(1) Effective with taxable periods beginning on and after January 1, 1971, a corporation deriving income from sources both within and without Montana and whose only activities in Montana consist of making sales and do not include owning or renting real or tangible personal property and whose dollar volume of gross sales made in Montana during the taxable period do not exceed $100,000, may elect to pay a tax of 1/2 percent on the gross receipts from sales made in Montana during the taxable period. Such tax is in lieu of the tax based upon net income.

(2) The election to pay the alternative tax is made by filing a return on Form CIT, reporting the dollar amount of Montana gross sales, and paying a tax determined on the basis of 1/2 percent of the amount of such sales. The $50 minimum tax does not apply to the alternative tax. The gross receipts from sales made in Montana must be determined according to the provisions of ARM 42.26.255 and 42.26.257. A statement must be attached to the return to the effect that the corporation's only activities in Montana consist of making sales and do not include owning or renting real property or tangible personal property.

(1) The regulations in this subchapter of ARM Title 42, chapter 26 are applicable to Article IV of the Multistate Tax Compact, 15-1-601, MCA, and to the Uniform Division of Income for Tax Purposes Act, 15-31-302 through 15-31-312, MCA, and are modeled after regulations adopted by the Multistate Tax Commission. Statutory references in the regulations are to 15-31-302 through 15-31-312, MCA, but also apply to the corresponding subsections of Article IV of the Multistate Tax Compact, 15-1-601, MCA.

(2) The regulations in this subchapter are intended to set forth methods concerning the application of the apportionment and allocation provisions of Title 15, chapter 31, part 3, MCA, and Article IV of 15-1-601, MCA. The provisions set forth in this subchapter are applicable to any taxpayer having apportionable income, regardless of whether or not it has nonapportionable income, and the allocation rules are applicable to any taxpayer having nonapportionable income, regardless of whether or not it has apportionable income.

(3) The only exceptions to the allocation and apportionment rules contained in this subchapter are set forth in ARM 42.26.261 through 42.26.264 pursuant to the authority of 15-31-312, MCA. Special rules pertaining to certain industries are referenced in other subchapters of ARM Title 42, chapter 26.

(4) The regulations in this subchapter are not intended to modify existing rules concerning jurisdictional standards.

The following definitions apply to terms used in this subchapter:

(1) "Allocation" means the assignment of nonapportionable income to a particular state.

(2) "Annual rent" means the actual sum of money or other consideration payable, directly or indirectly, by the taxpayer or for its benefit for the use of the property.

(a) Annual rent includes:

(i) any amount payable for the use of real or tangible personal property, or any part thereof, whether designated as a fixed sum of money or as a percentage of sales, profits, or otherwise;

(ii) any amount payable as additional rent or in lieu of rents, such as interest, taxes, insurance, repairs, or any other items which are required to be paid by the terms of the lease or other arrangement, not including amounts paid as service charges, such as utilities, janitor services, etc. If a payment includes rent and other charges unsegregated, the amount of rent shall be determined by consideration of the relative values of the rent and the other items.

(iii) any amount payable for a delay rental as defined by U.S. Treasury regulations Section 1.612-3 (1980), which defines delay rental as follows: A delay rental is an amount paid for the privilege of deferring development of the property and which could have been avoided by abandonment of the lease, or by commencement of development operations, or by obtaining production.

(b) "Annual rent" does not include:

(i) incidental day-to-day expenses such as hotel or motel accommodations, daily rental of automobiles, etc.

(ii) royalties based on extraction of natural resources, whether represented by delivery or purchase. For this purpose, a royalty includes an amount paid to a holder of an interest in real property which constitutes a sharing of current or future production of natural resources from such property, whether denominated as a royalty, advance royalty, rental, or otherwise.

(3) "Annual rental rate" means the amount paid as rental for the property for a 12-month period (i.e., the amount of the annual rent). Where property is rented for less than a 12-month period, the rent paid for the actual period of rental shall constitute the "annual rental rate" for the tax period. However, where a taxpayer has rented property for a term of 12 or more months and the current tax period covers a period of less than 12 months (due, for example, to a reorganization or change of accounting period), the rent paid for the short period shall be annualized. If the rental term is for less than 12 months, the rent shall not be annualized beyond its term. Rent shall not be annualized because of the uncertain duration when the rental term is on a month-to-month basis.

(4) "Apportionment" means the division of apportionable income between states by the use of a formula containing apportionment factors.

(5) "Average value of property" means the amount determined by averaging the values at the beginning and ending of the income tax year, but the department may require the averaging of monthly values during the income year or such averaging as necessary to effect properly the average value of the property. See ARM 42.26.237.

(6) "Base of operations" means the place of more or less permanent nature from which an employee starts their work and to which they customarily return in order to receive instructions from the taxpayer or communications from their customers or other persons, to replenish stock or other materials, repair equipment, or to perform any other function necessary to exercise their trade or profession at some other point or points. The term "place from which the service is directed or controlled" refers to the place from which the power to direct or control is exercised by the taxpayer.

(7) "Basis in the hands of the taxpayer" means the taxpayer's federal income tax basis in the asset at the time of sale.

(8) "Billing address" means the location indicated in the books and records of the taxpayer as the primary mailing address relating to a customer's account as of the time of the transaction as kept in good faith in the normal course of business and not for tax avoidance purposes.

(9) "Business activity" means the transactions and activity occurring in the regular course of a particular trade or business of a taxpayer.

(10) "Business customer" means a customer that is a business operating in any form, including a sole proprietorship. Sales to a nonprofit organization, to a trust, to the U.S. Government, to a foreign, state, or local government, or to an agency or instrumentality of that government are treated as sales to a business customer and must be assigned for receipts apportionment purposes consistent with the rules for those sales.

(11) "Code" means the Internal Revenue Code as currently written and subsequently amended.

(12) "Compensation" means wages, salaries, commissions, and any other form of remuneration paid to employees for personal services. Payments made to an independent contractor or any other person not properly classifiable as an employee are excluded. Only amounts paid directly to employees are included in the payroll factor. Amounts considered paid directly include the value of board, rent, housing, lodging, and other benefits or services furnished to employees by the taxpayer in return for personal services; provided, that such amounts constitute income to the recipient under the federal IRC. In the case of employees not subject to the federal IRC, e.g., those employed in foreign countries, the determination of whether such benefits or services would constitute income to the employees shall be made as though such employees were subject to the federal IRC.

(13) "Costs of performance" means direct costs determined in a manner consistent with generally accepted accounting principles and in accordance with accepted conditions or practices in the trade or business of the taxpayer to perform the income-producing activity which gives rise to the particular item of income. Included in the taxpayer's cost of performance are taxpayer's payments to an agent or independent contractor for the performance of personal services and utilization of tangible and intangible property which give rise to the particular item of income.

(14) "Employee" means any officer of the corporation; or any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee. Generally, a person will be considered to be an employee if included by the taxpayer as an employee for purposes of the payroll taxes imposed by the Federal Insurance Contributions Act; except that, since certain individuals are included within the term "employees" in the Federal Insurance Contributions Act who would not be employees under the usual common law rules, it may be established that a person who is included as an employee for purposes of the Federal Insurance Contributions Act is not an employee for purposes of this rule.

(15) "Gross receipts" means the gross amounts realized (the sum of money and the fair market value of other property or services received) on the sale or exchange of property, the performance of services, or the use of property or capital (including rents, royalties, interest, and dividends) in a transaction which produces apportionable income, in which the income, gain, or loss is recognized (or would be recognized if the transaction were in the United States) under the federal IRC.

(a) Intercompany revenues between members of the unitary group are eliminated from gross receipts. Examples of intercompany revenues include, but are not limited to:

(i) sales;

(ii) dividends;

(iii) service fees;

(iv) rents;

(v) management fees;

(vi) royalties;

(vii) interest; and

(viii) administrative fees.

(b) Gross receipts, even if apportionable income, do not include, for example, such items as:

(i) repayment, maturity, or redemption of the principal of a loan, bond, or mutual fund or certificate of deposit or similar marketable instrument;

(ii) the principal amount received under a repurchase agreement or other transaction properly characterized as a loan;

(iii) proceeds from issuance of the taxpayer's own stock or from sale of treasury stock;

(iv) damages and other amounts received as the result of litigation;

(v) property acquired by an agent on behalf of another;

(vi) tax refunds and other tax benefits recoveries;

(vii) pension reversions;

(viii) contributions to capital (except for sales of securities by securities dealers);

(ix) income from forgiveness or discharge of indebtedness;

(x) amounts realized from the exchange of inventory, except those amounts actually received by the taxpayer and that exceeded any corresponding amounts paid to the other party, and which were to account for excess deliveries under the exchange agreement, as calculated on an annual basis. Thus, the net amount of payments received in excess of the net payments made during the year may be included in the receipts factor; and

(xi) amounts received from hedging transactions involving intangible assets. For purposes of this subsection, a "hedging transaction" means a transaction related to the taxpayer's trading function involving futures and options transactions for the purpose of hedging price risk of the products or commodities consumed, produced, or sold by the taxpayer.

(c) Exclusion of an item from the definition of "gross receipts" is not determinative of its character as apportionable or nonapportionable income.

(16) "Income-producing activity" applies to each separate item of income and means the transactions and activity engaged in by the taxpayer in the regular course of its trade or business for the ultimate purpose of producing that item of income. Such activity includes transactions and activities performed on behalf of the taxpayer, such as those conducted on its behalf by an independent contractor. Income-producing activity includes, but is not limited to:

(a) the rendering of personal services by employees or by an agent or independent contractor acting on behalf of the taxpayer or the utilization of tangible and intangible property by the taxpayer or by an agent or independent contractor acting on behalf of the taxpayer in performing a service;

(b) the sale, rental, leasing, licensing, or other use of real property;

(c) the rental, leasing, licensing, or other use of tangible personal property; or

(d) the sale, licensing, or other use of intangible personal property.

(17) "Individual customer" means a customer that is not a business customer.

(18) "Intangible property" generally means property that is not physical or whose representation by physical means is merely incidental and includes, without limitation, copyrights; patents; trademarks; trade names; brand names; franchises; licenses; trade secrets; trade dress; information; know-how; methods; programs; procedures; systems; formulae; processes; technical data; designs; licenses; literary, musical or artistic compositions; ideas; contract rights including broadcast rights; agreements not to compete; goodwill and going concern value; securities; and except as otherwise provided, computer software.

(19) "Mobile property" means all motor vehicles, including trailers, engaged directly in the movement of tangible personal property.

(20) "Mobile property mile" means the movement of a unit of mobile property a distance of one mile whether loaded or unloaded.

(21) "Net annual rental rate" means the annual rental rate paid by the taxpayer less any annual rental rate received by the taxpayer from sub-rentals.

(22) "Net receipts" means gross receipts minus the basis of the asset in the hands of the taxpayer.

(23) "Original cost" means the basis of the property for federal income tax purposes (prior to any federal income tax adjustments, except for subsequent capital additions, improvements thereto, or partial dispositions); or, if the property has no such basis, the valuation of such property for interstate commerce commission purposes. If the original cost of property is unascertainable under the foregoing valuation standards, the property is included in the property factory at its fair market value as of the date of acquisition by the taxpayer. See ARM 42.26.235.

(24) "Place of order" means the physical location from which a customer places an order for a sale other than a sale of tangible personal property from a taxpayer, resulting in a contract with the taxpayer.

(25) "Population" means the most recent population data maintained by the U.S. Census Bureau for the year in question as of the close of the taxable period.

(26) "Property used during the income year" includes property which is available for use in the taxpayer's trade or business during the income year.

(27) "Real and tangible personal property" includes land, buildings, machinery, stocks of goods, equipment, and other real and tangible personal property, but does not include coin or currency.

(28) "Related party" means:

(a) a stockholder who is an individual, or a member of the stockholder's family, set forth in section 318 of the Code if the stockholder and the members of the stockholder's family own directly, indirectly, beneficially, or constructively, in the aggregate, over 50 percent of the value of the taxpayer's outstanding stock;

(b) a stockholder, or a stockholder's partnership, limited liability company, estate, trust, or corporation, if the stockholder and the stockholder's partnerships, limited liability companies, estates, trust, and corporations own directly, indirectly, beneficially, or constructively, in the aggregate, over 50 percent of the value of the taxpayer's outstanding stock; or

(c) a corporation, or a party related to the corporation in a manner that would require an attribution of stock from the corporation to the party or from the party to the corporation under the attribution rules of the Code if the taxpayer owns directly, indirectly, beneficially, or constructively, over 50 percent of the value of the corporation's outstanding stock. The attribution rules of the Code shall apply for purposes of determining whether the ownership requirements of this definition have been met.

(29) "State where a contract of sale is principally managed by the customer," means the primary location at which an employee or other representative of a customer serves as the primary contact person for the taxpayer with respect to the day-to-day execution and performance of a contract entered into by the taxpayer with the customer.

(30) "Taxpayer" means any corporation, partnership, firm, association, disregarded entity, governmental unit or agency, or person acting as a business entity.

(31) "Trade or business" means the unitary business of the taxpayer, part of which is conducted in this state.

(32) "Transportation revenue" means revenue earned by transporting passengers, freight and mail as well as revenue earned from liquor sales, pet crate rentals, etc.

(33) "Unitary relationship" means a relationship between members of a combined group sufficient to satisfy the definition of a "unitary business" pursuant to 15-31-301, MCA.

(34) "Value of owned real and tangible personal property" means its original cost. See ARM 42.26.235.

(35) "Value of rented real and tangible personal property" means the product of eight times the net annual rental rate. See ARM 42.26.236.

(1) In filing returns with this state, if the taxpayer departs from or modifies the manner in which income has been classified as apportionable or nonapportionable income in returns for prior years, the taxpayer shall disclose in the return for the current year the nature and extent of the modification.

(2) If the returns or reports filed by a taxpayer for all states to which the taxpayer reports under Article IV of the Compact or the Uniform Division of Income for Tax Purposes Act are not uniform in the classification of income as apportionable or nonapportionable income, the taxpayer shall disclose in its return to this state the nature and extent of the variance.

(1) If a particular trade or business is carried on by a taxpayer and one or more unitary affiliated corporations owned greater than 50 percent, the taxpayer is required to file a "combined report" whereby the entire apportionable income of such trade or business is apportioned in accordance with 15-31-305 through 15-31-311, MCA.

(1) A taxpayer may have more than one "trade or business." In such cases, it is necessary to determine the apportionable income attributable to each separate trade or business. The income of each business is then apportioned by an apportionment formula which takes into consideration the in-state and out-of-state factors which relate to the trade or business income being apportioned.

(2) The determination of whether the activities of the taxpayer constitute a single trade or business will depend on the facts in each case. In general, the activities of the taxpayer will be considered a single business if there is evidence to indicate that the segments under consideration are integrated with, dependent upon, or contribute to each other and the operations of the taxpayer as a whole. The following factors are considered to be good indicia of a single trade or business, and the presence of any of these factors creates a strong presumption that the activities of the taxpayer constitute a single trade or business:

(a) A taxpayer is generally engaged in a single trade or business when all of its activities are in the same general line. For example, a taxpayer which operates a chain of retail grocery stores will almost always be engaged in a single trade or business.

(b) A taxpayer is almost always engaged in a single trade or business when its various divisions or segments are engaged in different steps in a large, vertically structured enterprise. For example, a taxpayer which explores for and mines copper ores; concentrates, smelts, and refines the copper ores; and fabricates the refined copper into consumer products is engaged in a single trade or business regardless of the fact that the various steps in the process are operated substantially independently of each other with only general supervision from the taxpayer's executive offices.

(c) A taxpayer which might otherwise be considered as engaged in more than one trade or business is properly considered as engaged in one trade or business when there is a strong central management, coupled with the existence of centralized departments for such functions as financing, advertising, research, or purchasing. Thus, some conglomerates may properly be considered as engaged in only one trade or business when the central executive officers are normally involved in the operations of various divisions and there are centralized offices which perform for the divisions the normal matters which a truly independent business would perform for itself, such as accounting, personnel, insurance, legal, purchasing, advertising, or financing.

(1) Section 15-31-301, MCA, requires that every item of income be classified either as apportionable or nonapportionable income. Income for purposes of classification as apportionable or nonapportionable includes gains and losses. Apportionable income is apportioned among jurisdictions by use of a formula. Nonapportionable income is specifically assigned or allocated to one or more specific jurisdictions pursuant to express rules. An item of income is classified as apportionable income if it falls within the definition of apportionable income. In essence, all income which arises from the conduct of trade or business operations of a taxpayer is apportionable income. An item of income is nonapportionable income only if it does not meet the definitional requirements for being classified as apportionable income. For purposes of administration, the income of the taxpayer is apportionable income unless clearly classifiable as nonapportionable income.

