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HOUSE BILL NO. 510
INTRODUCED BY P. BERGSAGEL
A BILL FOR AN ACT ENTITLED: "AN ACT PROVIDING PARENTS OR GUARDIANS AN INDIVIDUAL INCOME TAX EXEMPTION NOT EXCEEDING $600 FOR QUALIFYING SCHOOL EXPENSES FOR EACH DEPENDENT IN PUBLIC OR NONPUBLIC ELEMENTARY OR SECONDARY GRADES, INCLUDING A HOME SCHOOL PROGRAM; DEFINING "SCHOOL EXPENSES" FOR PURPOSES OF THE DEDUCTION; AMENDING SECTIONS 15-30-101 AND 15-30-111, MCA; AND PROVIDING AN IMMEDIATE EFFECTIVE DATE AND A RETROACTIVE APPLICABILITY DATE."
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MONTANA:
Section 1. Section 15-30-101, MCA, is amended to read:
"15-30-101. Definitions. For the purpose of this chapter, unless otherwise required by the context, the following definitions apply:
(1) "Base year structure" means the following elements of the income tax structure:
(a) the tax brackets established in 15-30-103, but unadjusted by 15-30-103(2), in effect on June 30 of the taxable year;
(b) the exemptions contained in 15-30-112, but unadjusted by 15-30-112(6), in effect on June 30 of the taxable year;
(c) the maximum standard deduction provided in 15-30-122, but unadjusted by 15-30-122(2), in effect on June 30 of the taxable year.
(2) "Consumer price index" means the consumer price index, United States city average, for all items, using the 1967 base of 100 as published by the bureau of labor statistics of the U.S. department of labor.
(3) "Department" means the department of revenue.
(4) "Dividend" means any distribution made by a corporation out of its earnings or profits to its shareholders or members, whether in cash or in other property or in stock of the corporation, other than stock dividends.
(5) "Fiduciary" means a guardian, trustee, executor, administrator, receiver, conservator, or any person, whether individual or corporate, acting in any fiduciary capacity for any person, trust, or estate.
(6) "Foreign government" means any jurisdiction other than the one embraced within the United States, its territories, and its possessions.
(7) "Gross income" means the taxpayer's gross income for federal income tax purposes as defined in section 61 of the Internal Revenue Code of 1954 (26 U.S.C. 61) or as that section may be labeled or amended, excluding unemployment compensation included in federal gross income under the provisions of section 85 of the Internal Revenue Code of 1954 (26 U.S.C. 85) as amended.
(8) "Inflation factor" means a number determined for each taxable year by dividing the consumer price index for June of the taxable year by the consumer price index for June 1980.
(9) "Information agents" includes all individuals, corporations, associations, and partnerships, acting in whatever capacity, including lessees or mortgagors of real or personal property, fiduciaries, brokers, real estate brokers, employers, and all officers and employees of the state or of any municipal corporation or political subdivision of the state, having the control, receipt, custody, disposal, or payment of interest, rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits, and income with respect to which any person or fiduciary is taxable under this chapter.
(10) "Knowingly" is as defined in 45-2-101.
(11) "Net income" means the adjusted gross income of a taxpayer less the deductions allowed by this chapter.
(12) "Paid", for the purposes of the deductions and credits under this chapter, means paid or accrued or paid or incurred, and the terms "paid or accrued" and "paid or incurred" must be construed according to the method of accounting upon the basis of which the taxable income is computed under this chapter.
(13) "Pension and annuity income" means:
(a) systematic payments of a definitely determinable amount from a qualified pension plan, as that term is used in section 401 of the Internal Revenue Code (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.
(14) "Purposely" is as defined in 45-2-101.
(15) "Received", for the purpose of computation of taxable income under this chapter, means received or accrued, and the term "received or accrued" must be construed according to the method of accounting upon the basis of which the taxable income is computed under this chapter.
(16) "Resident" applies only to natural persons and includes, for the purpose of determining liability to the tax imposed by this chapter with reference to the income of any taxable year, any person domiciled in the state of Montana and any other person who maintains a permanent place of abode within the state even though temporarily absent from the state and who has not established a residence elsewhere.
