SENATE BILL NO. 514
INTRODUCED BY BALYEAT, SHOCKLEY, BLACK, SALES, BROWN, LEWIS, MURPHY, GALLUS, JACKSON, J. PETERSON, BARKUS, STORY, MCGILLVRAY, O'NEIL, STEINBEISSER, LAIBLE, WANZENRIED, ESSMANN
AN ACT REVISING CERTAIN PROVISIONS RELATED TO THE ADMINISTRATION OF INDIVIDUAL INCOME TAXES; REQUIRING THE DEPARTMENT OF REVENUE TO PROVIDE ONE NOTICE OF A TAX DEFICIENCY TO MARRIED TAXPAYERS FILING SEPARATELY ON THE SAME FORM; REQUIRING THE DEPARTMENT OF REVENUE TO REPORT TO THE INTERNAL REVENUE SERVICE THE NET AMOUNT OF STATE TAXES REFUNDED TO MARRIED TAXPAYERS FILING SEPARATELY ON THE SAME FORM; REVISING THE UNIFORM PENALTY ASSESSMENTS ON DELINQUENT INDIVIDUAL INCOME TAXES AND CERTAIN OTHER TAXES; PROVIDING THAT INTEREST ASSESSMENTS ON DELINQUENT INCOME TAXES ARE BASED ONLY ON THE FEDERAL UNDERPAYMENT RATE ASSESSED AGAINST INDIVIDUAL INCOME TAXPAYERS; CLARIFYING THE TAXATION OF FEDERAL INCOME TAX REFUNDS; CLARIFYING THAT UNDERPAYMENT INTEREST ON ESTIMATED INDIVIDUAL INCOME TAXES IS NOT REQUIRED UNDER CERTAIN CONDITIONS; AMENDING SECTIONS 15-1-216, 15-30-111, 15-30-241, 15-39-105, AND 15-39-107, MCA; AND PROVIDING AN EFFECTIVE DATE AND AN APPLICABILITY DATE.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MONTANA:
Section 1. Notice to taxpayer for deficiency assessments -- information provided on state tax refunds. (1) A notice of a deficiency assessment under 15-30-323 made on one or both married taxpayers filing separately on the same form must be contained in one notice to the taxpayers regardless of whether one or both taxpayers has a deficiency assessment.
(2) Information provided on federal form 1099G to the internal revenue service and to a married taxpayer filing separately on the same form related to a refund of taxes made to one or both taxpayers must show the net amount refunded to the taxpayers as if the taxpayers had filed jointly.
Section 2. Section 15-1-216, MCA, is amended to read:
"15-1-216. Uniform penalty and interest assessments for violation of tax provisions -- applicability -- exceptions -- uniform provision for interest on overpayments. (1) 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 or the amount of the tax due, whichever is less.
(2) (a) (i) Except as provided in subsection subsections (2)(a)(ii) and (2)(b), a person who fails to pay a tax when due must be assessed a late payment penalty of 1.2% 0.5% a month or fraction of a month on the unpaid tax. The penalty may not exceed 12% of the tax due.
(ii) A penalty under this subsection (2)(a) may not be imposed on a taxpayer subject to taxation under 15-30-103 if, subject to the conditions of 15-30-241(1)(a)(i), the taxpayer pays tax when due of at least 90% of the tax for the current year.
(b) A person who fails to pay a tax when due under chapter 30, part 2, chapter 53, chapter 65, or chapter 68 must be assessed a late payment penalty of 1.5% a month or fraction of a month on the unpaid tax. The penalty may not exceed 15% of the tax due.
(c) The penalty imposed under subsection (2)(a) or (2)(b) accrues on the unpaid tax from the original due date of the return regardless of whether the taxpayer has received an extension of time for filing a return.
(c) The penalty imposed under subsection (2)(a) or (2)(b) accrues daily on the unpaid tax from the original due date of the return regardless of whether the taxpayer has received an extension of time for filing a return.
(3) A person who purposely or knowingly, as those terms are defined in 45-2-101, fails to file a return when due or fails to file a return within 60 days after receiving written notice from the department that a return must be filed is liable for an additional penalty of not less than $1,000 or more than $10,000. The department may bring an action in the name of the state to recover the penalty and any delinquent taxes.