(2) Apportionable income means income of any type or class, and from any activity, that meets the relationship described either in (3), the "transactional test," or (4), the "functional test." The classification of income by the labels occasionally used, such as manufacturing income, compensation for services, sales income, interest, dividends, rents, royalties, gains, operating income, nonoperating income, etc., is of no assistance in determining whether income is apportionable or nonapportionable income. Accordingly, the critical element in determining whether income is "apportionable income" or "nonapportionable income" is the identification of the transactions and activities which are the elements of a particular trade or business. In general, all transactions and activities of the taxpayer which are dependent upon or contribute to the operations of the taxpayer's economic enterprise as a whole constitute the taxpayer's trade or business and will be transactions and activities arising in the regular course of and will constitute integral parts of a trade or business. See ARM 42.26.207 for more specific examples of the classification of income as apportionable or nonapportionable income; see ARM 42.26.202 and 42.26.205 for further explanation of what constitutes a trade or business.

(3) Under the transactional test, apportionable income includes income arising from transactions and activity in the regular course of the taxpayer's trade or business.

(a) If the transaction or activity is in the regular course of the taxpayer's trade or business, part of which trade or business is conducted within this state, the resulting income of the transaction or activity is apportionable income for this state. Income may be apportionable income even though the actual transaction or activity that gives rise to the income does not occur in this state.

(b) For a transaction or activity to be in the regular course of the taxpayer's trade or business, the transaction or activity need not be one that frequently occurs in the trade or business. Most, but not all, frequently occurring transactions or activities will be in the regular course of that trade or business and will, therefore, satisfy the transactional test. It is sufficient to classify a transaction or activity as being in the regular course of a trade or business, if it is reasonable to conclude transactions of that type are customary in the kind of trade or business being conducted or are within the scope of what that kind of trade or business does. The transactional test includes, but is not limited to:

(i) income from sales of inventory;

(ii) property held for sale to customers; and

(iii) services which are commonly sold by the trade or business.

(c) The transactional test also includes, but is not limited to: income from the sale of property used in the production of apportionable income of a kind that is sold and replaced with some regularity, even if replaced less frequently than once a year.

(4) Under the functional test, apportionable income includes income from tangible and intangible property, if the acquisition, management, and disposition of the property constitute integral parts of the taxpayer's regular trade or business operations.

(a) Apportionable income need not be derived from transactions or activities that are in the regular course of the taxpayer's own particular trade or business. It is sufficient, if the property from which the income is derived is or was an integral, functional, or operative component used in the taxpayer's trade or business operations, or otherwise materially contributed to the production of apportionable income of the trade or business, part of which trade or business is or was conducted within this state. Property that has been converted to nonapportionable use through the passage of a sufficiently lengthy period of time, generally, five years is sufficient, has lost its character as a business asset and is not subject to the rule of the preceding sentence.

(b) Income that is derived from isolated sales, leases, assignments, licenses, and other infrequently occurring dispositions, transfers, or transactions involving property, including transactions made in liquidation, including complete or partial liquidations, or the winding-up of business, is apportionable income, if the property is or was used in the taxpayer's trade or business operations.

(i) Property that has been converted to nonapportionable use has lost its character as a business asset and is not subject to (4)(b).

(ii) Income from the licensing of an intangible asset, such as a patent, copyright, trademark, service mark, know-how, trade secrets, or the like, that was developed or acquired for use by the taxpayer in its trade or business operations, constitutes apportionable income whether or not the licensing itself constituted the operation of a trade or business, and whether or not the taxpayer remains in the same trade or business from or for which the intangible asset was developed or acquired.

(c) Under the functional test, income from intangible property is apportionable income when the intangible property serves an operational function. The relevant inquiry focuses on whether the property is or was held in furtherance of the taxpayer's trade or business, that is, on the objective characteristics of the intangible property's use or acquisition and its relation to the taxpayer and the taxpayer's activities.

(d) If the property is or was held in furtherance of the taxpayer's trade or business then income from that property may be apportionable income even though the actual transaction or activity involving the property that gives rise to the income does not occur in this state.

(e) If, with respect to an item of property, a taxpayer takes a deduction from apportionable income that is apportioned to this state or includes the original cost in the property factor, it is presumed that the item or property is or was integral to the taxpayer's trade or business operations. No presumption arises from the absence of any of these actions.

(f) Application of the functional test is generally unaffected by the form of the property (e.g., tangible or intangible property, real or personal property). Income arising from an intangible interest, as, for example, corporate stock or other intangible interest in a business or a group of assets, is apportionable income when the intangible itself or the property underlying or associated with the intangible is or was an integral, functional, or operative component to the taxpayer's trade or business operations.

(g) Property that has been converted to nonapportionable use has lost its character as a business asset and is not subject to (4)(f).

(1) Rental income from real and tangible property is characterized as apportionable income if the property with respect to which the rental income was received is, or was, used in the taxpayer's trade or business and therefore is includable in the property factor under ARM 42.26.231 and 42.26.237. Property that has been converted to nonapportionable use has lost its character as a business asset and is not subject to the rule of the preceding sentence.

(2) Gain or loss from the sale, exchange, or other dispositions of real property or of tangible or intangible personal property constitutes apportionable income if the property while owned by the taxpayer was used in, or was otherwise included in the property factor of, the taxpayer's trade or business. However, if such property was utilized for the production of nonapportionable income or otherwise was removed from the property factor before its sale, exchange, or other disposition, the gain or loss will constitute nonapportionable income. See ARM 42.26.232.

(3) Interest income is characterized as apportionable income where the intangible with respect to which the interest was received arises out of or was created in the regular course of the taxpayer's trade or business operations or where the acquiring and holding the intangible is an integral, functional, or operative component of the taxpayer's trade or business operations, or otherwise materially contributes to the production of apportionable income of the trade or business operations.

(4) Dividends constitute apportionable income where the stock with respect to which the dividends are received arises out of or was acquired in the regular course of the taxpayer's trade or business operations or where the acquiring and holding the stock is an integral, functional, or operative component of the taxpayer's trade or business operations, or otherwise materially contributes to the production of apportionable income of the trade or business operations.

(5) Patent and copyright royalties are characterized as apportionable income where the patent or copyright with respect to which the royalties were received arises out of or was created in the regular course of the taxpayer's trade or business operations or where the acquiring and holding the patent or copyright is an integral, functional, or operative component of the taxpayer's trade or business operations, or otherwise materially contributes to the production of apportionable income of the trade or business operations.

(1) In most cases an allowable deduction of a taxpayer will be applicable only to the apportionable income arising from a particular trade or business or to a particular item of nonapportionable income. In some cases an allowable deduction may be applicable to the apportionable incomes of more than one trade or business and/or to several items of nonapportionable income. In such cases, the deduction shall be prorated among such trades or business and such items of nonapportionable income in a manner which fairly distributes the deduction among the classes of income to which it is applicable.

(2) In filing returns with this state, if the taxpayer departs from or modifies the manner of prorating any such deduction used in returns for prior years, the taxpayer shall disclose in the return for the current year the nature and extent of the modification.

(3) If the returns or reports filed by a taxpayer with all states to which the taxpayer reports under Article IV of the Multistate Tax Compact or the Uniform Division of Income for Tax Purposes Act are not uniform in the application or proration of any deduction, the taxpayer shall disclose in its return to this state the nature and extent of the variance.

(4) If two or more entities, whether or not organized or doing business in this state, are owned or controlled directly or indirectly by the same interest, the taxpayer may petition for or the department may require adjustments that distribute, apportion, or allocate gross income or deductions between or among such entities to fairly represent the income of any such entities.

(1) Under 15-31-301 and 15-1-601, Article IV(2), MCA, the taxpayer is subject to the allocation and apportionment provisions of Title 15, chapter 31, part 3, MCA, if it has income from business activity that is taxable both within and without this state. A taxpayer's income from business activity is taxable without this state if such taxpayer, by reason of such business activity (i.e., the transactions and activity occurring in the regular course of a particular trade or business), is taxable in another state within the meaning of 15-31-303, MCA.

(2) A taxpayer is not taxable in another state with respect to a particular trade or business merely because the taxpayer conducts activities in such other state pertaining to the production of nonapportionable income or business activities relating to a separate trade or business.

(2) If the taxpayer voluntarily files and pays one or more of such taxes when not required to do so by the laws of that state, or pays a minimal fee for qualification, for organization, or for the privilege of doing business in that state, but does not actually engage in business activity in that state or does actually engage in business activity, not sufficient for nexus, and the minimum tax bears no relation to the taxpayer's business activity within that state, the taxpayer is not "subject to" one of the taxes specified within the meaning of 15-31-303, MCA.

(2) In the case of any "state" as defined in 15-31-302, MCA, other than a state of the United States or political subdivision of such a state, the determination of whether such "state" has jurisdiction to subject the taxpayer to a net income tax shall be made as though the jurisdictional standards applicable to a state of the United States applied in that "state."   If jurisdiction is otherwise present, such "state" is not considered as without jurisdiction by reason of the provisions of a treaty between that state and the United States.

This rule has been transferred.

This rule has been repealed.

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This rule has been transferred.

This rule has been transferred.

This rule has been transferred.

This rule has been transferred.

This rule has been transferred.

This rule has been transferred.

This rule has been transferred.

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This rule has been transferred.

This rule has been repealed.

(2) The definition of unitary will be the same as the definition of a unitary business as outlined in 15-31-301, MCA.   However, the corporate partner or disregarded entity owner need not own in excess of 50% of the partnership or disregarded entity for the partnership or disregarded entity to be unitary.

(1) A partnership or disregarded entity that is not part of a unitary business operation of a corporate partner or disregarded entity owner will be treated as follows:

(a) The corporate partner's or disregarded entity owner's share of partnership or disregarded entity income will not be included in apportionable income to be apportioned, but allocated to the states where the partnership or disregarded entity operates based upon the apportionment formula outlined in 15-31-305, MCA.

(2) Gain or loss from the sale of a non-unitary partnership or disregarded entity owner interest is allocable to this state in the ratio of the original cost of partnership or disregarded entity tangible property in this state to the original cost of partnership or disregarded entity tangible property everywhere, determined at the time of sale. In the event that more than 50 percent of the value of the assets of a partnership or disregarded entity consists of intangibles, gain, or loss from the sale of the partnership or disregarded entity owner interest shall be allocated to this state in accordance with the receipts factor of the partnership or disregarded entity for its first full tax period immediately preceding its tax period during which the partnership or disregarded entity interest was sold. If a disregarded entity does not have a tax period, the allocation will be made in accordance with the receipts factor of the partnership or disregarded entity for the 12 full calendar months preceding the month the interest was sold.

(1) If a taxpayer has property, payroll, or receipts assignable under 15-31-305 through 15-31-311, MCA, and attendant regulations to a location where it is not taxable under 15-31-303, MCA, the property, payroll, or receipts assigned to that location shall be excluded from the apportionment formula.

(2) For purposes of determining whether a taxpayer is taxable in a location, ARM 42.26.209 through 42.26.212 will apply.

(1) The property factor of the apportionment formula for each trade or business of the taxpayer shall include all real and tangible personal property owned or rented and used during the tax period in the regular course of such trade or business.

(2) Property used in connection with the production of nonapportionable income shall be excluded from the property factor.

(3) Property used both in the regular course of taxpayer's trade or business and in the production of nonapportionable income shall be included in the factor only to the extent the property is used in the regular course of taxpayer's trade or business. The method of determining that portion of the value to be included in the factor will depend on the facts of each case.

(4) The property factor shall reflect the average value of property includable in the factor as set forth in ARM 42.26.237.

(1) Property shall be included in the property factor if it is actually used or is available for or capable of being used during the tax period in the regular course of the trade or business of the taxpayer. Property held as reserves or standby facilities or property held as a reserve source of materials shall be included in the factor. For example, a plant temporarily idle or raw material reserves not currently being processed are includable in the factor.

(2) Property or equipment under construction during the tax period (except inventoriable goods in process) shall be excluded from the factor until such property is actually used in the regular course of the trade or business of the taxpayer. If the property is partially used in the regular course of the trade or business of the taxpayer while under construction, the value of the property to the extent used shall be included in the property factor.

(3) Property used in the regular course of the trade or business of the taxpayer shall remain in the property factor until its permanent withdrawal is established by an identifiable event such as its conversion to the production of nonapportionable income, its sale, or the lapse of an extended period of time (normally five years) during which the property is held for sale.

(1) In filing returns with this state, if the taxpayer departs from or modifies the manner of valuing property or of excluding or including property in the property factor, used in returns for prior years, the taxpayer shall disclose in the return for the current year the nature and extent of the modification.

(2) If the returns or reports filed by the taxpayer with all states to which the taxpayer reports under Article IV of the Multistate Tax Compact or the Uniform Division of Income for Tax Purposes Act are not uniform in the valuation of property and in the exclusion or inclusion of property in the property factor, the taxpayer shall disclose in its return to this state the nature and extent of the variance.

(1) The numerator of the property factor shall include the average value of the real and tangible personal property owned or rented by the taxpayer and used in this state during the tax period in the regular course of the trade or business of the taxpayer.

(2) Property in transit between locations of the taxpayer to which it belongs shall be considered to be at the destination for purposes of the property factor. Property in transit between a buyer and seller which is included by a taxpayer in the denominator of its property factor in accordance with its regular accounting practices shall be included in the numerator according to the state of destination.

(3) The value of mobile or movable property such as construction equipment, trucks, or leased electronic equipment which is located within and without this state during the tax period shall be determined for purposes of the numerator of the factor on the basis of total time within the state during the tax period. An automobile assigned to a traveling employee shall be included in the numerator of the factor of the state to which the employee's compensation is assigned under the payroll factor or in the numerator of the state in which the automobile is licensed.

(2) If the original cost of property is unascertainable, the property is included in the factor at its fair market value as of the date of acquisition by the taxpayer.

(3) Inventory of stock of goods shall be included in the factor in accordance with the valuation method used for federal income tax purposes.

(4) Property acquired by gift or inheritance shall be included in the factor as its basis for determining depreciation for federal income tax purposes.

(1) Property rented by the taxpayer is valued at eight times its net annual rental rate.

(a) The net annual rental rate for any item of rented property is the annual rental rate paid by the taxpayer for such property, with the exception of (1)(b), less the aggregate annual sub-rental rates paid by subtenants of the taxpayer. (ARM 42.26.262 addresses special rules where the use of such net annual rental rate produces a negative or clearly inaccurate value or where property is used by the taxpayer at no charge or rented at a nominal rental rate).

(b) Sub-rents are not deducted when the sub-rents constitute apportionable income because the property that produces the sub-rents is used in the regular course of a trade or business of the taxpayer when it is producing such income. Accordingly, there is no reduction in its value.

(2) ARM 42.26.202 provides the definitions that apply to valuing rental property.

(3) Leasehold improvements shall, for the purposes of the property factor, be treated as property owned by the taxpayer regardless of whether the taxpayer is entitled to remove the improvements or the improvements revert to the lessor upon expiration of the lease. Hence, the original cost of leasehold improvements shall be included in the factor.

(1) As a general rule, the average value of property owned by the taxpayer shall be determined by averaging the values at the beginning and ending of the tax period. However, the department may require or allow averaging by monthly values if such method of averaging is required to properly reflect the average value of the taxpayer's property for the tax period.

(2) Averaging by monthly values will generally be applied if substantial fluctuations in the values of the property exist during the tax period or where property is acquired after the beginning of the tax period or disposed of before the end of the tax period.

(3) Averaging with respect to rented property is achieved automatically by the method of determining the net annual rental rate of such property as set forth in ARM 42.26.236.

(1) The payroll factor of the apportionment formula for each trade or business of the taxpayer shall include the total amount paid by the taxpayer in the regular course of its trade or business for compensation during the tax period.

(2) The total amount "paid" to employees is determined upon the basis of the taxpayer's accounting method. If the taxpayer has adopted the accrual method of accounting, all compensation properly accrued shall be deemed to have been paid. Notwithstanding the taxpayer's method of accounting, at the election of the taxpayer, compensation paid to employees may be included in the payroll factor by use of the cash method if the taxpayer is required to report such compensation under such method for unemployment compensation purposes.

(3) The compensation of any employee on account of activities which are connected with the production of nonapportionable income shall be excluded from the factor.

