of this state charged with the administration of this chapter.

(8) The department shall furnish:

(a) to the department of justice all information necessary to identify those persons qualifying for an exemption for blindness for the purpose of enabling the department of justice to administer the provisions of 61-5-105;

(b) to the department of public health and human services information acquired under 15-30-301, pertaining to an applicant for public assistance, reasonably necessary for the prevention and detection of public assistance fraud and abuse, provided notice to the applicant has been given;

(c) to the department of labor and industry for the purpose of prevention and detection of fraud and abuse in and eligibility for benefits under the unemployment compensation and workers' compensation programs information on whether a taxpayer who is the subject of an ongoing investigation by the department of labor and industry is an employee, an independent contractor, or self-employed;

(d) to the department of fish, wildlife, and parks specific information that is available from income tax returns and required under 87-2-102 to establish the residency requirements of an applicant for hunting and fishing licenses;

(e) to the board of regents information required under 20-26-1111;

(f) to the legislative fiscal analyst and the office of budget and program planning individual income tax information as provided in 5-12-303. The information provided to the office of budget and program planning must be the same as the information provided to the legislative fiscal analyst.

(g) to the department of transportation the ratio of gross farm income to total gross income based on the most recent income tax return filed by an applicant applying for a refund under 15-70-223, provided that notice to the applicant has been given as provided in 15-70-223. The information obtained by the department of transportation is subject to the same restrictions on disclosure as are individual income tax returns."

Section 22. Section 15-31-131, MCA, is amended to read:

"15-31-131. Credit for dependent care assistance. (1) There is a credit against the taxes otherwise due under this chapter allowable to an employer for amounts paid or incurred during the taxable year by the employer for dependent care assistance actually provided to or on behalf of an employee if the assistance is furnished by a registered or licensed day-care provider and pursuant to a program that meets the requirements of section 129(d)(2) through (6) of the Internal Revenue Code (26 U.S.C. 129(d)(2) through (d)(6)).

(2) (a) The amount of the credit allowed under subsection (1) is 20% of the amount paid or incurred by the employer during the taxable year, but the credit may not exceed $1,250 of day-care assistance actually provided to or on behalf of the employee.

(b) For the purposes of this subsection, marital status must be determined under the rules of section 21(e)(3) and (4) of the Internal Revenue Code (26 U.S.C. 21(e)(3) and (e)(4)).

(c) In the case of an onsite facility, the amount upon which the credit allowed under subsection (1) is based, with respect to any dependent, must be based upon utilization and the value of the services provided.

(3) An amount paid or incurred during the taxable year of an employer in providing dependent care assistance to or on behalf of any employee does not qualify for the credit allowed under subsection (1) if the amount was paid or incurred to an individual described in section 129(c)(1) or (2) of the Internal Revenue Code (26 U.S.C. 129(c)(1) or (c)(2)).

(4) An amount paid or incurred by an employer to provide dependent care assistance to or on behalf of an employee does not qualify for the credit allowed under subsection (1):

(a) to the extent the amount is paid or incurred pursuant to a salary reduction plan; or

(b) if the amount is paid or incurred for services not performed within this state.

(5) If the credit allowed under subsection (1) is claimed, the amount of any deduction allowed or allowable under this chapter for the amount that qualifies for the credit (or upon which the credit is based) must be reduced by the dollar amount of the credit allowed. The election to claim a credit allowed under this section must be made at the time of filing the tax return.

(6) Any tax credit otherwise allowable under this section that is not used by the taxpayer in a particular year may be carried forward and offset against the taxpayer's tax liability for the next succeeding tax year. Any credit remaining unused in the next succeeding tax year may be carried forward and used in the second succeeding tax year and likewise through the fifth year succeeding the tax year in which the credit was first allowed or allowable. A credit may not be carried forward beyond the fifth succeeding tax year.

(7) If the taxpayer is an S. corporation, as defined in section 1361 of the Internal Revenue Code (26 U.S.C. 1361), and the taxpayer elects to take tax credit relief, the election may be made on behalf of the corporation's shareholders. A shareholder's credit must be computed using the shareholder's pro rata share of the corporation's costs that qualify for the credit. In all other respects, the effect of the tax credit applies to the corporation as otherwise provided by law.

(8) For purposes of the credit allowed under subsection (1):

(a) the definitions and special rules contained in section 129(e) of the Internal Revenue Code (26 U.S.C. 129(e)) apply to the extent applicable; and

(b) "employer" means an employer carrying on a business, trade, occupation, or profession in this state."