(4) (a) Interest on taxes not paid when due must be assessed by the department. The department shall determine the interest rates established under subsection (4)(a)(i) for each calendar year by rule subject to the conditions of this subsection (4)(a). Interest rates on taxes not paid when due for a calendar year are as follows:
(i) For individual income taxes not paid when due, including delinquent taxes and deficiency assessments, the interest rate is equal to the underpayment rate for individual taxpayers established by the secretary of the United States department of the treasury pursuant to section 6621 of the Internal Revenue Code, 26 U.S.C. 6621, for the fourth quarter of the preceding year or 8%, whichever is greater.
(ii) For all taxes other than individual income taxes not paid when due, including delinquent taxes and deficiency assessments, the interest rate is 12% a year.
(b) Interest on delinquent taxes and on deficiency assessments is computed from the original due date of the return until the tax is paid. Interest accrues daily on the unpaid tax from the original due date of the return regardless of whether the taxpayer has received an extension of time for filing the return.
(5) (a) Except as provided in subsection (5)(b), this section applies to taxes, fees, and other assessments imposed under Titles 15 and 16 [and 85-2-276].
(b) This section does not apply to:
(i) property taxes; or
(ii) gasoline and vehicle fuel taxes collected by the department of transportation pursuant to Title 15, chapter 70.
(6) Any changes to interest rates apply to any current outstanding tax balance, regardless of the rate in effect at the time the tax accrued.
(7) Penalty and interest must be calculated and assessed commencing with the due date of the return.
(8) Deficiency assessments are due and payable 30 days from the date of the deficiency assessment.
(9) Interest allowed for the overpayment of taxes or fees is the same rate as is charged for unpaid or delinquent taxes. For the purposes of this subsection, interest charged for unpaid or delinquent taxes is the interest rate determined in subsection (4)(a)(i). (Bracketed language in subsection (5)(a) terminates June 30, 2020--sec. 18, Ch. 288, L. 2005.)"
Section 3. Section 15-30-111, MCA, is amended to read:
"15-30-111. Adjusted gross income. (1) Adjusted gross income is the taxpayer's federal adjusted gross income as defined in section 62 of the Internal Revenue Code, 26 U.S.C. 62, and in addition includes the following:
(a) (i) interest received on obligations of another state or territory or county, municipality, district, or other political subdivision of another state, except to the extent that the interest is exempt from taxation by Montana under federal law;
(ii) exempt-interest dividends as defined in section 852(b)(5) of the Internal Revenue Code, 26 U.S.C. 852(b)(5), that are attributable to the interest referred to in subsection (1)(a)(i);
(b) refunds received of federal income tax, to the extent that the deduction of the tax resulted in a reduction of Montana income tax liability as determined under subsection (7);
(c) that portion of a shareholder's income under subchapter S. of Chapter 1 of the Internal Revenue Code that has been reduced by any federal taxes paid by the subchapter S. corporation on the income;
(d) depreciation or amortization taken on a title plant as defined in 33-25-105;
(e) the recovery during the tax year of an amount deducted in any prior tax year to the extent that the amount recovered reduced the taxpayer's Montana income tax in the year deducted;
(f) if the state taxable distribution of an estate or trust is greater than the federal taxable distribution of the same estate or trust, the difference between the state taxable distribution and the federal taxable distribution of the same estate or trust for the same tax period; and
(g) except for exempt-interest dividends described in subsection (2)(a)(ii), for tax years commencing after December 31, 2002, the amount of any dividend to the extent that the dividend is not included in federal adjusted gross income.