(4) ARM 42.26.202 provides the definitions applicable to this rule.

(1) In filing returns with this state, if the taxpayer departs from or modifies the treatment of compensation paid used in returns for prior years, the taxpayer shall disclose in the return for the current year the nature and extent of the modification.

(2) If the returns or reports filed by the taxpayer with all states to which the taxpayer reports under Article IV of the Multistate Tax Compact or the Uniform Division of Income for Tax Purposes Act are not uniform in the treatment of compensation paid, the taxpayer shall disclose in its return to this state the nature and extent of the variance.

(1) The denominator of the payroll factor is the total compensation paid everywhere during the tax period.   Accordingly, the compensation paid to employees whose services are performed entirely in State C where the taxpayer is immune from taxation for example, by Public Law 86-272, are included in the denominator of the payroll factor.

(1) The numerator of the payroll factor is the total amount paid in this state during the tax period by the taxpayer for compensation. The tests in 15-31-309, MCA, to be applied in determining whether compensation is paid in this state are derived from the Model Unemployment Compensation Act. Accordingly, if compensation paid to employees is included in the payroll factor by use of the cash method of accounting or if the taxpayer is required to report such compensation under such method for unemployment compensation purposes, it shall be presumed that the total wages reported by the taxpayer to this state for unemployment compensation purposes constitutes compensation paid in this state, except for compensation excluded under ARM 42.26.241. The presumption may be overcome by satisfactory evidence that an employee's compensation is not properly reportable to this state for unemployment compensation purposes.

(2) Refer to ARM 42.26.202 for definitions applicable to this rule.

(3) Payroll associated with the operation or transportation of mobile or movable property, as described in ARM 42.26.234, shall be assigned to this state on the proportion of mileage traveled within the state to mileage traveled everywhere during the tax period.

(1) In order to satisfy the requirements of this rule, a taxpayer's assignment of receipts from sales of other than tangible personal property must be consistent with the following principles:

(a) A taxpayer shall apply the principles set forth in this rule based on objective criteria and shall consider all sources of information reasonably available to the taxpayer at the time of its tax filing including, without limitation, the taxpayer's books and records kept in the normal course of business. A taxpayer shall determine its method of assigning receipts in good faith, and apply it consistently with respect to similar transactions and year to year. A taxpayer shall retain contemporaneous records that explain the determination and application of its method of assigning receipts, including the underlying assumptions, and shall provide those records to the department upon request.

(b) This rule provides various assignment methods that apply sequentially in a hierarchy. For each sale to which a hierarchical method applies, a taxpayer must make a reasonable effort to apply the primary method applicable to the sale before seeking to apply the next method in the hierarchy (and must continue to do so with each succeeding method in the hierarchy, where applicable). For example, in some cases, the applicable method first requires a taxpayer to determine the state or states of assignment, and if the taxpayer cannot do so, the method requires the taxpayer to reasonably approximate the state or states. In these cases, the taxpayer must attempt to determine the state or states of assignment (i.e., apply the primary method in the hierarchy) in good faith and with reasonable effort before it may reasonably approximate the state or states.

(c) A taxpayer's method of assigning its receipts, including the use of a method of approximation, where applicable, must reflect an attempt to obtain the most accurate assignment of receipts consistent with the regulatory standards set forth is this rule, rather than an attempt to lower the taxpayer's tax liability. A method of assignment that is reasonable for one taxpayer may not necessarily be reasonable for another taxpayer, depending upon the applicable facts.

(2) Methods of reasonable approximation.

(a) In general, this rule establishes uniform principles for determining whether and to what extent the market for a sale other than the sale of tangible personal property is in Montana. This rule also sets forth methods of reasonable approximation, which apply if the state or states of assignment cannot be determined. In some instances, the reasonable approximation must be made in accordance with these specific methods of approximation. In other cases, this rule permits a taxpayer to reasonably approximate the state or states of assignment, using a method that reflects an effort to approximate the results that would be obtained under the applicable methods.

(b) Approximation based on known sales. In an instance where, applying the applicable principles set forth in ARM 42.26.248 (sale of a service), a taxpayer can ascertain the state or states of assignment of a substantial portion of its receipts from sales of substantially similar services ("assigned receipts"), but not all of those sales, and the taxpayer reasonably believes, based on all available information, that the geographic distribution of some or all of the remainder of those sales generally tracks that of the assigned receipts, it shall include receipts from those sales which it believes tracks the geographic distribution of the assigned receipts in its receipts factor in the same proportion as its assigned receipts. This principle also applies in the context of licenses and sales of intangible property where the substance of the transaction resembles a sale of goods or services.

(c) Where a taxpayer has receipts subject to this rule from transactions with a related-party customer, information that the customer has that is relevant to the sourcing of receipts from these transactions is imputed to the taxpayer.

(3) Methods with respect to the exclusion of receipts from the receipts factor.

(a) The receipts factor only includes those amounts defined as gross receipts under ARM 42.26.202.

(b) Certain receipts arising from the sale of intangibles are excluded from the numerator and denominator of the receipts factor pursuant to ARM 42.26.250(1)(d).

(c) If a taxpayer cannot ascertain the state or states to which receipts of a sale are to be assigned pursuant to this rule (including through the use of a method of reasonable approximation, where relevant) using a reasonable amount of effort undertaken in good faith, the receipts must be excluded from the denominator of the taxpayer's receipts factor.

(d) If a taxpayer can ascertain the state or states to which receipts from a sale are to be assigned pursuant to this rule, but the taxpayer is not taxable in one or more of those states, the receipts that would otherwise be assigned to those states where the taxpayer is not taxable must be excluded from the denominator of the taxpayer's receipts factor.

(e) Receipts of a taxpayer from hedging transactions, or from holding cash or securities, or from the maturity, redemption, sale, exchange, loan, or other disposition of cash or securities, shall be excluded from the receipts factor.

(4) Changes in methodology and review by the department.

(a) Nothing in this rule is intended to limit the application of 15-31-312, MCA, or the authority granted to the department under 15-31-312, MCA. To the extent that regulations adopted pursuant to 15-31-312, MCA, conflict with provision of this rule, the regulations adopted pursuant to 15-31-312, MCA, control. If the application of this rule results in the attribution of receipts to the taxpayer's receipts factor that does not fairly represent the extent of the taxpayer's business activity in Montana, the taxpayer may petition for or the department may require the use of a different method for attributing those receipts.

(b) In any case in which a taxpayer files an original return for a taxable year in which it properly assigns its receipts using a method of assignment including a method of reasonable approximation, in accordance with this rule, the application of such method of assignment shall be deemed to be a correct determination by the taxpayer of the state or states of assignment to which the method is properly applied. In those cases, neither the department nor the taxpayer (through the form of an audit adjustment, amended return, abatement application, or otherwise) may modify the taxpayer's methodology as applied for assigning those receipts for the taxable year. However, the department and the taxpayer may each subsequently, through the applicable administrative process, correct factual errors or calculation errors with respect to the taxpayer's application of its filing methodology.

(c) The department's ability to review and adjust a taxpayer's assignment of receipts on a return to more accurately assign receipts consistently with this rule includes, but is not limited to, each of the following potential actions:

(i) If a taxpayer fails to properly assign receipts from a sale in accordance with this rule, including the failure to properly apply a hierarchy of methods consistent with the principles of (1)(b) above, the department may adjust the assignment of the receipts in accordance with this rule.

(ii) If a taxpayer uses a method of approximation to assign its receipts and the department determines that the method of approximation employed by the taxpayer is not reasonable, the department may substitute a method of approximation that the department determines is appropriate or may exclude the receipts from the taxpayer's numerator and denominator, as appropriate.

(iii) If the department determines that a taxpayer's method of approximation is reasonable, but has not been applied in a consistent manner with respect to similar transactions or year to year, the department may require that the taxpayer apply its method of approximation in a consistent manner.

(iv) If a taxpayer excludes receipts from the denominator of its receipts factor on the theory that the assignment of the receipts cannot be reasonably approximated, the department may determine that the exclusion of those receipts is not appropriate, and may instead substitute a method of approximation that the department determines is appropriate.

(v) If a taxpayer fails to retain contemporaneous records that explain the determination and application of its method of assigning its receipts, including its underlying assumptions, or fails to provide those records to the department upon request, the department may treat the taxpayer's assignment of receipts as unsubstantiated, and may adjust the assignment of the receipts in a manner consistent with this rule.

(vi) If the department concludes that a customer's billing address was selected by the taxpayer for tax avoidance purposes, the department may adjust the assignment of receipts from sales to that customer in a manner consistent with this rule.

(vii) A taxpayer that seeks to change its method of assigning its receipts under this rule must disclose, in the original return filed for the year of the change, the fact that it has made the change. If a taxpayer fails to adequately disclose the change, the department may disregard the taxpayer's change and substitute an assignment method that the department determines is appropriate.

(viii) The department may direct a taxpayer to change its method of assigning its receipts in tax returns that have not yet been filed, including changing the taxpayer's method of approximation, if upon reviewing the taxpayer's filing methodology applied for a prior tax year, the department determines that the change is appropriate to reflect a more accurate assignment of the taxpayer's receipts within the meaning of this rule, and determines that the change can be reasonably adopted by the taxpayer. The department will provide the taxpayer with a written explanation as to the reason for making the change. If a taxpayer fails to comply with the department's direction on subsequently filed returns, the department may deem the taxpayer's method of assigning its receipts on those returns to be unreasonable, and may substitute an assignment method that the department determines is appropriate.

(1) In the case of a sale, rental, lease, or license of real property, the receipts from the sale are in Montana if and to the extent that the property is in Montana.

(1) In the case of a rental, lease, or license of tangible personal property, the receipts from the sale are in Montana if and to the extent that the property is in Montana. If the property is mobile property that is located both within and without Montana during the period of the lease or other contract, the receipts assigned to Montana are the receipts from the contract period multiplied by the fraction computed under ARM 42.26.234(3) (as adjusted when necessary to reflect differences between usage during the contract period and usage during the taxable year).

(1) The receipts from a sale of a service are in Montana if and to the extent that the service is delivered to a location in Montana. In general, the term "delivered to a location" refers to the location of the taxpayer's market for the service, which may not be the location of the taxpayer's employees or property. The methods to determine the location of the delivery of service in the context of several specific types of service transactions are set forth in this rule.

(2) In-person services.

(a) Except as otherwise provided in this rule, in-person services are services that are physically provided in person by the taxpayer, where the customer or the customer's real or tangible property upon which the services are performed is in the same location as the service provider at the time the services are performed. This includes situations where the services are provided on behalf of the taxpayer by a third-party contractor. Examples of in-person services include, without limitation, warranty and repair services; cleaning services; plumbing services; carpentry; construction contractor services; pest control; landscape services; medical and dental services including medical testing, x-rays, and mental health care and treatment; child care; haircutting and salon services; live entertainment and athletic performances; and in-person training or lessons. In-person services include services within the description above that are performed at a location that is owned or operated by the service provider or a location of the customer, including the location of the customer's real or tangible personal property. Various professional services, including legal, accounting, financial, and consulting services, and other similar services, although they may involve some amount of in-person contact, are not treated as in-person services within the meaning of this rule.

(b) Method of determination. Except as otherwise provided, if the service provided by the taxpayer is an in-person service, the service is delivered to the location where the service is received. Therefore, the receipts from a sale are in Montana if and to the extent the customer receives the in-person service in Montana. In assigning its receipts from sales of in-person services, a taxpayer must first attempt to determine the location where a service is received as follows:

(i) If the service is performed with respect to the body of an individual customer in Montana (i.e., haircutting or x-ray services) or in the physical presence of the customer in Montana (i.e., live entertainment or athletic performances), the service is received in Montana.

(ii) If the service is performed with respect to the customer's real estate in Montana or if the service is performed with respect to the customer's tangible personal property at the customer's residence or in the customer's possession in Montana, the service is received in Montana.

(iii) If the service is performed with respect to the customer's tangible personal property and the tangible personal property is to be shipped or delivered to the customer, whether the service is performed within or outside Montana, the service is received in Montana if the property is shipped or delivered to the customer in Montana.

(c) Method of reasonable approximation. In an instance in which the state or states where a service is actually received cannot be determined, but the taxpayer has sufficient information regarding the place of receipt from which it can reasonably approximate the state or states where the service is received, the taxpayer shall reasonably approximate such state or states. If the state to which the receipts are to be assigned can be determined or reasonably approximated, but the taxpayer is not taxable in that state, the receipts that would otherwise be assigned to that state are excluded from the denominator of the taxpayer's receipts factor.

(3) Services delivered to the customer or on behalf of the customer, or delivered electronically through the customer.

(a) If the service provided by the taxpayer is not an in-person service within the meaning of (2) above, or a professional service within the meaning of (4) below, and the service is delivered to or on behalf of the customer, or delivered electronically through the customer, the receipts from a sale are in Montana if and to the extent that the service is delivered in Montana. For purposes of this rule, a service that is delivered "to" a customer is a service in which the customer and not a third party is the recipient of the service. A service that is delivered "on behalf of" a customer is one in which a customer contracts for a service but one or more third parties, rather than the customer, is the recipient of the service, such as fulfillment services, or the direct or indirect delivery of advertising to the customer's intended audience. A service can be delivered to or on behalf of a customer by physical means or through electronic transmission. A service that is delivered electronically "through" a customer is a service that is delivered electronically to a customer for purposes of resale and subsequent electronic delivery in substantially identical form to an end user or other third-party recipient.

(b) Assignment of receipts. The assignment of receipts to a state or states in the instance of a sale of a service that is delivered to the customer or on behalf of the customer, or delivered electronically through the customer, depends upon the method of delivery of the service and nature of the customer. Separate methods of assignment apply to services delivered by physical means and services delivered by electronic transmission (for purposes of this rule, a service delivered by an electronic transmission is not a delivery by a physical means). If a method of assignment set forth in this rule depends on whether the customer is an individual or a business customer, and the taxpayer acting in good faith cannot reasonably determine whether the customer is an individual or business customer, the taxpayer shall treat the customer as a business customer. If the state to which the receipts from a sale are to be assigned can be determined or reasonably approximated, but the taxpayer is not taxable in that state, the receipts that would otherwise be assigned to that state are excluded from the denominator of the taxpayer's receipts factor.

(i) Delivery to or on behalf of a customer by physical means whether to an individual or business customer. Services delivered to a customer or on behalf of a customer through a physical means include, for example, product delivery services where property is delivered to the customer or to a third party on behalf of the customer; the delivery of brochures, fliers, or other direct mail services; the delivery of advertising or advertising-related services to the customer's intended audience in the form of a physical medium; and the sale of custom software (i.e., where software is developed for a specific customer in a case where the transaction is properly treated as a service transaction for purposes of corporate taxation) where the taxpayer installs the custom software at the customer's site. This rule applies whether the taxpayer's customer is an individual customer or a business customer.

(A) Method of determination. In assigning the receipts from a sale of a service delivered to a customer or on behalf of a customer through a physical means, a taxpayer must first attempt to determine the state or states where the service is delivered. If the taxpayer is able to determine the state or states where the service is delivered, it shall assign the receipts to that state or states.

(B) Method of reasonable approximation. If the taxpayer cannot determine the state or states where the service is actually delivered, but has sufficient information regarding the place of delivery from which it can reasonably approximate the state or states where the service is delivered, it shall reasonably approximate the state or states.

(ii) Delivery to a customer by electronic transmission. Services delivered by electronic transmission include, without limitation, services that are transmitted through the means of wire, lines, cable, fiber optics, electronic signals, satellite transmission, audio or radio waves, or other similar means, whether or not the service provider owns, leases, or otherwise controls the transmission equipment. In the case of the delivery of a service by electronic transmission to a customer, the following principles apply.

(A) Services delivered by electronic transmission to an individual customer.

(I) Method of determination. In the case of the delivery of a service to an individual customer by electronic transmission, the service is delivered in Montana if and to the extent that the taxpayer's customer receives the service in Montana. If the taxpayer can determine the state or states where the service is received, it shall assign the receipts from that sale to that state or states.

(II) Methods of reasonable approximation. If the taxpayer cannot determine the state or states where the customer actually receives the service, but has sufficient information regarding the place of receipt from which it can reasonably approximate the state or states where the service is received, it shall reasonably approximate the state or states. If a taxpayer does not have sufficient information from which it can determine or reasonably approximate the state or states in which the service is received, it shall reasonably approximate the state or states using the customer's billing address.

(B) Services delivered by electronic transmission to a business customer.