Section 23. Section 15-31-202, MCA, is amended to read:

"15-31-202. Small business corporation not subject to chapter. A small business corporation is not subject to the taxes imposed by this chapter. The corporate net income or loss of the corporation is included in the stockholders' income and is taxed as provided under Title 15, chapter 30."

Section 24. Section 15-32-106, MCA, is amended to read:

"15-32-106. Procedure for obtaining benefit of deduction . The department shall approve a deduction under 15-32-103 that demonstrably promotes energy conservation or uses a recognized nonfossil form of energy generation. The department may refer a deduction involving energy generation to the department of environmental quality for its advice, and the department of environmental quality shall respond within 60 days. The department may refer a deduction involving energy conservation to the department of administration for its advice, and the department of administration shall respond within 60 days. The department may deny a deduction that it finds to be impractical or ineffective."

Section 25. Section 15-61-202, MCA, is amended to read:

"15-61-202. Tax exemption -- conditions. (1) Except as provided in this section, the amount of principal provided for in subsection (2) contributed annually by an employee or account holder to an account before January 1, 1999, and all interest or other income on that principal before January 1, 2000, may be excluded from the adjusted gross income of the employee or account holder and are exempt from taxation, as long as the principal and interest or other income is contained within the account or withdrawn only for payment of eligible medical expenses or for the long-term care of the employee or account holder or a dependent of the employee or account holder. Any part of the principal or income, or both, that has been excluded from taxation pursuant to this section and that is withdrawn from an account may not be excluded under subsection (2) and this subsection if the amount is withdrawn from the account and used for a purpose other than an eligible medical expense or the long-term care of the employee or account holder or a dependent of the employee or account holder.

(2) An employee or account holder may exclude as an annual contribution in 1 year no more than $3,000. There is no limitation on the amount of funds contributed and interest or other income on those funds paid or accrued before January 1, 1999, that may be retained tax-free within an account, but any interest or other income paid or accrued after December 31, 1999, is taxable as otherwise provided in Title 15.

(3) A deduction is not allowed to an employee or account holder for an amount contributed to an account. An employee or account holder may not deduct or exclude an amount representing a loss in the value of an investment contained in an account.

(4) An employee or account holder may, prior to December 31, 1998, in 1 year deposit into an account more than the amount excluded pursuant to subsection (2) if the exemption claimed by the employee or account holder in the year does not exceed $3,000. An employee or account holder who deposits more than $3,000 into an account in a year may exclude from the employee's or account holder's adjusted gross income in a subsequent year ending on or before December 31, 1999, any part of $3,000 for each year not previously excluded.

(5) Prior to January 1, 2000, the transfer of money in an account owned by one employee or account holder to the account of another employee or account holder within the immediate family of the first employee or account holder does not subject either employee or account holder to tax liability under this section. Amounts contained within the account of the receiving employee or account holder are subject to the requirements and limitations provided in this section.

(6) The employee or account holder who establishes the account is the owner of the account. Prior to January 1, 2000, an employee or account holder may withdraw money in an account and deposit the money in another account with a different or with the same account administrator without incurring tax liability.

(7) Prior to January 1, 2000, the amount of a disbursement of any assets of a medical care savings account pursuant to a filing for protection under the United States Bankruptcy Code, 11 U.S.C. 101 through 1330, by an employee or account holder does not subject the employee or account holder to tax liability.

(8) Within 30 days of being furnished proof of the death of the employee or account holder, the account administrator shall distribute the principal and accumulated interest or other income in the account to the estate of the employee or account holder.

(9) This section does not allow a taxpayer to reduce the taxpayer's Montana taxable income."

Section 26. Section 15-61-203, MCA, is amended to read:

"15-61-203. Withdrawal of funds from account for purposes other than medical expenses and long-term care. (1) An employee or account holder may withdraw money from the individual's medical care savings account for any purpose other than an eligible medical expense or the long-term care of the employee or account holder or a dependent of the employee or account holder only on the last business day of the account administrator's business year. Money withdrawn from an account pursuant to this subsection that had been excluded from taxation pursuant to 15-61-202 must be taxed as ordinary income of the employee or account holder.