(2) Notwithstanding the provisions of the Internal Revenue Code, adjusted gross income does not include the following, which are exempt from taxation under this chapter:
(a) (i) all interest income from obligations of the United States government, the state of Montana, or a county, municipality, district, or other political subdivision of the state and any other interest income that is exempt from taxation by Montana under federal law;
(ii) exempt-interest dividends as defined in section 852(b)(5) of the Internal Revenue Code, 26 U.S.C. 852(b)(5), that are attributable to the interest referred to in subsection (2)(a)(i);
(b) interest income earned by a taxpayer who is 65 years of age or older in a tax year up to and including $800 for a taxpayer filing a separate return and $1,600 for each joint return;
(c) (i) except as provided in subsection (2)(c)(ii), the first $3,600 of all pension and annuity income received as defined in 15-30-101;
(ii) for pension and annuity income described under subsection (2)(c)(i), as follows:
(A) each taxpayer filing singly, head of household, or married filing separately shall reduce the total amount of the exclusion provided in subsection (2)(c)(i) by $2 for every $1 of federal adjusted gross income in excess of $30,000 as shown on the taxpayer's return;
(B) in the case of married taxpayers filing jointly, if both taxpayers are receiving pension or annuity income or if only one taxpayer is receiving pension or annuity income, the exclusion claimed as provided in subsection (2)(c)(i) must be reduced by $2 for every $1 of federal adjusted gross income in excess of $30,000 as shown on their joint return;
(d) all Montana income tax refunds or tax refund credits;
(e) gain required to be recognized by a liquidating corporation under 15-31-113(1)(a)(ii);
(f) all tips or gratuities that are covered by section 3402(k) or service charges that are covered by section 3401 of the Internal Revenue Code of 1954, 26 U.S.C. 3402(k) or 3401, as amended and applicable on January 1, 1983, received by persons a person for services rendered by them to patrons of premises licensed to provide food, beverage, or lodging;
(g) all benefits received under the workers' compensation laws;
(h) all health insurance premiums paid by an employer for an employee if attributed as income to the employee under federal law;
(i) all money received because of a settlement agreement or judgment in a lawsuit brought against a manufacturer or distributor of "agent orange" for damages resulting from exposure to "agent orange";
(j) principal and income in a medical care savings account established in accordance with 15-61-201 or withdrawn from an account for eligible medical expenses, as defined in 15-61-102, of the taxpayer or a dependent of the taxpayer or for the long-term care of the taxpayer or a dependent of the taxpayer;
(k) principal and income in a first-time home buyer savings account established in accordance with 15-63-201 or withdrawn from an account for eligible costs, as provided in 15-63-202(7), for the first-time purchase of a single-family residence;
(l) contributions withdrawn from a family education savings account or earnings withdrawn from a family education savings account for qualified higher education expenses, as defined in 15-62-103, of a designated beneficiary;
(m) the recovery during the tax year of any amount deducted in any prior tax year to the extent that the recovered amount did not reduce the taxpayer's Montana income tax in the year deducted;
(n) if the federal taxable distribution of an estate or trust is greater than the state taxable distribution of the same estate or trust, the difference between the federal taxable distribution and the state taxable distribution of the same estate or trust for the same tax period;
(o) deposits, not exceeding the amount set forth in 15-30-603, deposited in a Montana farm and ranch risk management account, as provided in 15-30-601 through 15-30-605, in any tax year for which a deduction is not provided for federal income tax purposes;
(p) income of a dependent child that is included in the taxpayer's federal adjusted gross income pursuant to the Internal Revenue Code. The child is required to file a Montana personal income tax return if the child and taxpayer meet the filing requirements in 15-30-142.
(q) principal and income deposited in a health care expense trust account, as defined in 2-18-1303, or withdrawn from the account for payment of qualified health care expenses as defined in 2-18-1303; and
(r) that part of the refundable credit provided in 33-22-2006 that reduces Montana tax below zero.
(3) A shareholder of a DISC that is exempt from the corporation license tax under 15-31-102(1)(l) shall include in the shareholder's adjusted gross income the earnings and profits of the DISC in the same manner as provided by section 995 of the Internal Revenue Code, 26 U.S.C. 995, for all periods for which the DISC election is effective.
(4) A taxpayer who, in determining federal adjusted gross income, has reduced the taxpayer's business deductions by an amount for wages and salaries for which a federal tax credit was elected under sections 38 and 51(a) of the Internal Revenue Code, 26 U.S.C. 38 and 51(a), is allowed to deduct the amount of the wages and salaries paid regardless of the credit taken. The deduction must be made in the year that the wages and salaries were used to compute the credit. In the case of a partnership or small business corporation, the deduction must be made to determine the amount of income or loss of the partnership or small business corporation.