(I) Method of determination. In the case of the delivery of a service to a business customer by electronic transmission, the service is delivered in Montana if and to the extent that the taxpayer's customer receives the service in Montana. If the taxpayer can determine the state or states where the service is received, it shall assign the receipts from that sale to the state or states. For purposes of this rule, it is intended that the state or states where the service is received reflect the location at which the service is directly used by the employees or designees of the customer.

(II) Method of reasonable approximation. If the taxpayer cannot determine the state or states where the customer actually receives the service, but has sufficient information regarding the place of receipt from which it can reasonably approximate the state or states where the service is received, it shall reasonably approximate the state or states.

(III) Secondary method of reasonable approximation. In the case of the delivery of a service to a business customer by electronic transmission where a taxpayer does not have sufficient information from which it can determine or reasonably approximate the state or states in which the service is received, the taxpayer shall reasonably approximate the state or states as set forth in this rule. In these cases, unless the taxpayer can apply the safe harbor set forth in (IV) below, the taxpayer shall reasonably approximate the state or states in which the service is received as follows: first, by assigning the receipts from the sale to the state where the contract of sale is principally managed by the customer; second, if the state where the customer principally manages the contract is not reasonably determinable, by assigning the receipts from the sale to the customer's place of order; and third, if the customer's place of order is not reasonably determinable, by assigning the receipts from the sale using the customer's billing address; provided, however, if the taxpayer derives more than 5 percent of its receipts from sales of services from any single customer, the taxpayer is required to identify the state in which the contract of sale is principally managed by that customer.

(IV) Safe harbor. In the case of the delivery of a service to a business customer by electronic transmission a taxpayer may not be able to determine, or reasonably approximate under (II) or (III) above, the state or states in which the service is received. In these cases, the taxpayer may, in lieu of the method stated in (II) or (III) above, apply the safe harbor stated in this subsection. Under this safe harbor, a taxpayer may assign its receipts from sales to a particular customer based upon the customer's billing address in a taxpayer year in which the taxpayer engages in substantially similar service transactions with more than 250 customers, whether business or individual, and does not derive more than 5 percent of its receipts from sales of all services from that customer. This safe harbor applies only for purposes of services delivered by electronic transmission to a business customer, and not otherwise.

(V) Related party transaction. In the case of a sale of a service by electronic transmission to a business customer that is a related party, the taxpayer may not use the secondary method of reasonable approximation in (III) above, but may use the method of reasonable approximation in (II) above, and the safe harbor in (IV) above, provided that the department may aggregate sales to related parties in determining whether the sales exceed 5 percent of receipts from sales of all services under that safe harbor provision if necessary or appropriate to prevent distortion.

(iii) Services delivered electronically through or on behalf of an individual or business customer. A service delivered electronically "on behalf of" the customer is one in which a customer contracts for a service to be delivered electronically but one or more third parties, rather than the customer, is the recipient of the service, such as the direct or indirect delivery of advertising on behalf of a customer to the customer's intended audience. A service delivered electronically "through" a customer to third-party recipients is a service that is delivered electronically to a customer for purposes of resale and subsequent electronic delivery in substantially identical form to end users or other third-party recipients.

(A) Method of determination. In the case of the delivery of a service by electronic transmission, where the service is delivered electronically to end users or other third-party recipients through or on behalf of the customer, the service is delivered in Montana if and to the extent that the end users or other third-party recipients are in Montana. For example, in the case of the direct or indirect delivery of advertising on behalf of a customer to the customer's intended audience by electronic means, the service is delivered in Montana to the extent that the audience for the advertising is in Montana. In the case of the delivery of a service to a customer that acts as an intermediary in reselling the service in substantially identical form to third-party recipients, the service is delivered in Montana to the extent that the end users or other third-party recipients receive the services in Montana. The methods in this subsection apply whether the taxpayer's customer is an individual or a business customer and whether the end users or other third-party recipients to which the services are delivered through or on behalf of the customer are individuals or businesses.

(B) Method of reasonable approximation. If the taxpayer cannot determine the state or states where the services are actually delivered to the end users or other third-party recipients either through or on behalf of the customer, but has sufficient information regarding the place of delivery from which it can reasonably approximate the state or states where the services are delivered, it shall reasonably approximate the state or states.

(C) Select secondary methods of reasonable approximation.

(I) If a taxpayer's service is the direct or indirect electronic delivery of advertising on behalf of its customer to the customer's intended audience, and if the taxpayer lacks sufficient information regarding the location of the audience from which it can determine or reasonably approximate that location, the taxpayer shall reasonably approximate the audience in a state for the advertising using the following secondary methods of reasonable approximation. If a taxpayer is delivering advertising directly or indirectly to a known list of subscribers, the taxpayer shall reasonably approximate the audience for advertising in a state using a percentage that reflects the ratio of the state's subscribers in the specific geographic area in which the advertising is delivered relative to the total subscribers in that area. For a taxpayer with less information about its audience, the taxpayer shall reasonably approximate the audience in a state using the percentage that reflects the ratio of the state's population in the specific geographic area in which the advertising is delivered relative to the total population in that area.

(II) If a taxpayer's service is the delivery of a service to a customer that then acts as the taxpayer's intermediary in reselling that service to end users or other third-party recipients, if the taxpayer lacks sufficient information regarding the location of the end users or other third party recipients from which it can determine or reasonably approximate that location, the taxpayer shall reasonably approximate the extent to which the service is received in a state by using the percentage that reflects the ratio of the state's population in the specific geographic area in which the taxpayer's intermediary resells the services, relative to the total population in that area.

(III) When using the secondary reasonable approximation methods provided above, the relevant specific geographic area of delivery include only the area where the service was substantially and materially delivered or resold. Unless the taxpayer demonstrates the contrary, it will be presumed that the area where the service was substantially and materially delivered or resold does not include areas outside the United States.

(4) Professional services.

(a) Except as otherwise provided in this rule, professional services are services that require specialized knowledge and in some cases require a professional certification, license, or degree. These services include the performance of technical services that require the application of specialized knowledge. Professional services include, without limitation, management services, bank and financial services, financial custodial services, investment and brokerage services, fiduciary services, tax preparation, payroll and accounting services, lending services, credit card services (including credit card processing services), data processing services, legal services, consulting services, video production services, graphic and other design services, engineering services, and architectural services.

(b) Overlap with other categories of services.

(i) Certain services that fall within the definition of "professional services" set forth in this rule are nevertheless treated as "in-person services" within the meaning of (2) above, and are assigned under the methods of that section. Specifically, professional services that are physically provided in person by the taxpayer such as carpentry, certain medical and dental services, or child care services, where the customer or the customer's real or tangible property upon which the services are provided is in the same location as the service provider at the time the services are performed, are "in-person services" and are assigned as such, notwithstanding that they may also be considered to be "professional services." However, professional services where the service is of an intellectual or intangible nature, such as legal, accounting, financial, and consulting services, are assigned as professional services under this rule, notwithstanding the fact that these services may involve some amount of in-person contact.

(ii) Professional services may in some cases include the transmission of one or more documents or other communications by mail or by electronic means. In some cases, all or most communications between the service provider and the service recipient may be by mail or by electronic means. However, in these cases, despite this transmission, the assignment methods that apply are those set forth in this section and not those set forth in (3) above, pertaining to services delivered to a customer or through or on behalf of a customer.

(c) Assignment of receipts. In the case of a professional service, it is generally possible to characterize the location of delivery in multiple ways by emphasizing different elements of the service provided, no one of which will consistently represent the market for the services. Therefore, the location of delivery in the case of professional services is not susceptible to a general method of determination, and must be reasonably approximated. The assignment of receipts from a sale of a professional service depends in many cases upon whether the customer is an individual or business customer. In any instance in which the taxpayer, acting in good faith, cannot reasonably determine whether the customer is an individual or business customer, the taxpayer shall treat the customer as a business customer. For purposes of assigning the receipts from a sale of a professional service, a taxpayer's customer is the person that contracts for the service irrespective of whether another person pays for or also benefits from the taxpayer's services. In any instance in which the taxpayer is not taxable in the state to which receipts from a sale is assigned, the receipts are excluded from the denominator of the taxpayer's receipts factor.

(i) Receipts from sales of professional services other than those services described in (c)(ii) below (architectural and engineering services), (c)(iii) below (services provided by a financial institution), and (c)(iv) below (transactions with related parties), are assigned in accordance with this section.

(A) Professional services delivered to individual customers. Except as otherwise provided in this section, in any instance in which the service provided is a professional service and the taxpayer's customer is an individual customer, the state or states in which the service is delivered must be reasonably approximated as set forth in this section. In particular, the taxpayer shall assign the receipts from a sale to the customer's state of primary residence, or, if the taxpayer cannot reasonably identify the customer's state of primary residence, to the state of the customer's billing address; provided, however, in any instance in which the taxpayer derives more than 5 percent of its receipts from sales of all services from an individual customer, the taxpayer shall identify the customer's state of primary residence and assign the receipts from the service or services provided to that customer to that state.

(B) Professional services delivered to business customers. Except as otherwise provided in this section, in any instance in which the service provided is a professional service and the taxpayer's customer is a business customer, the state or states in which the service is delivered must be reasonably approximated as set forth in this section. In particular, unless the taxpayer may use the safe harbor set forth in (C) below, the taxpayer shall assign the receipts from the sale as follows: first, by assigning the receipts to the state where the contract of sale is principally managed by the customer; second, if the place of customer management is not reasonably determinable, to the customer's place of order; and third, if the customer place of order is not reasonably determinable, to the customer's billing address; provided, however, in any instance in which the taxpayer derives more than 5 percent of its receipts from sales of all services from a customer, the taxpayer is required to identify the state in which the contract of sale is principally managed by the customer.

(C) Safe harbor; large volume of transactions. Notwithstanding the provisions set forth in (A) and (B) above, a taxpayer may assign its receipts from sales to a particular customer based on the customer's billing address in any taxable year in which the taxpayer engages in substantially similar service transactions with more than 250 customers, whether individual or business, and does not derive more than 5 percent of its receipts from sales of all services from that customer. This safe harbor applies only for purposes of this rule and not otherwise.

(ii) Architectural and engineering services with respect to real or tangible personal property. Architectural and engineering services with respect to real or tangible personal property are professional services within the meaning of this rule. However, unlike in the case of the general method that applies to professional services, the receipts from a sale of an architectural service are assigned to a state or states if and to the extent that the services are with respect to real estate improvements located, or expected to be located, in the state or states; and the receipts from a sale of an engineering service are assigned to a state or states if and to the extent that the services are with respect to tangible or real property located in the state or states, including real estate improvements located in, or expected to be located in, the state or states. These provisions apply whether or not the customer is an individual or business customer. In any instance in which architectural or engineering services are not described here, the receipts from a sale of these services must be assigned under the general method for professional services.

(iii) Services provided by a financial institution. The apportionment rules that apply to financial institutions are set forth at ARM Title 42, chapter 26, subchapter 13. ARM Title 42, chapter 26, subchapter 13 includes specific rules to determine a financial institution's receipts factor. However, the rules in ARM Title 42, chapter 26, subchapter 13 also provide that receipts from sales, other than sales of tangible personal property, including services transactions that are not otherwise apportioned under that subchapter, are to be assigned pursuant to this rule. In any instance in which a financial institution performs services that are to be assigned pursuant to this rule including, for example, financial custodial services, those services are considered professional services within the meaning of this rule, and are assigned according to the general method for professional services transactions set forth in this rule.

(iv) Related party transactions. In any instance in which the professional service is sold to a related party, rather than applying the method for professional services delivered to business customers, the state or states to which the service is assigned is the place of receipt by the related party as reasonably approximated using the following hierarchy: 1.) If the service primarily relates to specific operations or activities of a related party conducted in one or more locations, then to the state or states in which those operations or activities are conducted in proportion to the related party's payroll at the locations to which the service relates in the state or states; or 2.) If the service does not relate primarily to operations or activities of a related party conducted in particular locations, but instead relates to the operations of the related party generally, then to the state or states in which the related party has employees, in proportion to the related party's payroll in those states. The taxpayer may use the safe harbor provided by this rule provided that the department may aggregate the receipts from sales to related parties in applying the 5 percent method if necessary or appropriate to avoid distortion.

(1) General provisions.

(a) The receipts from the license of intangible property are in Montana if and to the extent the intangible property is used in Montana. In general, the term "use" is construed to refer to the location of the taxpayer's market for the use of the intangible property that is being licensed and is not to be construed to refer to the location of the property or payroll of the taxpayer. The provisions that apply to determine the location of the use of intangible property in the context of several specific types of licensing transactions are set forth in (2) through (5) below. For purposes of the provisions set forth in this rule, a lease of intangible property is to be treated the same as a license of intangible property.

(b) In general, a license of intangible property that conveys all substantial rights in that property is treated as a sale of intangible property for purposes of ARM 42.26.250. Note, however, that a sale or exchange of intangible property is treated as a license of that property where the receipts from the sale or exchange derive from payments that are contingent on the productivity, use, or disposition of the property.

(c) Intangible property licensed as part of the sale or lease of tangible property is treated as the sale or lease of tangible property.

(d) In any instance in which the taxpayer is not taxable in the state to which the receipts from the license of intangible property are assigned, the receipts are excluded from the denominator of the taxpayer's receipts factor.

(e) Nothing in this rule shall be construed to allow or require inclusion of receipts in the receipts factor that are not included in the definition of "gross receipts" pursuant to ARM 42.26.202, or related regulations, or that are excluded from the numerator and the denominator of the receipts factor pursuant to ARM 42.26.250(1)(d). To the extent that the transfer of either a security or business "goodwill" or similar intangible value, including, without limitation, "going concern value" or "workforce in place," may be characterized as a license or lease of intangible property, receipts from such transaction shall be excluded from the numerator and denominator of the taxpayer's receipts factor.

(2) License of a marketing intangible. Where a license is granted for the right to use intangible property in connection with the sale, lease, license, or other marketing of goods, services, or other items such as a marketing intangible to a consumer, the royalties or other licensing fees paid by the licensee for that marketing intangible are assigned to Montana to the extent that those fees are attributable to the sale or other provision of goods, services, or other items purchased or otherwise acquired by consumers or other ultimate customers in Montana. Examples of a license of a marketing intangible include, without limitation, the license of a service mark, trademark, or trade name; certain copyrights; the license of a film, television, or multimedia production or event for commercial distribution; and a franchise agreement. In each of these instances the license of the marketing intangible is intended to promote consumer sales. In the case of the license of a marketing intangible, where a taxpayer has actual evidence of the amount or proportion of its receipts that is attributable to Montana, it shall assign that amount or proportion to Montana. In the absence of actual evidence of the amount or proportion of the licensee's receipts that are derived from Montana consumers, the portion of the licensing fee to be assigned to Montana must be reasonably approximated by multiplying the total fee by a percentage that reflects the ratio of the Montana population in the specific geographic area in which the licensee makes material use of the intangible property to regularly market its goods, services, or other items relative to the total population in that area. If the license of a marketing intangible is for the right to use the intangible property in connection with sales or other transfers at wholesale rather than directly to retail customers, the portion of the licensing fee to be assigned to Montana must be reasonably approximated by multiplying the total fee by a percentage that reflects the ratio of the Montana population in the specific geographic area in which the licensee's goods, services, or other items are ultimately and materially marketed using the intangible property relative to the total population of that area. Unless the taxpayer demonstrates that the marketing intangible is materially used in the marketing of items outside the United States, the fees from licensing that marketing intangible will be presumed to be derived from within the United States.

(3) License of a production intangible. If a license is granted for the right to use intangible property other than in connection with the sale, lease, license, or other marketing of goods, services, or other items, and the license is to be used in a production capacity (a "production intangible"), the licensing fees paid by the licensee for that right are assigned to Montana to the extent that the use for which the fees are paid takes place in Montana. Examples of a license of a production intangible include, without limitation, the license of a patent, a copyright, or trade secrets to be used in the manufacturing process, where the value of the intangible lies predominately in its use in that process. In the case of a license of a production intangible to a party other than a related party where the location of actual use is unknown, it is presumed that the use of the intangible property takes place in the state of the licensee's commercial domicile, where the licensee is a business, or the licensee's state of primary residence, where the licensee is an individual. If the department can reasonably establish that the actual use of intangible property pursuant to a license of a production intangible takes place in part in Montana, it is presumed that the entire use is in this state except to the extent that the taxpayer can demonstrate that the actual location of a portion of the use takes place outside Montana. In the case of a license of a production intangible to a related party, the taxpayer must assign the receipts to where the intangible property is actually used.