(2) (a) Except as provided in subsection (2)(b), if the employee or account holder withdraws money from the account other than for eligible medical expenses or long-term care or other than on the last business day of the account administrator's business year, the administrator shall withhold from the amount of the withdrawal and, on behalf of the employee or account holder, pay as a penalty to the department an amount equal to 10% of the amount of the withdrawal. Payments made to the department pursuant to this section must be deposited in the general fund. Money withdrawn from an account pursuant to this subsection must be taxed as ordinary income of the employee or account holder if it had been excluded from taxation pursuant to 15-61-202.

(b) Between January 1, 2000, and December 31, 2000, an employee or account holder with carried-over excess contributions may withdraw the excess contributions without penalty.

(3) For the purposes of this section, "last business day of the account administrator's business year", as applied to an account administrator who is also the account holder or an employee, means the last weekday in December.

(4) This section does not allow a taxpayer to reduce the taxpayer's Montana taxable income."

Section 27. Section 15-61-204, MCA, is amended to read:

"15-61-204. Administration of account. (1) An account administrator shall administer the medical care savings account from which the payment of claims is made and has a fiduciary duty to the person for whose benefit the account is administered. Except for reporting and remitting of penalties to the department , a financial institution shall administer a medical savings account as a regular deposit. A financial institution is not responsible for the use or application of funds.

(2) Not more than 30 days after an account administrator begins to administer an account, the account administrator shall notify in writing each employee and account holder on whose behalf the account administrator administers an account of the date of the last business day of the account administrator's business year.

(3) An account administrator may use funds held in a medical care savings account only for the purpose of paying the eligible medical expenses of the employee or account holder or the employee's or account holder's dependents, purchasing long-term care insurance or a long-term care annuity for the long-term care of the employee or account holder or a dependent of the employee or account holder, or paying the expenses of administering the account. Funds held in a medical care savings account may not be used to pay medical expenses or used for a long-term care insurance policy or annuity of the employee or account holder or a dependent of the employee or account holder that is otherwise reimbursable, including medical expenses payable pursuant to an automobile insurance policy, workers' compensation insurance policy or self-insured plan, or another health coverage policy, certificate, or contract.

(4) The employee or account holder may submit documentation of eligible medical expenses paid by the employee or account holder or a dependent of the employee or account holder in the tax year to the account administrator, and the account administrator shall reimburse the employee or account holder from the employee's or account holder's account for eligible medical expenses. The burden of proving that a withdrawal from a medical savings account was made for an eligible medical expense is upon the account holder and not upon the account administrator or the employer of the account holder.

(5) The employee or account holder may submit documentation of the purchase of long-term care insurance or a long-term care annuity for the employee or account holder or a dependent of the employee or account holder to the account administrator, and the account administrator shall reimburse the employee or account holder from the employee's or account holder's account for payments made for the purchase of the insurance or annuity. The account administrator may also provide for a system of automatic withdrawals from the account for the payment of long-term care insurance premiums or an annuity.

(6) Prior to January 1, 2000, if an employer makes contributions to a medical care savings account on a periodic installment basis, the employer may advance to an employee, interest free, an amount necessary to cover medical expenses incurred that exceed the amount in the employee's medical care savings account at the time that the expenses are incurred if the employee agrees to repay the advance from future installments or when the employee ceases employment with the employer.

(7) In the case of an account administrator who is also the account holder or an employee:

(a) notice by the account administrator to the account holder pursuant to subsection (2) is not required;

(b) the account administrator may not use funds held in an account to pay expenses of administering the account;

(c) documentation of eligible medical expenses must be maintained but is not required to be submitted to the account administrator;

(d) contributions to a medical savings account must be established in a separate account and be segregated from other funds;

(e) the account holder is subject to the same yearend reporting requirements as all other account administrators; and

(f) the account holder is required to forward the 10% penalty on funds withdrawn for noneligible medical expenses to the state.

(8) This section does not allow a taxpayer to reduce the taxpayer's Montana taxable income."

Section 28. Section 15-62-204, MCA, is amended to read:

"15-62-204. Higher education expenses -- exemption from taxable income. A person may in any year deposit into an individual trust or savings account up to $3,000 that is deductible for tax purposes for any tax year ending before January 1, 1999, to pay the qualified higher education expenses for the benefit of a designated beneficiary."