(5) Married taxpayers filing a joint federal return who are required to include part of their social security benefits or part of their tier 1 railroad retirement benefits in federal adjusted gross income may split the federal base used in calculation of federal taxable social security benefits or federal taxable tier 1 railroad retirement benefits when they file separate Montana income tax returns. The federal base must be split equally on the Montana return.
(6) A taxpayer receiving retirement disability benefits who has not attained 65 years of age by the end of the tax year and who has retired as permanently and totally disabled may exclude from adjusted gross income up to $100 a week received as wages or payments in lieu of wages for a period during which the employee is absent from work due to the disability. If the adjusted gross income before this exclusion exceeds $15,000, the excess reduces the exclusion by an equal amount. This limitation affects the amount of exclusion, but not the taxpayer's eligibility for the exclusion. If eligible, married individuals shall apply the exclusion separately, but the limitation for income exceeding $15,000 is determined with respect to the spouses on their combined adjusted gross income. For the purpose of this subsection, "permanently and totally 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.
(7) Married taxpayers who file a joint federal return and who make an election on the federal return to defer income ratably for 4 tax years because of a conversion from an IRA other than a Roth IRA to a Roth IRA, pursuant to section 408A(d)(3) of the Internal Revenue Code, 26 U.S.C. 408A(d)(3), may file separate Montana income tax returns to defer the full taxable conversion amount from Montana adjusted gross income for the same time period. The deferred amount must be attributed to the taxpayer making the conversion.
(7) A refund received of federal income tax referred to in subsection (1)(b) must be allocated in the following order as applicable:
(a) to federal income tax in a prior tax year not deducted on the state tax return in that prior tax year;
(b) to federal income tax in a prior tax year deducted on the state tax return in that prior tax year that did not result in a reduction in state income tax liability in that prior tax year; and
(c) to federal income tax in a prior tax year deducted on the state tax return in that prior tax year that reduced the taxpayer's state income tax liability in that prior tax year.
(8) An individual who contributes to one or more accounts established under the Montana family education savings program may reduce adjusted gross income by the lesser of $3,000 or the amount of the contribution. In the case of married taxpayers, each spouse is entitled to a reduction, not in excess of $3,000, for the spouses' contributions to the accounts. Spouses may jointly elect to treat half of the total contributions made by the spouses as being made by each spouse. The reduction in adjusted gross income under this subsection applies only with respect to contributions to an account of which the account owner, as defined in 15-62-103, is the taxpayer, the taxpayer's spouse, or the taxpayer's child or stepchild if the taxpayer's child or stepchild is a Montana resident. The provisions of subsection (1)(e) do not apply with respect to withdrawals of contributions that reduced adjusted gross income.
(9) (a) A taxpayer may exclude the amount of the loan payment received pursuant to subsection (9)(a)(iv), not to exceed $5,000, from the taxpayer's adjusted gross income if the taxpayer:
(i) is a health care professional licensed in Montana as provided in Title 37;
(ii) is serving a significant portion of a designated geographic area, special population, or facility population in a federally designated health professional shortage area, a medically underserved area or population, or a federal nursing shortage county as determined by the secretary of health and human services or by the governor;
(iii) has had a student loan incurred as a result of health-related education; and
(iv) has received a loan payment during the tax year made on the taxpayer's behalf by a loan repayment program described in subsection (9)(b) as an incentive to practice in Montana.
(b) For the purposes of subsection (9)(a), a loan repayment program includes a federal, state, or qualified private program. A qualified private loan repayment program includes a licensed health care facility, as defined in 50-5-101, that makes student loan payments on behalf of the person who is employed by the facility as a licensed health care professional. (Subsection (2)(f) terminates on occurrence of contingency--sec. 3, Ch. 634, L. 1983; subsection (2)(o) terminates on occurrence of contingency--sec. 9, Ch. 262, L. 2001.)"