(4) License of a mixed intangible. If a license of intangible property includes both a license of a marketing intangible and a license of a production intangible (a "mixed intangible") and the fees to be paid in each instance are separately and reasonably stated in the licensing contract, the department will accept the separate statement for purposes of this rule. If a license of intangible property includes both a license of a marketing intangible and a license of a production intangible and the fees are to be paid in each instance are not separately and reasonably stated in the contract, it is presumed that the licensing fees are paid entirely for the license of the marketing intangible except to the extent that the taxpayer or the department can reasonably establish otherwise.

(5) License of intangible property where substance of transaction resembles a sale of goods or services.

(a) In some cases, the license of intangible property will resemble the sale of an electronically delivered good or service rather than the license of a marketing intangible or a production intangible. In these cases, the receipts from the licensing transaction are assigned by applying the provisions set forth in ARM 42.26.248(3) as if the transaction were a service delivered to an individual or business customer or delivered electronically through an individual or business customer, as applicable. Examples of transactions to be assigned under this section include, without limitation, the license of database access, the license of access to information, the license of digital goods, and the license of certain software, where the transaction of pre-written software that is treated as the sale of tangible personal property.

(b) Sublicenses. Pursuant to (a) above, the provisions of ARM 42.26.248(3)(b)(iii) may apply where a taxpayer licenses intangible property to a customer that in turn sublicenses the intangible property to end users as if the transaction were a service delivered electronically through a customer to end users. In particular, the provisions set forth at ARM 42.26.248(3)(b)(iii) that apply to services delivered electronically to a customer for purposes of resale and subsequent electronic delivery in substantially identical form to end users or other recipients may also apply with respect to licenses of intangible property for purposes of sublicense to end users. For this purpose, the intangible property sublicensed to an end user shall not fail to be substantially identical to the property that was licensed to the sublicensor merely because the sublicense transfers a reduced bundle of rights with respect to that property (i.e., because the sublicensee's rights are limited to its own use of the property and do not include the ability to grant a further sublicense), or because that property is bundled with additional services or items of property.

(1) Assignment of receipts. The assignment of receipts to a state or states in the instance of a sale or exchange of intangible property depends upon the nature of the intangible property sold. For purposes of this rule, a sale or exchange of intangible property includes a license of that property where the transaction is treated for tax purposes as a sale of all substantial rights in the property and the receipts from transaction are not contingent on the productivity, use or disposition of the property. For the provisions that apply where the consideration for the transfer of rights is contingent on the productivity, use or disposition of property, see ARM 42.26.249(1).

(a) Contract right or government license that authorizes business activity in specific geographic area. In the case of a sale or exchange of intangible property where the property sold or exchanged is a contract right, government license, or similar intangible property that authorizes the holder to conduct a business activity in a specific geographic area, the receipts from the sale are assigned to a state if and to the extent that the intangible property is used or is authorized to be used within the state. If the intangible property is used or may be used only in this state the taxpayer shall assign the sale to Montana. If the intangible property is used or is authorized to be used in Montana and one or more other states, the taxpayer shall assign the receipts from the sale to Montana to the extent that the intangible property is used in or authorized for use in Montana, through the means of a reasonable approximation.

(b) Sale that resembles a license; receipts are contingent on productivity, use, or disposition of the intangible property. In the case of a sale or exchange of intangible property where the receipts from the sale or exchange are contingent on the productivity, use, or disposition of the property, the receipts from the sale are assigned by applying the provisions set forth in ARM 42.26.249, pertaining to the license or lease of intangible property.

(c) Sale that resembles a sale of goods or services. In the case of a sale or exchange of intangible property where the substance of the transaction resembles a sale of goods or services and where the receipts from the sale or exchange do not derive from payments contingent on the productivity, use, or disposition of the property, the receipts from the sale are assigned by applying the provisions set forth in ARM 42.26.249(5), relating to licenses of intangible property that resemble sales of goods and services). Examples of these transactions include those that are analogous to the license transactions cited as examples in ARM 42.26.249(5).

(d) Excluded receipts. Receipts from the sale of intangible property are not included in the receipts factor in any case in which the sale does not give rise to gross receipts within the meaning of ARM 42.26.202. In addition, in any case in which the sale of intangible property does result in gross receipts within the meaning of ARM 42.26.202, those receipts are excluded from the numerator and denominator of the taxpayer's receipts factor if the receipts are not referenced in ARM 42.26.245. The sale of intangible property that is excluded from the numerator and denominator of the taxpayer's receipts factor under this provision includes, without limitation, the sale of a partnership interest, the sale of business "goodwill," the sale of an agreement not to compete, or similar intangible value. Also, in any instance in which the state to which the receipts from a sale is to be assigned can be determined or reasonably approximated, but where the taxpayer is not taxable in such state, the receipts that would otherwise be assigned to such state shall be excluded from the numerator and denominator of the taxpayer's receipts factor.

(1) Section 15-31-302, MCA, defines the term "receipts" to mean all gross receipts of the taxpayer not allocated under 15-31-304, MCA. Thus, for the purposes of the receipts factor of the apportionment formula for each trade or business of the taxpayer, the term "receipts" means all gross receipts derived by a taxpayer from transactions and activity in the regular course of such trade or business.

(2) The following are procedures for determining "receipts" in various situations:

(a) In the case of a taxpayer engaged in manufacturing and selling or purchasing and reselling goods or products, "receipts" includes all gross receipts from the sales of such goods or products (or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the tax period) held by the taxpayer primarily for sale to customers in the ordinary course of its trade or business. Gross receipts for this purpose means gross sales, less returns and allowances and includes all interest income, service charges, carrying charges, or time-price differential charges incidental to such sales. Federal and state excise taxes (including sales taxes) shall be included as part of such receipts if such taxes are passed on to the buyer or included as part of the selling price of the product.

(b) In the case of cost plus fixed fee contracts, such as the operation of a government-owned plant for a fee, "receipts" includes the entire reimbursed cost, plus the fee.

(c) In the case of a taxpayer engaged in providing services, such as the operation of an advertising agency or the performance of equipment service contracts or research and development contracts, "receipts" includes the gross receipts from the performance of such services including fees, commissions, and similar items.

(d) In the case of a taxpayer engaged in renting real or tangible property, "receipts" includes the gross receipts from the rental, lease, or licensing the use of the property.

(e) In the case of a taxpayer engaged in the sale, assignment, or licensing of intangible personal property such as patents and copyrights, "receipts" includes the gross receipts therefrom.

(3) In some cases, certain gross receipts should be disregarded in determining the "receipts" factor in order that the apportionment formula will operate fairly to apportion to this state the income of the taxpayer's trade or business as set forth in ARM 42.26.263.

(4) "Gross premium receipts" are all receipts paid in by the subscribers to the various coverages offered by the company, and are assigned to the state of the domicile of the subscriber. In the case of a group policy, the assignment is to the state of the domicile of the employer-agent who collects and remits the premiums to the company.

(1) In filing returns with this state, if the taxpayer departs from or modifies the basis for excluding or including gross receipts in the receipts factor used in returns for prior years, the taxpayer shall disclose in the return for the current year the nature and extent of the modification.

(2) If the returns or reports filed by the taxpayer with all states to which the taxpayer reports under Article IV of the Multistate Tax Compact or the Uniform Division of Income for Tax Purposes Act are not uniform in the inclusion or exclusion of gross receipts, the taxpayer shall disclose in its return to this state the nature and extent of the variance.

(1) The denominator of the receipts factor shall include the total gross receipts derived by the taxpayer from transactions and activity in the regular course of its trade or business, except receipts excluded under ARM 42.26.263.

(1) The numerator of the receipts factor shall include gross receipts attributable to this state and derived by the taxpayer from transactions and activity in the regular course of its trade or business. All interest income, service charges, carrying charges, or time-price differential charges incidental to such gross receipts shall be included regardless of the place where the accounting records are maintained or the location of the contract or other evidence of indebtedness.

(2) Intercompany revenues between members of the unitary group that are attributable to this state shall be excluded from the numerator of the receipts factor.

(1) Gross receipts from the sales of tangible personal property (except sales to the United States government as outlined in ARM 42.26.256) are in this state:

(a) if the property is delivered or shipped to a purchaser within this state regardless of the f.o.b. point or other conditions of sale; or

(b) if the property is shipped from an office, store, warehouse, factory, or other place of storage in this state and the taxpayer is not taxable in the state of the purchaser.

(2) Property shall be deemed to be delivered or shipped to a purchaser within this state if the recipient is located in this state, even though the property is ordered from outside this state.

(3) Property is delivered or shipped to a purchaser within this state if the shipment terminates in this state, even though the property is subsequently transferred by the purchaser to another state.

(4) The term "purchaser within this state" shall include the ultimate recipient of the property if the taxpayer in this state, at the designation of the purchaser, delivers to or has the property shipped to the ultimate recipient within this state.

(5) When property being shipped by a seller from the state of origin to a consignee in another state is diverted while en route to a purchaser in this state, the sales are in this state.

(6) If the taxpayer is not taxable in the state of the purchaser, the sale is attributed to this state if the property is shipped from an office, store, warehouse, factory, or other place of storage in this state.

(7) For taxable years beginning before January 1, 2018, if a taxpayer whose salesperson operates from an office located in this state makes a sale to a purchaser in another state in which the taxpayer is not taxable and the property is shipped directly by a third party to the purchaser, the following rules apply:

(a) If the taxpayer is taxable in the state from which the third party ships the property, then the sale is in such state.

(b) If the taxpayer is not taxable in the state from which the property is shipped, then the sale is in this state.

(8) For taxable years beginning after December 31, 2017, for purposes of determining whether receipts are in Montana and included in the numerator of the receipts factor, if the activities of any member of a unitary group exceeds the activity protected under P.L. 86-272 then sales of tangible personal property into Montana, from an out-of-state location, by any member of the unitary group, shall be included in Montana's receipts factor numerator.

(9) For taxable years beginning after December 31, 2017, if any member of a unitary group is taxable in another state, sales of tangible personal property from a Montana location into that state by any member of the unitary group shall not be included in Montana's receipts factor numerator.

(10) For taxable years beginning after December 31, 2017, if no member of a unitary group is taxable in another state, sales of tangible personal property from a Montana location into that state by any member of the unitary group shall be included in Montana's receipts factor numerator.

(1) Gross receipts from the sales of tangible personal property to the United States government are in this state if the property is shipped from an office, store, warehouse, factory, or other place of storage in this state.

(2) For the purposes of this rule, only sales for which the United States government makes direct payment to the seller pursuant to the terms of its contract constitute sales to the United States government. Thus, as a general rule, sales by a sub-contractor to the prime contractor, the party to the contract with the United States government, do not constitute sales to the United States government.

(1) Section 15-31-311, MCA, provides for the inclusion in the numerator of the receipts factor of gross receipts from transactions other than sales of tangible personal property (including transactions with the United States government). Under this section, gross receipts are attributed to this state if the income-producing activity, which gave rise to the receipts, is performed wholly within this state. Also, gross receipts are attributed to this state if, with respect to a particular item of income, the income-producing activity is performed within and without this state but the greater proportion of the income-producing activity is performed in this state, based on costs of performance.

(2) The mere holding of intangible personal property is not, of itself, an income-producing activity.

(3) Receipts (other than from sales of tangible personal property) in respect to a particular income-producing activity are in this state if:

(a) the income-producing activity is performed wholly within this state; or

(b) the income-producing activity is performed both in and outside this state and a greater proportion of the income-producing activity is performed in this state than in any other state, based on costs of performance.

(4) The following are special procedures for determining when receipts from the income-producing activities described below are in this state:

(a) Gross receipts from the sale, lease, rental, or licensing of real property are in this state if the real property is located in this state.

(b) Gross receipts from the rental, lease, or licensing of tangible personal property are in this state if the property is located in this state. The rental, lease, licensing, or other use of tangible personal property in this state is a separate income-producing activity from the rental, lease, licensing, or other use of the same property while located in another state. Consequently, if the property is within and without this state during the rental, lease, or licensing period, gross receipts attributable to this state shall be measured by the ratio which the time the property was physically present or was used in this state bears to the total time or use of the property everywhere during such period.

(c) Gross receipts for the performance of personal services are attributable to this state to the extent such services are performed in this state. If services relating to a single item of income are performed partly within and partly without this state, the gross receipts for the performance of such services shall be attributable to this state only if a greater portion of the services were performed in this state, based on costs of performance. Usually, where services are performed partly within and partly without this state, the services performed in each state will constitute a separate income-producing activity. In such case, the gross receipts for the performance of services attributable to this state shall be measured by the ratio which the time spent in performing such services in this state bears to the total time spent in performing such services everywhere. Time spent in performing services includes the amount of time expended in the performance of a contract or other obligation that gives rise to such gross receipts. Personal service not directly connected with the performance of the contract or other obligation, as for example, time expended in negotiating the contract, is excluded from the computations.

(5) This rule is effective for tax years beginning before January 1, 2018. For tax years beginning after December 31, 2017, refer to ARM 42.26.245 through 42.26.250.

This rule has been repealed.

(1) Refer to ARM 42.26.202 for definitions applicable to this rule.

(2) If a taxpayer derives receipts from the sale of tangible property or the sale or redemption of intangible property not held primarily for sale to customers in the ordinary course of its trade or business such receipts will constitute sales for inclusion in the receipts factor to the following extent:

(a) Only the net receipts from the sale of tangible or the sale or redemption of intangible property shall be included in the receipts factor.

(b) In the case where the taxpayer has multiple transactions from the sale of tangible or the sale or redemption of intangible property only the net gains in excess of net losses will be included in the receipts factor.

(c) Before the net receipts from the sale of tangible property or the sale or redemption of intangible property may be included in the receipts factor the sales transactions must constitute apportionable income to the taxpayer.

(1) In determining whether the activities of any company have been conducted within Montana beyond the protection of P.L. 86-272, the principle established in Appeal of Finnigan Corporation, 88-SBE-022 (8/25/1988) and Appeal of Finnigan Corporation, 88-SBE-22A, Opinion on Petition of Rehearing (1/24/1990), commonly known as the "Finnigan Rule," shall apply. When calculating the Montana apportionment numerators provided for in 15-31-306, 15-31-309, and 15-31-311, MCA, a group of corporations engaged in a unitary business as defined in 15-31-301, MCA, shall include Montana property, payroll, and receipts from all members of the unitary group as long as one or more members has nexus with Montana.

(1) In the case of certain industries such as air transportation, rail transportation, ship transportation, trucking, television, radio, motion pictures, various types of professional athletics, and so forth, as the department deems necessary, the foregoing rules in respect to the apportionment formula do not set forth appropriate procedures for determining the apportionment factors. Nothing in 15-31-312, MCA, or in ARM 42.26.261 through 42.26.263 shall preclude the department from establishing appropriate procedures under 15-31-306 through 15-31-311, MCA, for determining the apportionment factors for each such industry, but such procedures shall be applied uniformly.

(1) The following special rules are established in respect to the property factor of the apportionment formula:

(a) If the sub-rents taken into account in determining the net annual rental rate under ARM 42.26.236 produce a negative or clearly inaccurate value for any item of property, another method which will properly reflect the value of rented property may be required by the department or requested by the taxpayer.

(b) In no case, however, shall such value be less than an amount which bears the same ratio to the annual rental rate paid by the taxpayer for such property as the fair market value of that portion of the property used by the taxpayer bears to the total fair market value of the rented property.

(2) If property owned by others is used by the taxpayer at no charge or rented by the taxpayer for a nominal rate, the net annual rental rate for such property shall be determined on the basis of a reasonable market rental rate for such property.

(1) The following special criteria are established in respect to the receipts factor of the apportionment formula:

(a) Insubstantial amounts of gross receipts arising from incidental or occasional transactions or activities may be excluded from the receipts factor unless such exclusion would materially affect the amount of income apportioned to this state.

(b) For tax periods beginning before January 1, 2018, where the income-producing activity in respect to apportionable income from intangible personal property can be readily identified, such income is included in the denominator of the receipts factor and, if the income-producing activity occurs in this state, in the numerator of the receipts factor as well. For example, usually the income-producing activity can be readily identified in respect to interest income received on deferred payments on sales of tangible property (ARM 42.26.251) and income from sale, licensing, or other use of intangible personal property (ARM 42.26.257).