Section 29. Section 15-63-202, MCA, is amended to read:

"15-63-202. Tax exemption -- conditions. (1) Except as provided in this section, the amount of principal provided for in subsection (2) contributed annually by an account holder to an account before January 1, 1999, and all interest or other income on the principal paid or accrued before January 1, 2000, may be excluded from the adjusted gross income of the account holder and is exempt from taxation, except as provided in subsection (2)(c), as long as the principal and interest or other income is contained within the account or withdrawn only for eligible costs for the purchase of a single-family residence by a first-time home buyer. Any part of the principal or income, or both, that had been excluded from taxation pursuant to this section that is withdrawn from an account may not be excluded under subsection (2) and this subsection if the amount is withdrawn from the account and used for a purpose other than for eligible costs for the purchase of a single-family residence.

(2) (a) An account holder who files singly, head of household, or married filing separately may exclude as an annual contribution in 1 year up to $3,000.

(b) An account holder who files jointly may exclude as annual contribution in 1 year up to $6,000.

(c) There is no limitation on the amount of principal contributed and interest or other income on the principal paid or accrued before January 1, 1999, that may be retained tax-free within an account, but any interest accrued after December 31, 1999, is taxable as otherwise provided in Title 15.

(d) An account holder may not contribute to the first-time home buyer savings account for a period exceeding 10 years.

(3) An account holder may not deduct or exclude an amount representing a loss in the value of an investment contained in an account.

(4) Prior to January 1, 1999, each year, an account holder may deposit into an account more than the amount excluded pursuant to subsection (2) if the exemption claimed by the account holder in the year does not exceed the amount specified in subsection (2)(a) or (2)(b). An account holder who deposits more than the amount specified in subsection (2)(a) or (2)(b) into an account in a year ending before January 1, 1999, may exclude from the account holder's adjusted gross income in a subsequent year ending before January 1, 2000, any part of the amount specified in subsection (2)(a) or (2)(b) for each year not previously excluded.

(5) Prior to January 1, 2000, the transfer of money by a person other than the account holder to the account of an account holder does not subject the account holder to tax liability under this section. Amounts contained within the account of the receiving account holder are subject to the requirements and limitations provided in this section. The person other than the account holder who transfers money to the account is not entitled to the tax exemption under this section.

(6) The account holder who establishes the account, individually or jointly, is the owner of the account. Prior to January 1, 2000, an account holder may withdraw money in an account and deposit the money in another account with a different account administrator or with the same account administrator without incurring tax liability.

(7) The account holder shall use the money in the account for the eligible costs related to the purchase of a single-family residence within 10 years following the year in which the account was established. Any principal and income in the account that were excluded from taxation under this section and are not expended on eligible costs at the time of purchase of a single-family residence or any principal or income that was excluded from taxation under this section and is remaining in the account on December 31 of the last year of the 10-year period must be taxed as ordinary income.

(8) Prior to January 1, 2000, the amount of a disbursement of any assets of a first-time home buyer savings account pursuant to a filing for protection under the United States Bankruptcy Code, 11 U.S.C. 101 through 1330, by an account holder does not subject the account holder to tax liability.

(9) Within 30 days of being furnished proof of the death of the account holder, the account administrator shall distribute the principal and accumulated interest or other income in the account to the estate of the account holder.

(10) This section does not allow a taxpayer to reduce the taxpayer's Montana taxable income."

Section 30. Section 15-63-203, MCA, is amended to read:

"15-63-203. Withdrawal of funds from account for purposes other than eligible costs for first-time home purchase. (1) An account holder may withdraw money from the first-time home buyer's savings account for any purpose other than eligible costs for the first-time purchase of a single-family residence only on the last business day of the account administrator's business year. Money withdrawn from an account pursuant to this subsection that had been excluded from taxation pursuant to 15-63-202 must be taxed as ordinary income of the account holder.

(2) (a) Except as provided in subsection (2)(b), if the account holder withdraws money from the account other than for eligible costs for the purchase of a single-family residence or other than on the last business day of the account administrator's business year, the account administrator shall withhold from the amount of the withdrawal and, on behalf of the account holder, pay as a penalty to the department an amount equal to 10% of the amount of the withdrawal. Payments made to the department pursuant to this section must be deposited in the general fund. Money withdrawn from an account pursuant to this subsection must be taxed as ordinary income of the account holder if it was excluded from taxation pursuant to 15-63-202.

(b) Between January 1, 2000, and December 31, 2000, an account holder with carried-over excess contributions may withdraw the excess contributions without penalty.

(3) For the purposes of this section, "last business day of the account administrator's business year", as applied to an account administrator who is also the account holder, means the last weekday in December.

(4) This section does not allow a taxpayer to reduce the taxpayer's Montana taxable income."