Section 4. Section 15-30-241, MCA, is amended to read:
"15-30-241. Estimated tax -- payment -- exceptions -- interest. (1) (a) Each individual subject to tax under this chapter, except farmers or ranchers as defined in subsection (6), shall pay for the tax year, through employer withholding, as provided in 15-30-202, through payment of estimated tax in four installments, as provided in subsection (2) of this section, or through a combination of employer withholding and estimated tax payments, at least:
(i) 90% of the tax for the current tax year, less tax credits and withholding allowed the taxpayer; or
(ii) an amount equal to 100% of the individual's tax liability for the preceding tax year, if the preceding tax year was a period of 12 months and if the individual filed a return for the tax year.
(b) Payment of estimated taxes under this section is not required if:
(i) the combined tax liability of employer withholding and estimated tax for the current year is less than $500 after reductions for credits and withholding;
(ii) the individual did not have any tax liability for the preceding tax year, which was a tax year of 12 months, and if the individual was a citizen or resident of the United States throughout that tax year;
(iii) the underpayment was caused by reason of casualty, disaster, or other unusual circumstances that the department determines to constitute good cause; or
(iv) the individual retired in the tax year after having attained the age of 62 or if the individual became disabled in the tax year. In addition, payment of estimated taxes under this section is not required in the tax year following the tax year in which the individual retired or became disabled.
(2) Estimated taxes must be paid in four installments according to one of the following schedules:
(a) For each taxpayer whose tax year begins on January 1, estimated tax payments are due on the following dates:
Installment 0; &# 160; 0; &# 160; 0; &# 160; 0; &# 160; Date
First 0; &# 160; 0; &# 160; 0; &# 160; 0; &# 160; April 15
Second & #160; 0; &# 160; 0; &# 160; 0; &# 160; 0;June 15
Third 60; & #160; 0; &# 160; 0; &# 160; 0; &# 160; September 15
Fourth &# 160; 0; &# 160; 0; &# 160; January 15 of the following tax year
(b) For each taxpayer whose tax year begins on a date other than January 1, estimated tax payments are due on the following dates:
Installment 0; &# 160; 0; &# 160; 0; &# 160; 0; &# 160; Date
First 0; &# 160; 0; &# 160; 15th day of the 4th month following the beginning of the tax year
Second & #160; 0; &# 160; 15th day of the 6th month following the beginning of the tax year
Third 60; & #160; 0; &# 160; 15th day of the 9th month following the beginning of the tax year
Fourth &# 160; 0; &# 160; 0; 15th day of the month following the close of the tax year
(3) (a) Except as provided in subsection (4), each installment must be 25% of the required annual payment determined pursuant to subsection (1). If the taxpayer's tax situation changes, each succeeding installment must be proportionally changed so that the balance of the required annual payment is paid in equal installments over the remaining period of time.
(b) If the taxpayer's tax situation changes after the date for the first installment or any subsequent installment, as specified in subsection (2)(a) or (2)(b), so that the taxpayer is required to pay estimated taxes, the taxpayer shall pay 25% for each succeeding installment except for the first one in which a payment is required. For estimated taxes required to be paid beginning with the second installment provided for in subsection (2)(a) or (2)(b), the taxpayer shall pay 50% for that installment and 25% for the third and fourth installments, respectively. For estimated taxes required to be paid beginning with the third installment provided for in subsection (2)(a) or (2)(b), the taxpayer shall pay 75% for that installment and 25% for the fourth installment.
(4) (a) If for any required installment the taxpayer determines that the installment payment is less than the amount determined under subsection (3)(a), the lower amount may be paid as an annualized income installment.
(b) For any required installment, the annualized income installment is the applicable percentage described in subsection (4)(c) applied to the tax computed on the basis of annualized taxable income in the tax year for the months ending before the due date for the installment less the total amount of any prior required installments for the tax year.
(c) For the purposes of this subsection (4), the applicable percentage is determined according to the following schedule:
Required Installment & #160; 0; &# 160; 0; &# 160; Applicable Percentage
First 0; &# 160; 0; &# 160; 0; &# 160; 0; &# 160; 22.5%
Second & #160; 0; &# 160; 0; &# 160; 0; &# 160; 0; 45%
Third 60; & #160; 0; &# 160; 0; &# 160; 0; &# 160; 67.5%
Fourth &# 160; 0; &# 160; 0; &# 160; 0; &# 160; 0; 90%
(d) A reduction in a required installment resulting from the application of an annualized income installment must be recaptured by increasing the amount of the next required installment, determined under subsection (3)(a), by the amount of the reduction. Any subsequent installment must be increased by the amount of the reduction until the amount has been recaptured.