(17) (a) "School expenses", for purposes of computing adjusted gross income, includes:
(i) fees or tuition for instruction in a public or nonpublic elementary or secondary school, for instruction during the regular school day or school year, including tutoring, class trips, driver's education taken as part of the school curriculum, or summer camps, in grade or age appropriate curricula that supplement curricula and instruction available during the regular school year, that assists a dependent to improve knowledge of core curriculum areas or to expand knowledge and skills under the accreditation standards and that do not include the teaching of religious tenets, doctrines, or worship for the purpose of instilling the tenets, doctrines, or worship;
(ii) expenses for textbooks, including books and other instructional materials or equipment used in public or nonpublic elementary and secondary schools, including a home school program, in teaching only those subjects legally and commonly taught in public or nonpublic elementary or secondary schools or in a home school program, in this state;
(iii) a maximum expense of $400 per family for computer hardware and educational software that assists a dependent to improve knowledge of core curriculum areas or to expand knowledge and skills, purchased for use in the taxpayer's home and not used in trade or business regardless of whether the computer is required by the dependent's school;
(iv) the amount paid to others for transportation of a dependent attending a nonprofit public or nonpublic elementary or secondary school situated in this state or in an adjacent state or province, where a resident of this state may legally fulfill the state's compulsory attendance laws;
(v) clothing or uniforms required for physical education classes or choir;
(vi) rental fees or the purchase costs of musical instruments; and
(vii) equipment required for shop, home economics, or art courses.
(b) "School expenses" do not include:
(i) tuition for nursery school or prekindergarten classes;
(ii) education expenses after the dependent has left high school;
(iii) instructional books and materials used in the teaching of religious tenets, doctrines, or worship for the purpose of instilling the tenets, doctrines, or worship, nor does it include books or materials for extracurricular activities;
(iv) the cost of driving a dependent to school;
(v) school hot lunches; and
(vi) expenses for extracurricular activities.
(17)(18) "Stock dividends" means new stock issued, for surplus or profits capitalized, to shareholders in proportion to
their previous holdings. (18)(19) "Taxable income" means the adjusted gross income of a taxpayer less the deductions and exemptions provided
for in this chapter. (19)(20) "Taxable year" or "tax year" means the taxpayer's taxable year for federal income tax purposes. (20)(21) "Taxpayer" includes any person or fiduciary, resident or nonresident, subject to a tax imposed by this chapter
and does not include corporations."
Section 2. Section 15-30-111, MCA, is amended to read:
"15-30-111. Adjusted gross income. (1) Adjusted gross income is the taxpayer's federal income tax adjusted gross income as defined in section 62 of the Internal Revenue Code of 1954, 26 U.S.C. 62, as that section may be labeled or amended, 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 of 1986, 26 U.S.C. 852(b)(5), as that section may be amended or renumbered, 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;
(c) that portion of a shareholder's income under subchapter S. of Chapter 1 of the Internal Revenue Code of 1954 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(15); and
(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.
(2) Notwithstanding the provisions of the federal Internal Revenue Code of 1954, as labeled or amended, 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, a county, municipality, or 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 of 1986, 26 U.S.C. 852(b)(5), as that section may be amended or renumbered, 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 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) money, not exceeding $3,000 for each taxpayer, contributed to a family education savings program account established in accordance with 15-62-201;
(m) principal withdrawn from an account for qualified higher education expenses, as defined in 15-62-103, for a designated beneficiary of the taxpayer;
(n) 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;
(o) 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; and
(p) money, not exceeding $600, for each dependent in public or nonpublic elementary or secondary grades, including a home school program authorized under 20-5-109, for school expenses, as defined in 15-30-101.
(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 of 1954, as those sections may be labeled or amended, 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 age 65 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 and before application of the two-earner married couple deduction 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. (Subsection (2)(f) terminates on occurrence of contingency--sec. 3, Ch. 634, L. 1983.)"
NEW SECTION. Section 3. Effective date -- retroactive applicability. [This act] is effective on passage and approval and applies retroactively, within the meaning of 1-2-109, to tax years beginning after December 31, 1998.
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Latest Version of HB 510 (HB0510.01)
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