Section 31. Section 19-2-1004, MCA, is amended to read:

"19-2-1004. Exemption from legal process. Except as provided in 19-2-907 and 19-2-909, the right of a person to any benefit or payment from the retirement systems and the money in the pension trust funds is not:

(1) subject to execution, garnishment, attachment, or any other process;

or

(2) assignable except as specifically provided in this chapter."

Section 32. Section 19-18-612, MCA, is amended to read:

"19-18-612. Protection of benefits from legal process -- nonassignability. Except for execution or withholding for the payment of child support or for the payment of spousal support for a spouse or former spouse who is the custodial parent of the child, payments made or to be made under this chapter are not subject to judgments, garnishment, execution, or other legal process. A person entitled to a pension may not assign the right, and the association and trustees may not recognize any assignment or pay over any sum assigned.

"

Section 33. Section 19-19-504, MCA, is amended to read:

"19-19-504. Protection of benefits from legal process . Except for execution or withholding for the payment of child support or for the payment of spousal support for a spouse or former spouse who is the custodial parent of the child, the benefits provided for in this part are not subject to execution, garnishment, attachment, or the operation of bankruptcy, insolvency, or other process of law and are unassignable except as specifically provided in 19-19-505.

"

Section 34. Section 19-20-706, MCA, is amended to read:

"19-20-706. Exemption from legal process. Except as provided in 19-20-305 and 19-20-306, the retirement allowances or any other benefits accrued or accruing to any person under the provisions of the retirement system and the accumulated contributions and cash and securities in the various funds of the retirement system are:

(1) not subject to execution, garnishment, attachment by trustee process or otherwise, in law or equity, or any other process; and

(2) unassignable except as specifically provided in this chapter."

Section 35. Section 19-21-212, MCA, is amended to read:

"19-21-212. Exemption from legal process and assessments. Except for execution or withholding for the payment of child support or for the payment of spousal support for a spouse or former spouse who is the custodial parent of the child, contracts, benefits, and contributions under the optional retirement program and the earnings on the contributions are:

(1) not subject to execution, garnishment, attachment, or other process;

(2) not covered or assessable by an insurance guaranty association; and

(3) unassignable except as specifically provided in the contracts."

Section 36. Section 33-27-101, MCA, is amended to read:

"33-27-101. Short title. Sections 15-31-117 and 15-31-118 and this chapter may be cited as the "Independent Liability Fund Act"."

Section 37. Section 33-27-102, MCA, is amended to read:

"33-27-102. Purpose. The purpose of 15-31-117, 15-31-118, and this chapter is to create a means by which small businesses operating in Montana may establish independent liability funds to set aside assets or make investments to meet any liability claims that might be made against the small businesses by third parties."

Section 38. Section 33-27-103, MCA, is amended to read:

"33-27-103. Definitions. As used in 15-31-117, 15-31-118, and this chapter, the following definitions apply:

(1) "Fiscal year" means the 12-month period used by a particular small business in preparing and filing its Montana individual income tax, corporate license tax, or corporate income tax return.

(2) "Independent liability fund" means a collection of money, assets, and investments that has been set aside by a small business to meet the needs of any liability claims, except workers' compensation claims, brought against it by third parties.

(3) "Liability claim" means any legal or extralegal action by a third party asserting a right to compensation for a wrong done to it by a small business with an independent liability fund.

(4) "Small business" means any commercial or nonprofit enterprise qualified to do business in the state and qualified as a small business under the criteria established by the federal small business administration on April 20, 1987.

(5) "Third party" means a person other than an employee or the management of a small business or of a subsidiary or closely related enterprise of a small business."

Section 39. Section 37-4-104, MCA, is amended to read:

"37-4-104. Twelve-month period for disposition of deceased or disabled dentist's practice by personal representative -- restrictions. (1) For the purpose of selling or otherwise disposing of a deceased or a disabled licensee's dental practice and for a period not to exceed 12 months, a person who is not licensed to practice dentistry but who is the personal representative of the estate of a deceased dentist or the personal representative of a disabled dentist may contract with a dentist to manage the dental practice at an establishment where dental operations, oral surgery, or dental services are provided.

(2) A personal representative may not:

(a) govern the clinical sufficiency, suitability, reliability, or efficacy of a particular service, product, process, or activity as it relates to the delivery of dental care;

(b) preclude or otherwise restrict a dentist's ability to exercise independent professional judgment over all qualitative and quantitative aspects of the delivery of dental care;

(c) allow any person other than a dentist to supervise and control the selection, compensation, terms, conditions, obligations, or privileges of employment or retention of clinical personnel in the dental practice;

(d) determine or limit a fee charged by the dentist or limit the methods of payment accepted by a dentist or the dentist's practice; or

(e) limit or define the scope of services offered by the dentist.