(5) (a) If Subject to subsection (5)(f), if an estimated tax, an employer withholding tax, or a combination of estimated tax and employer withholding tax is underpaid, there must be added to the amount due under this chapter interest on the amount of the underpayment as provided in 15-1-216. The interest is computed on the amount of the underpayment, as determined in subsection (5)(b), for the period from the time the payment was due to the date payment was made or to the 15th day of the 4th month of the year following the tax year in which the payment was to be made, whichever is earlier.
(b) For the purpose of determining the amount of interest due in subsection (5)(a), the amount of the underpayment is the required installment amount less the installment amount paid, if any, on or before the due date for the installment.
(c) For the purpose of determining the amount of interest due in subsection (5)(a), an estimated payment must be credited against unpaid required installments in the order in which those installments are required to be paid.
(d) For each married taxpayer filing separately on the same form, the interest provided for in subsection (5)(a) must be computed on the combined tax liability after reductions for credits and withholding, as shown on the taxpayer's return.
(e) Interest may not be charged with respect to any underpayment of the fourth installment of estimated taxes if:
(i) the taxpayer pays in full the amount computed on the return as payable; and
(ii) the taxpayer files a return on or before the last day of the month following the close of the tax year referred to in subsection (2)(a) or (2)(b).
(f) Interest on the underpayment of estimated tax may not be assessed against a taxpayer if the tax paid by the taxpayer from employer withholding and estimated tax payments satisfies the requirements of subsections (1)(a)(i) and (1)(a)(ii) and the taxpayer has paid approximately equal quarterly installments of estimated taxes.
(6) For the purposes of this section, "farmer or rancher" means a taxpayer who derives at least 66 2/3% of the taxpayer's gross income, as defined in 15-30-101, from farming or ranching operations, or both.
(7) The department shall promulgate rules governing reasonable extensions of time for paying the estimated tax. An extension may not be for more than 6 months."
Section 5. Section 15-39-105, MCA, is amended to read:
"15-39-105. Penalties and interest for violation. (1) (a) A person who fails to file a statement as required by 15-39-102 must be assessed a penalty as provided in 15-1-216. The department may waive the penalty as provided in 15-1-206.
(b) A person who fails to file the statement required by 15-39-102 and to pay the tax before the due date must be assessed a penalty and interest as provided in 15-1-216. The department may waive any penalty pursuant to 15-1-206.
(2) A person who purposely fails to pay the tax when due must be assessed an additional penalty as provided in 15-1-216(1)(d)(2)."
Section 6. Section 15-39-107, MCA, is amended to read:
"15-39-107. Interest on deficiency -- penalty. (1) Interest accrues on unpaid or delinquent taxes as provided in 15-1-216. The interest must be computed from the date on which the statement and tax were originally due.
(2) If the payment of a tax deficiency is not made within 60 days after it is due and payable and if the deficiency is due to negligence on the part of the taxpayer but without fraud, the penalty imposed by 15-1-216(1)(c)(2) must be added to the amount of the deficiency."
Section 7. Codification instruction. [Section 1] is intended to be codified as an integral part of Title 15, chapter 30, part 3, and the provisions of Title 15, chapter 30, part 3, apply to [section 1].
Section 8. Effective date. (1) Except as provided in subsection (2), [this act] is effective July 1, 2007.
(2) [Sections 1(2) and 3 and this section] are effective on passage and approval.
Section 9. Applicability. (1) Except as provided in subsections (2) and (3), [this act] applies to penalties assessed against taxes or fees due for tax reporting periods beginning after June 30, 2007.
(2) [This act] applies to interest computed under 15-1-216 assessed on income taxes owing after June 30, 2007, regardless of the tax reporting period for which the taxes are owed.
(3) [Sections 1(2) and 3] apply retroactively, within the meaning of 1-2-109, to tax periods beginning after December 31, 2006.
- END -
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