(2) For tax periods beginning before January 1, 2018, where apportionable income from intangible property cannot readily be attributed to any particular income-producing activity of the taxpayer, such income cannot be assigned to the numerator of the receipts factor for any state and shall be excluded from the denominator of the receipts factor. For example, where apportionable income in the form of dividends received on stock, royalties received on patents or copyrights, or interest received on bonds, debentures, or government securities results from the mere holding of the intangible personal property by the taxpayer, such dividends and interest shall be excluded from the denominator of the receipts factor.

(3) Section 631 of the IRC (gains) which are attributable to internal transactions must be eliminated from the receipts factor. The ultimate sale to outsiders will be included in line 1 sales. IRC section 631(A) (log sales) and section 631(B) (gains) should be included in the factor at the gross sales price used to calculate the gain. IRC section 631(C) (gains) should be included to the extent of gross royalties received prior to the capital gains offset and prior to the netting of long-term capital gains and losses.

(4) Software transactions. A license or sale of prewritten software for purposes other than commercial reproduction (or other exploitation of the intellectual property rights) transferred on a tangible medium is treated as the sale of tangible personal property, rather than as either the license or sale of intangible property or the performance of a service. In these cases, the receipts are in Montana as determined under the rules for the sale of tangible personal property set forth in ARM 42.26.255. In all other cases, the receipts from a license or sale of software are to be assigned to Montana as determined otherwise under ARM 42.26.245, ARM 42.26.248, 42.26.249, or 42.26.250 (i.e., depending on the facts, as the development and sale of custom software, as a license of a marketing intangible, as a license of a production intangible, as a license of intangible property where the substance of the transaction resembles a sale of goods or services, or as a sale of intangible property).

(5) Sales of licenses of digital goods or services.

(a) In the case of a sale or license of digital goods or services, including among other things, the sale of various video, audio, and software products or similar transactions, the receipts from the sale or license are assigned by applying the same rules as are set forth in ARM 42.26.248, as if the transaction were a service delivered to an individual or business customer. For purposes of the analysis, it is not relevant what the terms of the contractual relationship are or whether the sale or license might be characterized, depending upon the particular facts, as, for example, the sale or license of intangible property or the performance of a service.

(b) Telecommunication companies. In the case of a taxpayer that provides telecommunication or ancillary services and that is thereby subject to ARM Title 42, chapter 26, subchapter 12, receipts from the sale or license of digital goods or services not otherwise assigned for apportionment purposes pursuant to that subchapter are assigned pursuant to this section, by applying the rules set forth in ARM 42.26.248 as if the transaction were a service delivered to an individual or business customer. However, in applying these rules, if the taxpayer cannot determine the state or states where a customer receives the purchased product, it may reasonably approximate this location using the customer's place of primary use of the purchased product.

(1) A portion of the net income of taxpayers engaged in the transportation of freight or passengers within and without Montana may be attributed to the movement of revenue-producing equipment, drivers, train crews, or other operating personnel across the state.

(2) The percentage of miles traveled within Montana to total miles traveled everywhere shall be the percentage used in determining the amount of income attributable to this state. The apportionment formula for such transportation companies shall be computed as follows:

(a) Fixed properties, such as buildings and land used in the business, terminal facilities, shop equipment, and cars and trucks used in gathering or delivering local freight, shall be assigned to the state in which such properties are located. The value of equipment used in interstate transportation shall be assigned to this state on the mileage basis.

(b) The wages and salaries of employees assigned to fixed locations as officers or clerical, administrative, pickup and delivery, or terminal personnel within this state shall be included in the Montana payroll factor. The wages of personnel operating transportation equipment within and without this state shall be assigned to this state upon the basis of miles. The wages of such personnel shall be assigned to Montana in proportion that miles traveled within this state bear to the total miles traveled everywhere.

(c) Revenues will be assigned to this state in the proportion that the miles traveled within the state bear to the total miles traveled everywhere. All other revenue shall be assigned in accordance with the provisions of 15-31-310 and 15-31-311, MCA, and ARM 42.26.251 through 42.26.259.

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(1) Only multinational corporations subject to the Montana corporate income tax may apportion income under a water's-edge, unitary combination method as set forth in 15-31-322, MCA.

(1) To perfect a water's-edge election, a taxpayer must complete Form WE – ELECT and file the form with the department within the first 90 days of the first tax year of the three-year period for which the election is to become effective. If the first tax period for which the election is to become effective is less than 90 days, the taxpayer will have until the end of the tax period to file the election.

(a) A taxpayer cannot make a water's-edge election for prior tax periods.

(b) If a taxpayer files a water's-edge election after the 90-day deadline, the taxpayer must establish reasonable cause for failing to satisfy the 90-day deadline.

(i) Reasonable cause is defined in ARM 42.2.304. Examples of what ordinarily does or does not constitute reasonable cause are provided in ARM 42.2.512.

(ii) Failure to timely file a water's-edge election on the belief that an election was unnecessary because the taxpayer incorrectly asserted a nonunitary relationship with the foreign corporation(s) does not constitute reasonable cause.

(2) The provisions of (1) provide the only way to perfect a water's-edge election. Filing returns and paying tax under the water's-edge method without perfecting the election as provided for in (1) will not be accepted as a valid election.

(3) Each election is binding for a three-year renewable period and may only be revoked upon express written permission of the department.

(4) As stated in (3), the water's-edge election is binding for a three-year renewable period. If a taxpayer wishes to continue to file on a water's-edge basis, a Form WE – ELECT must again be filed with the department within the first 90 days of the first tax year of the three-year period for which the election is to become effective.

(1) If a taxpayer wishes to change its election prior to the end of the three-year period, permission must first be received from the department. The department shall impose reasonable conditions necessary to insure that the requested change will not result in an avoidance of tax and that income for the period prior to the change has been properly reported. In the year of the change, the department may, for the purposes provided for in law, require the inclusion of gross income or the exclusion of deductions either of which occurred because of a water's-edge filing for that period.

This rule has been repealed.

(1) If the business activity in respect to any trade or business of a taxpayer occurs both within and without this state and if by reason of such business activity the taxpayer is taxable in another state, the portion of the net income (or net loss) arising from such trade or business which is derived from sources within this state shall be determined by apportionment in accordance with 15-31-305 through 15-31-311, MCA.

(2) Any taxpayer subject to the taxing jurisdiction of this state shall allocate all of its nonapportionable income or loss within or without this state in accordance with 15-31-304, MCA.

(1) All apportionable income of each trade or business of the taxpayer shall be apportioned to this state by use of the apportionment formula set forth in 15-31-305, MCA. The elements of the apportionment formula are the property factor (see ARM 42.26.231), the payroll factor (see ARM 42.26.241), and the receipts factor (see ARM 42.26.251) of the trade or business of the taxpayer.

(1) For purposes of 15-31-322, MCA, the assignment of payroll and property is determined under the individual states' laws and regulations that set forth the apportionment formulas used to assign net income subject to taxes on or measured by net income. If a state does not impose a tax on or measured by net income, assignment is determined under this chapter.

(2) The apportionment provisions of Title 15, chapter 31, part 3, MCA, and related regulations regarding the inclusion, valuation, and attribution of apportionment factors by location shall apply to the computation of Montana tax liability under a water's-edge election. Only property, payroll, and receipts of corporations actually included in the water's-edge combined group shall be considered.

(1) The department shall review for completeness the domestic disclosure spreadsheets that are filed as required by ARM 42.26.304. Completeness means that entries are provided for each item requested. A spreadsheet which is not properly completed shall be treated as if not filed, except that the taxpayer will be given 60 days to correct any deficiencies which it has been informed of in writing by the department. A taxpayer who fails to file a domestic disclosure spreadsheet or fails to file a complete spreadsheet after having been given an opportunity to correct any deficiencies shall have its water's-edge election revoked by the department.

(2) The corporations includable in a water's-edge election may be modified by the department for the inclusion of additional unitary corporations as described in 15-31-322, MCA, or the exclusion of nonunitary corporations. The modification cannot require the inclusion of any corporations not described in 15-31-322, MCA.

(3) The calculation of water's-edge combined income may be modified to reflect adjustments to transfer prices, royalty rates, allocation of common expenses, and similar adjustments necessary to reflect a proper apportionment of income.

(4) In calculating water's-edge combined apportionable income, transactions between or among any member of the water's-edge combined group and any other nonincluded affiliated corporation, whether domestic or foreign, must be restored if eliminated in the computation of federal net income of the water's-edge combined group.

(5) Limitations of net operating loss deductions of a water's-edge group are addressed in ARM 42.23.805.

(1) Domestic international sales corporations (DISCs), as defined in sections 991 through 994 of the IRC, export trade corporations, as described in sections 970 and 971 of the IRC, and foreign sales corporations, as defined in sections 921 through 927 of the IRC, are included in a water's-edge return. DISCs are specifically taxable notwithstanding the general exempt language of 15-31-102, MCA.

(2) A corporation incorporated outside the United States, if over 50 percent of the voting stock is owned directly or indirectly by a member of the includable group and if more than 20 percent of the average of its payroll and property, including payroll and property from disregarded entities and its pro rata share of unitary partnerships' payroll and property, is assignable to a location inside the United States, is included in a water's-edge return. For purposes of computing this average, the payroll factor provided for by 15-31-308, MCA, and the property factor as provided for by 15-31-306, MCA, shall be added together and divided by two, or by one if the denominator of either the property or payroll factor is zero.

(3) A corporation incorporated in the United States, if the denominator of both the property and payroll factor is zero, is included in a water's-edge return.

(4) If a corporation is "engaged in business" or "doing business" pursuant to 15-31-101, MCA, in this state, it is included in a water's-edge return.

(5) A corporation that is in a unitary relationship with the taxpayer and that is incorporated in a tax haven is included in a water's-edge return. 

(1) Eighty percent of the dividends apportionable under this rule are to be excluded from income subject to apportionment where:

(a) dividends received from foreign corporations, taxable for federal purposes, are considered to be income subject to apportionment;

(b) amounts included in income under sections 951 through 962 and 964 of the IRC are considered taxable foreign dividends;

(c) the after-tax net income of United States corporations excluded from eligibility as affiliated corporations under ARM 42.26.311 and possession corporations defined in sections 931 through 934 and 936 of the IRC, is considered to be a dividend for purposes of this rule;

(i) In calculating the after tax net income, where the corporation is included in a federal consolidated income tax return, the consolidated tax liability shall be apportioned among the members of the group in accord with the ratio which that portion of the consolidated taxable income attributable to each member of the group having positive taxable income, bears to the total consolidated taxable income of all companies in the consolidated group having positive taxable income. For purposes of this calculation, the consolidated tax liability shall be the tax liability calculated on the federal consolidated income tax return after application of federal tax credits.

(ii) Where such corporations have no net income for the taxable year in question, the amount to be included as dividends received from corporations outside the United States shall equal zero.

(d) dividends between members in the water's-edge combinable group are eliminated from the calculation of apportionable income;

(e) deemed dividend distributions pursuant to section 78 of the IRC are excluded from the calculation of apportionable income; and

(f) the limited inclusion of dividend income specified in this rule is in lieu of attempts to allocate expenses attributable to the generation of such dividend income. For apportionment factor purposes only the dividend income considered to be apportionable income shall be included in the receipts factor numerator or denominator as appropriate.

(1) A taxpayer who becomes a member of a water's-edge group, subsequent to an election by the group, will be deemed to have elected and will be bound by the election. Procedures provided in ARM 42.26.302 for renewal of a water's-edge election would apply.

(2) If a water's-edge taxpayer is purchased or otherwise acquired by an entity not subject to tax under 15-31-101, MCA, and whose parent and affiliates are not subject to tax under 15-31-101, MCA, the water's-edge election carries over to each member of the new affiliated group.

(3) If a water's-edge taxpayer is purchased or otherwise acquired by a non-water's-edge taxpayer, who is subject to tax under 15-31-101, MCA, the water's-edge election will be terminated as of the purchase date.

(4) If a water's-edge taxpayer is a party to reorganization, and as a result ceases to exist, the water's-edge election will be terminated as of the date of the reorganization.

(5) If a water's-edge taxpayer is a party to a reorganization, and survives the reorganization, the water's-edge election carries over to the new affiliated group. Procedures provided for in ARM 42.26.302 for renewal of a water's-edge election would apply.

(6) If a nonwater's-edge taxpayer is purchased or otherwise acquired by an entity not subject to tax under 15-31-101, MCA, and whose parent and affiliates are not subject to tax under 15-31-101, MCA, the taxpayer may make a valid water's-edge election as provided for in ARM 42.26.302. The taxpayer must complete Form WE – ELECT and file the form with the department within the first 90 days after the purchase or acquisition date.

(7) If a nonwater's-edge taxpayer who did not previously own greater than 50 percent of an entity incorporated outside the United States purchases or otherwise acquires an entity incorporated outside the United States, the taxpayer may make a valid water's-edge election as provided for in ARM 42.26.302. The taxpayer must complete Form WE – ELECT and file the form with the department within the first 90 days after the acquisition date.

(1) The amount of the gain or loss from the sale of assets used in the regular course of business which is apportioned to this state shall be calculated separately if the taxpayer elects to report the gain on the installment method. The separate calculation shall be made:

(a) for installment sales of Montana assets which generate net gains in excess of $2,500,000; or

(b) installment sales of major assets located outside the state of Montana which generate net gains in excess of $10,000,000.

(2) The separate calculation shall be made as follows:

(a) for purposes of the receipts factor the total net gains from the sale shall be included in the receipts factor in the year of the sale unless specifically excluded from the receipts factor under another part of ARM 42.26.263;

(b) for purposes of calculating apportionable income from the installment sale, the factors of the year of sale shall be utilized in apportioning the gain regardless of the year in which the income is reported; and

(c) the factors of the year of sale shall be applied to the gain from the sale as it is reported by the taxpayer to determine the amount of apportionable income from the sale which is apportionable to this state, unless the gain is accelerated under ARM 42.26.276.

(a) Ancillary activities are those activities that serve no independent business function for the seller apart from their connection to the solicitation of orders. Activities that a seller would engage in apart from soliciting orders shall not be considered as ancillary to the solicitation of orders. The mere assignment of activities to sales personnel does not, merely by such assignment, make such activities ancillary to solicitation of orders.

(b) Additionally, activities that seek to promote sales are not ancillary because P.L. 86-272 does not protect activity that facilitates sales; it only protects ancillary activities that facilitate the request for an order. The conducting of activities not falling within the foregoing definition of solicitation will cause the company to lose its protection from a net income tax afforded by P.L. 86-272, unless the disqualifying activities, taken together, are either de minimis or are otherwise permitted under this sub-chapter.

(1) The following two listings set forth the in-state activities that are presently treated as "unprotected activities" or "protected activities."  The mere inclusion of an activity on the listing of "protected activities" is not a statement or admission that the activity is afforded any protection under P.L. 86-272.

(2) The following in-state activities are considered unprotected activities (assuming they are not of a de minimis level) , are not considered as either solicitation of orders, or contributory to, or otherwise protected under P.L. 86-272, and will cause otherwise protected sales to lose their protection under P.L. 86-272:

(a) making repairs or providing maintenance or service to the property sold or to be sold;

(b) collecting current or delinquent accounts, whether directly or by third parties, through assignment or otherwise;

(c) investigating credit worthiness;

(d) installing or supervising installation at or after shipment or delivery;

(e) conducting training courses, seminars, or lectures for personnel other than personnel involved only in solicitation;

(f) providing any kind of technical assistance or service including, but not limited to, engineering assistance or design service, when one of the purposes thereof is other than the facilitation of the solicitation of orders;

(g) investigating, handling, or otherwise assisting in resolving customer complaints, other than mediating direct customer complaints when the sole purpose of such mediation is to gain influence for the sales personnel with the customer;

(h) approving or accepting orders;

(i) repossessing property;

(j) securing deposits on sales;

(k) picking up or replacing damaged or returned property;

(l) hiring, training, or supervising personnel other than personnel involved only in solicitation;

(m) using agency stock checks or any other instrument or process by which sales are made within Montana by sales personnel;

(n) maintaining a sample or display room for a period greater than two weeks (14 days) at any one location within Montana during the tax year;

(o) carrying samples for sale, exchange, or distribution in any manner for consideration or other value;

(p) owning, leasing, using, or maintaining any of the following facilities or properties in-state:

(i) repair shop;

(ii) parts department;

(iii) any kind of office other than an in-home office as described and permitted under (r) and (3)(b);

(iv) warehouse;

(v) meeting place for directors, officers, or employees;

(vi) stock of goods other than samples for sales personnel or those used entirely ancillary to solicitation;

(vii) telephone answering service that is publicly attributed to the company or to employees or agents of the company in their representative capacity;

(viii) mobile stores; i.e., vehicles with drivers who are sales personnel making sales from the vehicles; and

(ix) real property or fixtures to real property of any kind;

(q) consigning for sale stock of goods or other tangible personal property to any person, including an independent contractor;

(r) maintaining, by any employee or other representative, an office or place of business of any kind (other than an in-home office located within the residence of the employee or representative) that:

(i) is not publicly attributed to the company or to the employee or representative of the company in an employee or representative capacity, and so long as the use of such office is limited to soliciting and receiving orders from customers, for transmitting such orders outside the state for acceptance or rejection by the company, or for such other activities that are protected under P.L. 86-272 or under (3);

(ii) lists a telephone number or other public listing within the state for the company or for an employee or representative of the company in such capacity or other indications through advertising or business literature that the company or its employee or representative can be contacted at a specific address within the state, (such a listing shall normally be determined as the company maintaining within Montana an office or place of business attributable to the company or to its employee or representative in a representative capacity). However, the normal distribution and use of business cards and stationery identifying the employee's or representative's name, address, telephone and fax numbers, and affiliation with the company shall not, by itself, be considered as advertising or otherwise publicly attributing an office to the company or its employee or representative; and

(iii) the maintenance of any office or other place of business in Montana that does not strictly qualify as an "in-home" office as described above shall, by itself, cause the loss of protection under this rule. For the purpose of this subsection, it is not relevant whether the company pays directly, indirectly, or not at all, for the cost of maintaining such in-home office;

(s) entering into franchising or licensing agreements, selling or otherwise disposing of franchises and licenses, or selling or otherwise transferring tangible personal property pursuant to such franchise or license by the franchisor or licensor to its franchisee or licensee within the state; or

(t) conducting any activity not listed in (3) which is not entirely connected to requests for orders, even if such activity helps to increase purchases.