(3) For the purposes of this section:

(a) "clinical" means having a significant relationship, whether real or potential, direct or indirect, to the actual rendering or outcome of dental care, the practice of dentistry, or the quality of dental care being rendered to a patient;

(b) "disabled" means unable to engage in any substantial gainful activity by reason of any medically determined physical or mental impairment lasting or expected to last at least 12 months; and

(c) "personal representative" of the estate of a deceased dentist has the same meaning as provided for the term in 72-1-103.

(4) The 12-month period provided for in subsection (1) begins when:

(a) the personal representative of the estate of a deceased dentist files a verified copy of the death certificate of the deceased with the department; or

(b) the personal representative of the disabled dentist files a verified copy of a document signed by a licensed physician that attests to the dentist's disability."

Section 40. Section 67-11-303, MCA, is amended to read:

"67-11-303. Bonds and obligations. (1) An authority may borrow money for any of its corporate purposes and issue its bonds for those purposes, including refunding bonds, in the form and upon the terms that it may determine, payable out of any revenue of the authority, including revenue derived from:

(a) an airport or air navigation facility or facilities;

(b) taxes levied pursuant to 67-11-301 or other law for airport purposes;

(c) grants or contributions from the federal government; or

(d) other sources.

(2) The bonds may be issued by resolution of the authority, without an election and without any limitation of amount, except that bonds may not be issued at any time if the total amount of principal and interest to become due in any year on the bonds and on any then outstanding bonds for which revenue from the same source or sources is pledged exceeds the amount of revenue to be received in that year as estimated in the resolution authorizing the issuance of the bonds. The authority shall take all action necessary and possible to impose, maintain, and collect rates, charges, rentals, and taxes, if any are pledged, sufficient to make the revenue from the pledged source in the year at least equal to the amount of principal and interest due in that year.

(3) The bonds may be sold at public or private sale and may bear interest as provided in 17-5-102. Except as otherwise provided in this section, any bonds issued pursuant to this chapter by an authority may be payable as to principal and interest solely from revenue of the authority and must state on their face the applicable limitations or restrictions regarding the source from which the principal and interest are payable.

(4) Bonds issued by an authority or municipality pursuant to the provisions of this chapter are declared to be issued for an essential public and governmental purpose by a political subdivision .

(5) For the security of bonds, the authority or municipality may by resolution make and enter into any covenant, agreement, or indenture and may exercise any additional powers authorized to be exercised by a municipality under Title 7, chapter 7, parts 44 and 45. The sums required from time to time to pay principal and interest and to create and maintain a reserve for the bonds may be paid from any revenue referred to in this chapter, prior to the payment of current costs of operation and maintenance of the facilities.

(6) Subject to the conditions stated in this subsection, the governing body of any municipality having a population in excess of 10,000, with respect to bonds issued pursuant to this chapter by the municipality or by an authority in which the municipality is included, may by resolution covenant that in the event that at any time all revenue, including taxes, appropriated and collected for the bonds is insufficient to pay principal or interest then due, it will levy a general tax upon all of the taxable property in the municipality for the payment of the deficiency. The governing body may further covenant that at any time that a deficiency is likely to occur within 1 year for the payment of principal and interest due on the bonds, it will levy a general tax upon all the taxable property in the municipality for the payment of the deficiency, and the taxes are not subject to any limitation of rate or amount applicable to other municipal taxes but are limited to a rate estimated to be sufficient to produce the amount of the deficiency. In the event that more than one municipality having a population in excess of 10,000 is included in an authority issuing bonds pursuant to this chapter, the municipalities may apportion the obligation to levy taxes for the payment of, or in anticipation of, a deficiency in the revenue appropriated for the bonds in a manner that the municipalities may determine. The resolution must state the principal amount and purpose of the bonds and the substance of the covenant respecting deficiencies. A resolution may not be effective until the question of its approval has been submitted to the qualified electors of the municipality at a special election called for that purpose by the governing body of the municipality and a majority of the electors voting on the question have voted in favor of the resolution. The special election must be held in conjunction with a regular or primary election. The notice and conduct of the election is governed, to the extent applicable, as provided for municipal general obligation bonds in Title 7, chapter 7, part 42, for an election called by cities and towns and as provided for county general obligation bonds in Title 7, chapter 7, part 22, for an election called by counties. If a majority of the electors voting on the issue vote against approval of the resolution, the municipality may not make the covenant or levy a tax for the payment of deficiencies pursuant to this section, but the municipality or authority may issue bonds under this chapter payable solely from the sources referred to in subsection (1)."

Section 41. Section 87-2-102, MCA, is amended to read:

"87-2-102. Resident defined. In determining a resident for the purpose of issuing resident fishing, hunting, and trapping licenses, the following provisions apply:

(1) (a) A member of the regular armed forces of the United States, a member's dependent, as defined in subsection (1)(b), who resides in the member's Montana household, or a member of the armed forces of a foreign government attached to the regular armed forces of the United States is considered a resident for the purposes of this chapter if:

(i) the member was a resident of Montana under the provisions of subsection (4) at the time the member entered the armed forces and continues to meet residency criteria of subsections (4)(b) through (4)(e); or

(ii) the member is currently stationed in and assigned to active duty in Montana, has resided in Montana for at least 30 days, and presents official assignment orders and proof of competency, as provided in 87-2-105, or a certificate verifying the successful completion of a hunter safety course in any state or province. The 30-day residence requirement is waived in time of war. Reassignment to another state, United States territory, or country terminates Montana residency for purposes of this section, except that a reassigned member continues to qualify as a resident if the member's spouse and dependents continue to physically reside in Montana and the member continues to meet the residency criteria of subsections (4)(b) through (4)(e). The designation of Montana by a member of the regular armed forces as a "home of record" or "home of residence" in that member's armed forces records does not determine the member's residency for purposes of this section.

(b) The term "dependent" means any of the following individuals over half of whose support was received from the member:

(i) a son or daughter of the member or a descendant of either;

(ii) a stepson or stepdaughter of the member;

(iii) a brother, sister, stepbrother, or stepsister of the member;

(iv) the father or mother of the member or an ancestor of either;

(v) a stepfather or stepmother of the member;

(vi) a son or daughter of a brother or sister of the member;

(vii) a brother or sister of the father or mother of the member;

(viii) a son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law of the member;

(ix) an individual who, for the year, has as the individual's principal place of abode the home of the member and is a member of the member's household; or

(x) an individual who:

(A) is a descendant of a brother or sister of the father or mother of the member;

(B) for the year, received institutional care required by reason of a physical or mental disability; and

(C) before receiving institutional care, was a member of the same household as the member.

(2) A person who has physically resided in Montana as the person's principal or primary home or place of abode for 180 consecutive days and who meets the criteria of subsection (4) immediately before making application for any license is eligible to receive hunting, fishing, and trapping licenses. As used in this section, a vacant lot or a premises used solely for business purposes is not considered a principal or primary home or place of abode.

(3) A person who obtains residency under subsection (2) may continue to be a resident for purposes of this section by physically residing in Montana as the person's principal or primary home or place of abode for not less than 120 days a year and by meeting the criteria of subsection (4) prior to making application for any resident hunting, fishing, or trapping license.

(4) In addition to the requirements of subsection (2) or (3), a person shall meet all of the following criteria to be considered a resident for purposes of this section:

(a) The person's principal or primary home or place of abode is in Montana.

(b) The person files Montana state income tax returns as a resident if required to file.

(c) The person licenses and titles in Montana as required by law any vehicles that the person owns and operates in Montana.

(d) The person does not possess or apply for any resident hunting, fishing, or trapping licenses from another state or country or exercise resident hunting, fishing, or trapping privileges in another state or country.

(e) If the person registers to vote, the person registers only in Montana.

(5) A student who is enrolled full-time in a postsecondary educational institution out of state and who would qualify for Montana resident tuition or who otherwise meets the residence requirements of subsection (2) or (3) is considered a resident for purposes of this section.

(6) An enrollee of a job corps camp located within the state of Montana is, after a period of 30 days within Montana, considered a resident for the purpose of making application for a fishing license as long as the person remains an enrollee in a Montana camp.

(7) A person who does not reside in Montana but who meets all of the following requirements is a resident for purposes of obtaining hunting and fishing licenses:

(a) The person's principal employment is within this state and the income from this employment is the principal source of the applicant's family income.

(b) The person is required to pay and has paid Montana income tax in a timely manner and proper amount.

(c) The person has been employed within this state on a full-time basis for at least 12 consecutive months immediately preceding each application.