(3) The following in-state activities will not cause the loss of protection for otherwise protected sales:

(a) soliciting orders for sales by any type of advertising;

(b) soliciting of orders by a Montana resident employee or representative of the company, so long as such person does not maintain or use any office or other place of business in Montana other than an "in-home" office as described in (2)(r);

(c) carrying samples and promotional materials only for display or distribution without charge or other consideration;

(d) furnishing and setting up display racks and advising customers on the display of the company's products without charge or other consideration;

(e) providing automobiles to sales personnel for their use in conducting protected activities;

(f) passing orders, inquiries, and complaints on to the home office;

(g) missionary sales activities, e.g., the solicitation of indirect customers for the company's goods. For example, a manufacturer's solicitation of retailers to buy the manufacturer's goods from the manufacturer's wholesale customers would be protected if such solicitation activities were otherwise immune;

(h) coordinating shipment or delivery without payment or other consideration and providing related information either prior or subsequent to the placement of an order;

(i) checking of customers' inventories without a charge (for re-order, but not for other purposes such as quality control);

(j) maintaining a sample or display room for two weeks (14 days) or less at any one location within Montana during the tax year;

(k) recruiting, training, or evaluating sales personnel, including occasionally using homes, hotels, or similar places for meetings with sales personnel;

(l) mediating direct customer complaints when the purpose is solely for supporting the sales personnel with the customer and facilitating requests for orders; or

(m) owning, leasing, using, or maintaining personal property for use in the employee or representative's "in-home" office or automobile that is solely limited to conducting protected activities. The use of personal property such as a cellular telephone, facsimile machine, duplicating equipment, personal computer and computer software that is limited to conducting protected solicitation and activity entirely ancillary to such solicitation or permitted by this rule shall not, by itself, remove the protection under this rule.

(a) soliciting sales;

(b) making sales; and

(c) maintaining an office.

(2) Sales representatives who represent a single principal are not considered to be independent contractors and are subject to the same limitations as those provided under P.L. 86-272 and the rules found in this sub-chapter. Maintenance of a stock of goods in Montana by the independent contractor under consignment or any other type of arrangement with the company, except for purposes of display and solicitation, shall remove the protection.

(1) When it appears that two or more signatory states have included, or will include, the same receipts from a sale in their respective sales factor numerators, at the written request of the company, these states shall in good faith confer with one another to determine which state should be assigned the receipts. Such conference shall identify what law, rule, or written guideline, if any, has been adopted in the state of destination with respect to the issue. The state of destination shall be that location at which the purchaser or its designee actually receives the property, regardless of the f.o.b. point or other conditions of sale. In determining which state is to receive the assignment of the receipts at issue, preference shall be given to any clearly applicable law, regulation, or written guideline that has been adopted in the state of destination.

(2) The state of Montana is not required by this rule to follow any other state's law, rule, or written guideline should Montana determine that to do so:

(a) would conflict with its own laws, rules, or written guidelines; and

(b) would not clearly reflect the income-producing activity of the company within Montana.

(1) P.L. 86-272 specifically applies, by its terms, to "interstate commerce" and does not directly apply to foreign commerce. Montana will apply the provisions of P.L. 86-272 and the rules found in this sub-chapter to business activities conducted in foreign commerce. Therefore, whether business activities are conducted by:

(a) a foreign or domestic company selling tangible personal property into a country outside of the United States from a point within Montana; or

(b) either company selling such property into Montana from a point outside of the United States, the principles under this statement apply equally to determine whether the sales transactions are protected and the company immune from taxation in either Montana or in the foreign country, as the case might be, and whether, if applicable, Montana will apply its throwback provisions.

(1) A company that registers or otherwise formally qualifies to do business within Montana does not, by that fact alone, lose its protection under P.L. 86-272. Where separate from or ancillary to such registration or qualification, the company receives and seeks to use or protect any additional benefit or protection from Montana through activity not otherwise protected under P.L. 86-272, such protection shall be removed.

This rule has been repealed.

The following definitions apply to this subchapter:

(1) "Total revenue ton-miles occurring everywhere" means the figure a railroad includes on Schedule 755, line 110, that is associated with the Class 1 Annual Railroad Report (R-1) which it files with the federal Surface Transportation Board.

(2) "Total revenue ton-miles occurring within this state" means the figure a railroad annually reports to the Montana Public Service Commission on Schedule-931, line 36.

(1) Where a railroad has income from sources both within and without this state, the amount of apportionable income from sources within this state shall be determined pursuant to Title 15, chapter 31, part 3, MCA, except as modified by ARM 42.26.606.

(2) The requirements of this rule are effective for tax years beginning after December 31, 2022.

This rule has been repealed.

This rule has been repealed.

This rule has been repealed.

(1) The numerator of the receipts factor is the taxpayer's total revenue ton-miles occurring within this state during the year.

(2) The denominator of the receipts factor is the taxpayer's total revenue ton-miles occurring everywhere during the year.

(1) "Trucking company" means a motor carrier, a motor contract carrier or an express carrier, which primarily transports tangible personal property of others by motor vehicle for compensation.

(1) Where a trucking company has income from sources both within and without this state, the amount of apportionable income from sources within this state shall be determined pursuant to Title 15, chapter 31, part 3, MCA, except as modified by this rule. ARM 42.26.202 provides the definitions that are applicable to the numerator and the denominator of the property factor, as well as other apportionment factor descriptions.

(1) The denominator of the payroll factor is the compensation paid everywhere by the taxpayer during the income year for the production of apportionable income as provided in ARM 42.26.243. The numerator of the payroll factor is the total compensation paid in this state during the income year by the taxpayer. With respect to all personnel, except those performing services within and without this state, compensation paid to such employees shall be included in the numerator as provided in ARM 42.26.244. 

(2) With respect to personnel performing services within and without this state, compensation paid to such employees shall be included in the numerator of the payroll factor in the ratio which their services performed in this state bear to their services performed everywhere based on mobile property miles.

(1) In general, all revenues derived from transactions and activities in the regular course of the taxpayer's trade or business which produces apportionable income shall be included in the denominator of the receipts factor as provided in ARM 42.26.253.

(2) The numerator of the receipts factor is the total revenue of the taxpayer in this state during the income year. The total state revenue of the taxpayer, other than revenue from hauling freight, mail, and express, shall be attributable to this state in accordance with ARM 42.26.254 through 42.26.259.

(3) Numerator of the receipts factor from freight, mail, and express. The total revenue of the taxpayer attributable to this state during this income year from hauling freight, mail, and express shall be:

(a) Intrastate - all receipts from any shipment which both originates and terminates within this state; and

(b) Interstate - that portion of the receipts from movements or shipments passing through, into or out of this state as determined by the ratio which the mobile property miles traveled by such movements or shipments in this state bear to the total mobile property miles traveled by movements or shipments from points of origin to destination.

(a) owns nor rents any real or personal property in this state, except mobile property; nor

(b) makes any pick-ups or deliveries within this state; nor

(c) travels more than 25,000 mobile property miles within this state; provided that the total mobile property miles traveled within this state during the income year does not exceed three percent of the total mobile property miles traveled in all states by the trucking company during that period; nor

(d) makes more than 12 trips into this state.

(1) "Aircraft ready for flight" means aircraft owned or acquired through rental or lease (but not interchange) which are in the possession of the taxpayer and are available for service on the taxpayer routes.

(2) "Cost of aircraft by type" means the average original cost or value of aircraft by type, which are ready for flight.

(3) "Departures" means for purposes of these rules all takeoffs, whether they are regularly scheduled or charter flights, that occur during revenue service.

(4) "Revenue service" means the use of aircraft ready for flight for the production of revenue.

(1) Where an airline has income from sources both within and without this state, the amount of apportionable income from sources within this state shall be determined pursuant to Title 15, chapter 31, part 3, MCA, except as modified by this rule.

(2) The denominator of the property factor shall be the average value of all of the taxpayer's real and tangible personal property owned or rented and used during the income year.   The numerator of the property factor shall be the average value of the taxpayer's real and tangible personal property owned or rented and used in this state during the income year.

(3) In determining the numerator of the property factor, all property except aircraft ready for flight shall be included in the numerator of the property factor in accordance with ARM 42.26.231 through 42.26.237.   Aircraft ready for flight shall be included in the numerator of the property factor in the ratio calculated as follows:

(a) departures of aircraft from locations in this state weighted as to the cost and value of aircraft by type compared to total departures similarly weighted.

(1) The transportation revenue derived from transactions and activities in the regular course of the trade or business of the taxpayer and miscellaneous sales of merchandise, etc., are included in the denominator of the receipts factor as provided in ARM 42.26.253. The numerator of the receipts factor is the total revenue of the taxpayer in this state during the income year. The total revenue of the taxpayer in this state during the income year is the result of the following calculation:

(a) the ratio of departures of aircraft in this state weighted as to the cost and value of aircraft by type, as compared to total departures similarly weighted multiplied by the total transportation revenue. The product of this calculation is to be added to any nonflight revenues directly attributable to this state.

(1) Assume the following facts for an airline for the tax year:

(a) It has ten 747s ready for flight and in revenue service at an average per unit cost of $40,000,000 for nine of the aircraft. It rents the remaining 747 from another airline for $9,000,000 per year. At eight times rents, the latter is valued at $72,000,000 for apportionment purposes. Total 747 valuation is, therefore, $432,000,000 for property factor denominator purposes.

(b) It has 20 727s ready for flight and in revenue service at an average per unit cost of $20,000,000. Total 727 valuation is, therefore, $400,000,000 for property factor denominator purposes.

(c) It has nonflight tangible property (n.t.p.) valued at original cost of $200,000,000.

(d) It has the following annual payroll:

(e) From its operations, it has total receipts of $50,000,000, apportionable net income of $1,000,000 and no nonapportionable income. The total $50,000,000 is flight revenue; there is no nonflight revenue.

(f) It has the following within state X:

(g) State X has a corporate tax rate of 10 percent. The airline's tax liability to state X would be determined as follows:

(2) Same facts except (1)(f) is changed to read:

(a) It has the following within state Y:

(b) State Y has a corporate tax rate of 6.5 percent. The airline's tax liability to state Y would be determined as follows:

(1) When a taxpayer elects to use the percentage of completion method of accounting, or the completed contract method of accounting for long-term contracts (construction contracts covering a period in excess of one year from the date of execution of the contract to the date on which the contract is finally completed and accepted), and has income from sources both within and without this state from a trade or business, (for purposes of determining whether a taxpayer's operations are within or without, the test shall be for each separate entity in a combined group electing the completed contract method, rather than the combined group as a whole), the amount of apportionable income derived from such long-term contracts from sources within this state shall be determined pursuant to this regulation. In such cases, the first step is to determine which portion of the taxpayer's income constitutes "apportionable income" and which portion constitutes "nonapportionable income" pursuant to ARM 42.26.206 and 42.26.207. Nonapportionable income is directly allocated to specific states pursuant to the provisions of ARM 42.26.221 inclusive. Apportionable income is apportioned among the states in which the business is conducted pursuant to the property, payroll, and receipts apportionment factors set forth in this regulation. The sum of the items of nonapportionable income directly allocated to this state, plus the amount of apportionable income attributable to this state constitutes the amount of the taxpayer's entire net income which is subject to tax by this state.

(1) Apportionable income, in general, is apportioned to this state by a three-factor formula consisting of property, payroll, and receipts regardless of the method of accounting for long-term contracts elected by the taxpayer. The total of the property, payroll, and receipts percentages is divided by three to determine the apportionment percentage. The apportionment percentage is then applied to apportionable income to determine the amount apportioned to this state.

(2) Under the percentage of completion method of accounting for long-term contracts, the amount to be included each year as apportionable income from each contract is the amount by which the gross contract price that corresponds to the percentage of the entire contract that has been completed during the income years exceeds all expenditures made during the income year in connection with the contract. In so doing, the account must be made of the material and supplies on hand at the beginning and end of the income year for use in each such contract.

(3) Under the completed contract method of accounting, apportionable income derived from long-term contracts is reported for the income year in which the contract is finally completed and accepted. Therefore, a special computation is required to compute the amount of apportionable income attributable to this state from each completed contract. Thus, all receipts and expenditures applicable to such contracts, whether complete or incomplete as of the end of the income year, are excluded from apportionable income derived from other sources. For example, short-term contracts, interest, rents, royalties, etc., which are apportioned by the regular three-factor formula of property, payroll, and receipts.

(4) In general the numerator and denominator of the property factor shall be determined as set forth in ARM 42.26.231 through 42.26.237 and 42.26.262. However, the following special rules are also applicable:

(a) The average value of the taxpayer's cost (including materials and labor) of construction in progress, to the extent such costs exceed progress billings (accrued or received depending on whether the taxpayer is on the accrual or cash accounting method) shall be included in the denominator of the property factor. The value of any such construction costs attributable to construction projects in this state shall be included in the numerator of the property factor.

(b) Rent paid for the use of equipment directly attributable to a particular construction project is included in the property factor at eight times the net annual rental rate even though such rental expense may be capitalized into the cost of construction.

(c) The property factor is computed in the same manner for all long-term contract methods of accounting and is computed for each income year even though under the completed contract method of accounting, apportionable income is computed separately.

(5) In general the numerator and denominator of the payroll factor shall be determined as set forth in ARM 42.26.243 and 42.26.244. However, the following special criteria are also applicable:

(a) Compensation paid to employees attributable to a particular construction project is included in the payroll factor even though the costs may be capitalized into the cost of construction.

(b) Compensation paid to employees who in the aggregate perform most of their services in a state which their employer does not report them for unemployment tax purposes, shall nonetheless be attributed to the state where the services are actually performed.

(c) The payroll factor is computed in the same manner for all long-term contract methods of accounting and is computed for each income year even though under the completed contract method of accounting, apportionable income is computed separately.

(6) In general the numerator and denominator of the receipts factor shall be determined as set forth in ARM 42.26.253 and 42.26.254. However, the following special criteria are also applicable:

(a) Gross receipts derived from the performance of a contract are attributable to this state if the construction project is located in this state. If the construction project is located partly within and partly without this state, the gross receipts attributable to this state are based upon the ratio of construction costs for the project in this state incurred during the income year to the total construction costs for the entire project during the income year or any other method, such as engineering cost estimates, which will provide a reasonable apportionment.

(b) If the percentage of completion method is used, the receipts factor includes only that portion of the gross contract price which corresponds to the percentage of the entire contract which was completed during the income year.

(c) If the completed contract method of accounting is used, the receipts factor includes the portion of the gross receipts (progress billings) received or accrued, whichever is applicable, during the income year attributable to each contract.

(d) The receipts factor, except as noted in (6)(b) and (c), is computed in the same manner, regardless of which long-term method of accounting the taxpayer has elected, and is computed for each income year even though under the completed contract method of accounting, apportionable income is computed separately.