(d) The person's state of residency has laws substantially similar to this subsection (7).

(8) An unmarried minor is considered a resident for the purposes of this section if the minor's parents, legal guardian, or parent with joint custody, sole custody, or visitation rights is a resident for purposes of this section. The minor is considered a resident for purposes of this section regardless of whether the minor resides primarily in the state or otherwise qualifies as a resident. The resident parent or guardian of the minor may be required to show proof of the parental, guardianship, or custodial relationship to the minor.

(9) A person is not considered a resident for the purposes of this section if the person:

(a) claims residence in any other state or country for any purpose; or

(b) is an absentee property owner paying property tax on property in Montana.

(10) A license agent is not considered a representative of the state for the purpose of determining a license applicant's residence status."

Section 42. Section 87-2-105, MCA, is amended to read:

"87-2-105. Safety instruction required. (1) A hunting license may not be issued to a resident person under the age of 18 years unless the person authorized to issue the license receives proof of competency as provided by this section.

(2) A hunting license may not be issued to a nonresident person under the age of 18 years unless the person authorized to issue the license receives proof of competency, as provided in this section, or a certificate verifying that the nonresident has successfully completed a course in the safe handling of firearms in any state or province.

(3) A hunting license may not be issued to a member of the regular armed forces of the United States or to a member of the armed forces of a foreign government attached to the armed forces of the United States who is assigned to active duty in Montana and who is otherwise considered a resident under 87-2-102(1) or to a member's dependents, as defined in 87-2-102, who reside in the member's Montana household, unless the person authorized to issue the license receives proof of competency, as provided in this section, or a certificate verifying that the member or dependent has successfully completed a hunter safety course in any state or province.

(4) A bow and arrow license may not be issued to a resident or nonresident unless the person authorized to issue the license receives an archery license issued for a prior hunting season or receives proof of completion of a bowhunter education course from the national bowhunter education foundation. Neither the department nor the license agent is required to provide records of past archery license purchases. As part of the department's bow and arrow licensing procedures, the department shall notify the public regarding bowhunter education requirements.

(5) The department shall provide for a course of instruction in the safe handling of firearms and for that purpose may cooperate with any reputable organization having as one of its objectives the promotion of safety in the handling of firearms. The department may designate as an instructor any person it finds to be competent to give instructions in the handling of firearms. A person appointed shall give the course of instruction and shall issue a certificate of competency in the safe handling of firearms to a person successfully completing the course.

(6) The department shall provide for a course of instruction from the national bowhunter education foundation and for that purpose may cooperate with any reputable organization having as one of its objectives the promotion of safety in the handling of bow hunting tackle. The department may designate as an instructor any person it finds to be competent to give the national bowhunter education foundation instruction. A person appointed shall give the course of instruction and shall issue a certificate of completion from the national bowhunter education foundation to any person successfully completing the course.

(7) The department may adopt rules regarding how a person authorized to issue a license determines proof of competency."

NEW SECTION. Section 43. Repealer. Sections 15-30-107, 15-30-110, 15-30-111, 15-30-112, 15-30-113, 15-30-114, 15-30-115, 15-30-116, 15-30-117, 15-30-121, 15-30-122, 15-30-123, 15-30-126, 15-30-127, 15-30-131, 15-30-136, 15-30-156, 15-30-159, 15-30-160, and 19-7-407, MCA, are repealed.

NEW SECTION. Section 44. Contingent voidness. If Constitutional Initiative No. 75, enacting Article VIII, section 17, of the Montana constitution, is not declared invalid by December 31, 1999, then [this act] is void.

NEW SECTION. Section 45. Codification instruction. (1) [Section 17] is intended to be codified as an integral part of Title 15, chapter 1, part 2, and the provisions of Title 15, chapter 1, part 2, apply to [section 17].

(2) [Sections 13, 18, and 19] are intended to be codified as an integral part of Title 15, chapter 30, and the provisions of Title 15, chapter 30, apply to [sections 13, 18, and 19].

NEW SECTION. Section 46. Coordination instruction. If House Bill No. 132 is passed and approved and if it includes a section that enacts a new section providing for uniform penalty and interest assessments for violation of tax provisions, then [section 17 of this act] enacting those provisions is void.

NEW SECTION. Section 47. Effective date. [This act] is effective on passage and approval.

NEW SECTION. Section 48. Applicability. [This act] applies to tax periods beginning after December 31, 1999.

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