(7) The total of the property, payroll, and receipts percentages is divided by three to determine the apportionment percentage. The apportionment percentage is then applied to apportionable income to establish the amount apportioned to this state.

(1) The completed contract method of accounting requires that the reporting of income (or loss) be deferred until the year the construction project is completed or accepted. Accordingly, a separate computation is made for each such contract completed during the income year regardless of whether the project is located within or without this state, in order to determine the amount of income which is attributable to sources within this state. The amount of income from each contract completed during the income year apportioned to this state, plus other apportionable income apportioned to this state by the regular three-factor formula such as interest income, rents, royalties, income from short-term contracts, etc., plus all nonapportionable income allocated to this state is the measure of income for the income year.

(2) The amount of income (or loss) from each contract which is derived from sources within this state using the completed contract method of accounting is computed as follows:

(a) In the income year the contract is completed the income (or loss) therefrom is determined.

(b) The income (or loss) determined in (2)(a) is apportioned to this state by the following method:

(i) A fraction is determined for each year the contract was in progress. The numerator is the amount of construction costs paid or accrued each year the contract was in progress and the denominator is the total of all such construction costs for the project.

(ii) Each percentage determined in (2)(a)(i) is multiplied by the apportionment formula percentage for that particular year as determined in ARM 42.26.903.

(iii) The percentages determined in (ii) for each year the contract was in progress are totaled. The amount of total income (or loss) from the contract is multiplied by the total percentage. The resulting income (or loss) is the amount of apportionable income from such contract derived from sources within this state.

(1) Use of the completed contract method of accounting for long-term contracts requires that income derived from sources within this state from incomplete contracts in progress outside this state on the date of withdrawal, dissolution or cessation of business in this state be included in the measure of tax for the taxable year during which the corporation withdraws, dissolves or ceases doing business in this state.

(2) The amount of income (or loss) from each such contract to be apportioned to this state by the apportionment method set forth in ARM 42.26.904 shall be determined as if the percentage of completion method of accounting were used for all such contracts on the date of withdrawal, dissolution, or cessation of business. The amount of apportionable income (or loss) for each such contract shall be the amount by which the gross contract price from each such contract which corresponds to the percentage of the entire contract which has been completed from the commencement thereof to the date of withdrawal, dissolution, or cessation of business exceeds all expenditures made during such period in connection with each such contract. In so doing account must be taken of the material and supplies on hand at the beginning and end of the income year for use in each such contract.

(1) "Outer-jurisdictional property" means certain types of tangible personal property, such as orbiting satellites, undersea transmission cables and the like, that are owned or rented by the taxpayer and used in the business of publishing, licensing, selling, or otherwise distributing printed material, but which are not physically located in any particular state.

(2) "Print or printed material" includes, without limitation, the physical embodiment or printed version of any thought or expression including, without limitation, a play, story, article, column, or other literary, commercial, educational, artistic, or other written or printed work. The determination of whether an item is or consists of print or printed material shall be made without regard to its content. Printed material may take the form of a book, newspaper, magazine, periodical, trade journal, or any other form of printed matter, and may be contained on any medium or property.

(3) "Purchaser" and "subscriber" mean the individual, residence, business or other outlet, which is the ultimate or final recipient of the print or printed material. Neither term shall mean or include a wholesaler or other distributor of print or printed material.

(4) "Terrestrial facility" shall include any telephone line, cable, fiber optic, microwave, earth station, satellite dish, antennae, or other relay system or device that is used to receive, transmit, relay, or carry any data, voice, image, or other information that is transmitted from or by any outer-jurisdictional property to the ultimate recipient of such device.

(1) Except as specifically modified by this rule, when a person in the business of publishing, selling, licensing, or distributing newspapers, magazines, periodicals, trade journals, or other printed material has income from sources both within and outside of Montana, the amount of apportionable income from sources within Montana from such business activity shall be determined pursuant to Title 15, chapter 31, part 3, MCA, and the supporting administrative rules.

(1) For purposes of this subchapter, the property factor will be determined as outlined in (2) and (3).

(2) All real and tangible personal property, including outer-jurisdictional property, whether owned or rented, which is used in the business shall be included in the denominator of the property factor.

(3) The property factor numerator will be established by following the requirements in (4) through (8).

(4) All real and tangible personal property owned or rented by the taxpayer and used in Montana during the tax period shall be included in the numerator of the property factor.

(5) Outer-jurisdictional property owned or rented by the taxpayer and used in Montana during the tax period shall be included in the numerator of the property factor in the ratio which the value of such property that is attributable to its use by the taxpayer in business activities in Montana bears to the total value of such property that is attributable to its use in the taxpayer's business activities everywhere.

(6) The value of outer-jurisdictional property to be attributed to the numerator of the property factor of Montana shall be determined by the ratio that the number of uplinks and downlinks (sometimes referred to as "half-circuits") that were used during the tax period to transmit from Montana and to receive in Montana any data, voice, image, or other information bears to the total number of uplinks and downlinks or half-circuits that the taxpayer used for transmissions everywhere. Should information regarding such uplink and downlink or half-circuit usage not be available or should such measurement of activity not be applicable to the type of outer-jurisdictional property used by the taxpayer, the value of such property to be attributed to the numerator of the property factor of Montana shall be determined by the ratio that the amount of time (in terms of hours and minutes of use) or such other measurement of use of outer-jurisdictional property that was used during the tax period to transmit from Montana and to receive in Montana any data, voice, image, or other information bears to the total amount of time or other measurement of use that was used for transmissions everywhere.

(7) Outer-jurisdictional property shall be considered to have been used by the taxpayer in its business activities within Montana when such property, wherever located, has been employed by the taxpayer in any manner in the publishing, selling, licensing, or other distribution of books, newspapers, magazines, or other printed material and any data, voice, image, or other information is transmitted to or from Montana either through an earth station or terrestrial facility located in Montana.

(a) One example of the use of outer-jurisdictional property is where the taxpayer either owns its own communications satellite or leases the use of uplinks, downlinks, or circuits or time on a communications satellite for the purpose of sending messages to its newspaper printing facilities or employees in a state. The state or states in which any printing facility that receives the satellite communications is located and the state from which the communications were sent would, under this rule, apportion the cost of the owned or rented satellite to their respective property factors based upon the ratio of the in-state use of the satellite to its total usage everywhere.

(i) Assume that ABC newspaper co. owns a total of $400,000,000 of property everywhere and that, in addition, it owns and operates a communication satellite for the purpose of sending news articles to its printing plant in Montana, as well as for communicating with its printing plants and facilities or news bureaus, employees and agents located in other states and throughout the world.

(ii) Assume also that the total value of its real and tangible personal property that was permanently located in Montana for the entire income year was valued at $3,000,000.

(iii) Assume further that the total original cost of the satellite is $100,000,000 for the tax period and that of the 10,000 uplinks and downlinks of satellite transmissions used by the taxpayer during the tax period, 200 or 2 percent are attributable to its satellite communications received in and sent from Montana.

(iv) Assume still further that the company's mobile property that was used partially within Montana, consisting of 40 delivery trucks, were determined to have an original cost of $4,000,000 and such mobile property was used in Montana for 95 days. The total value of property to be attributed to Montana would be determined as follows:

Value of property permanently in state: $3,000,000

Value of mobile property:

95/365 or (.260274) x $4,000,000: $1,041,096

Value of leased satellite property used in-state:

(.02) x $100,000,000: $2,000,000

Total value of property attributable to state: $6,041,096

Total property factor %: $6,041,096/($500,000,000): 1.2082%

(8) The payroll factor shall be determined in accordance with 15-31-308, MCA, and the supporting administrative rules.

(9) For purposes of this subchapter, the receipts factor will be determined as follows:

(a) The denominator of the receipts factor shall include the total gross receipts derived by the taxpayer from transactions and activity in the regular course of its trade or business, except receipts that may be excluded under ARM 42.26.251, 42.26.252, 42.26.253, 42.26.254, 42.26.255, 42.26.256, 42.26.257, 42.26.259, 42.26.261, 42.26.262, and 42.26.263.

(b) The numerator of the receipts factor shall include all gross receipts of the taxpayer from sources within Montana including, but not limited to, the following:

(i) gross receipts derived from the sale of tangible personal property including printed materials, delivered or shipped to a purchaser or a subscriber in Montana;

(ii) except as provided in (9)(b)(iii), gross receipts derived from advertising and the sale, rental, or other use of the taxpayer's customer lists or any portion thereof shall be attributed to Montana as determined by the taxpayer's circulation factor during the tax period. The circulation factor shall be determined for each individual publication by the taxpayer of printed material containing advertising and shall be equal to the ratio that the taxpayer's in-state circulation to purchasers and subscribers of its printed material bears to its total circulation to purchasers and subscribers everywhere. The circulation factor for an individual publication shall be determined by reference to the rating statistics as reflected in such sources as Audit Bureau of Circulations or other comparable sources, provided that the source selected is consistently used from year to year for such purpose. If none of the foregoing sources are available, or, if available, none is in form or content sufficient for such purposes, then the circulation factor shall be determined from the taxpayer's books and records.

(iii) When specific items of advertisements can be shown, upon clear and convincing evidence, to have been distributed solely to a limited regional or local geographic area in which Montana is located, the taxpayer may petition, or the department may require, that a portion of such receipts be attributed to the receipts factor numerator of Montana on the basis of a regional or local geographic area circulation factor and not upon the basis of the circulation factor provided by (9)(b)(ii). Such attribution shall be based upon the ratio that the taxpayer's circulation to purchasers and subscribers located in Montana of the printed material containing such specific items of advertising bears to its total circulation of such printed material to purchasers and subscribers located within such regional or local geographic area. This alternative attribution method shall be permitted only upon the condition that such receipts are not double-counted or otherwise included in the numerator of any other state.

(iv) In the event that the purchaser or subscriber is the United States government or that the taxpayer is not taxable in a state, the gross receipts from all sources, including the receipts from the sale of printed material, advertising, and the sale, rental, or other use of the taxpayer's customer's lists, or any portion thereof that would have been attributed by the circulation factor to the numerator of the receipts factor for such state, shall be included in the numerator of the receipts factor of Montana if the printed material or other property is shipped from an office, store, warehouse, factory, or other place of storage or business in Montana.

(1) "Film" or "film programming" means any and all performances, events, or productions telecast on television including, but not limited to, news, sporting events, plays, stories or other literary, commercial, educational or artistic works, through the use of video tape, disc, or any other type of format or medium. Each episode of a series of films produced for television shall constitute a separate "film" notwithstanding that the series relates to the same principal subject and is produced during one or more tax periods.

(2) "Outer-jurisdictional property" means certain types of tangible personal property, such as orbiting satellites, undersea transmission cables and the like, that are owned or rented by the taxpayer and used in the business of telecasting or broadcasting, but which are not physically located in any particular state.

(3) "Radio" or "radio programming" means any and all performances, events, or productions broadcast on radio including, but not limited to, news, sporting events, plays, stories or other literary, commercial, educational, or artistic works, through the use of an audio tape, disc, or any other format or medium. Each episode of a series of radio programming produced for radio broadcast shall constitute a separate "radio programming" notwithstanding that the series relates to the same principal subject and is produced during one or more tax periods.

(4) "Release" or "in release" means placing film or radio programming into service. A film or radio program is placed into service when it is first broadcast to the primary audience for which the program was created. Thus, for example, a film is placed in service when it is first publicly telecast for entertainment, educational, commercial, artistic, or other purposes. Each episode of a television or radio series is placed in service when it is first broadcast. A program is not placed in service merely because it is completed and therefore in a condition or state of readiness and availability for broadcast or merely because it is previewed to prospective sponsors or purchasers.

(5) "Rent" shall include license fees or other payments or consideration provided in exchange for the broadcast or other use of television or radio programming.

(6) A "subscriber" to a cable television system is the individual residence or other outlet which is the ultimate recipient of the transmission.

(7) "Telecast" or "broadcast" (sometimes used interchangeably with respect to television) means the transmission of television or radio programming, respectively, by an electronic or other signal conducted by radio waves or microwaves or by wires, lines, coaxial cables, wave guides, fiber optics, satellite transmissions directly or indirectly to viewers and listeners or by any other means of communication.

(1) When a person in the business of broadcasting film or radio programming, whether through the public airwaves, by cable, direct or indirect satellite transmission, or any other means of communication, either through a network (including owned and affiliated stations) or through an affiliated, unaffiliated, or independent television or radio broadcasting station, has income from sources both within and outside Montana, the amount of apportionable income from sources within Montana shall be determined pursuant to Title 15, chapter 31, part 3, MCA, and the supporting Administrative Rules of Montana, except as modified by this rule.

(1) The property factor shall be determined in accordance with 15-31-306, MCA, the payroll factor in accordance with 15-31-308, MCA, and the receipts factor in accordance with 15-31-310, MCA, except as modified by this rule.

(2) For purposes of this subchapter, the property factor will be determined as follows:

(a) In the case of rented studios, the net annual rental rate shall include only the amount of the basic or flat rental charge by the studio for the use of a stage or other permanent equipment such as sound recording equipment and the like, except that additional equipment rented from other sources or from the studio not covered in the basic or flat rental charge and used for one week or longer (even though rented on a day-to-day basis) shall be included. Lump-sum net rental payments for a period that encompasses more than a single income year shall be assigned ratably over the rental period.

(b) No value or cost attributable to any outer-jurisdictional, film, or radio programming property shall be included in the property factor at any time.

(3) The property factor denominator will be determined as follows:

(a) All real property and tangible personal property (other than outer-jurisdictional and film or radio programming property), whether owned or rented, which is used in the business, shall be included in the denominator of the property factor.

(b) Audio or video cassettes, discs, or similar media containing film or radio programming and intended for sale or rental by the taxpayer for home viewing or listening, shall be included in the property factor at their original cost. To the extent that the taxpayer licenses or otherwise permits others to manufacture or distribute such cassettes, discs, or other media containing film or radio programming for home viewing or listening, the value of said cassettes, discs, or other media shall include the license, royalty, or other fees received by the taxpayer capitalized at a rate of eight times the gross receipts derived therefrom during the income year.

(c) Outer-jurisdictional film and radio programming property shall be excluded from the denominator of the property factor.

(d) With the exception of outer-jurisdictional film and radio programming property, all real and tangible personal property owned or rented by the taxpayer and used in Montana during the tax period shall be included in the numerator of the property factor as provided in 15-31-306, MCA.

(e) Outer-jurisdictional film and radio programming property shall be excluded from the numerator of the property factor.

(i) For example, XYZ television co. has a total value of all of its property everywhere of $500,000,000, including a satellite valued at $50,000,000 that was used to telecast programming into Montana and $150,000,000 in film property of which $1,000,000 was located in Montana the entire year. The total value of real and tangible personal property, other than film programming property, located in Montana for the entire income year was valued at $2,000,000. The movable and mobile property described above was determined to be of a value of $4,000,000 and was used in Montana for 100 days. The total value of property to be attributed to Montana would be determined as follows:

Value of property permanently in Montana: $2,000,000

Value of mobile and movable property:

(100/365 or .2739 x $4,000,000): 1,095,600

Total value of property to be included in

Montana's property factor numerator

(outer-jurisdictional and film property

excluded): $3,095,600

Total value of property to be used in the

denominator ($500,000,000 - $200,000,000): $300,000,000

Total property factor ($3,095,600 / $300,000,000): 1.03%

(4) For purposes of this subchapter, the payroll factor will be determined as follows:

(a) The payroll factor denominator shall include all compensation, including residual and profit participation payments, paid to employees during the income year, including that paid to directors, actors, newscasters, and other talent in their status as employees.

(b) The payroll factor numerator (compensation for all employees) shall be attributed to the state or states as may determined by the application of the provisions of 15-31-308, MCA.

(5) For purposes of this subchapter, the receipts factor will be determined as follows:

(a) The receipts factor denominator shall include the total gross receipts derived by the taxpayer from transactions and activity in the regular course of its trade or business, except receipts excluded under ARM 42.26.263.

(b) The numerator of the receipts factor shall include all gross receipts of the taxpayer from sources within Montana including, but not limited to, the following:

(i) gross receipts, including advertising revenue, from television film or radio programming in release to or by television and radio stations located in Montana;

(ii) gross receipts, including advertising revenue, from television film or radio programming in release to or by a television station (independent or unaffiliated) or network of stations for broadcast shall be attributed to Montana in the ratio ("audience factor") that the audience for such station (or owned and affiliated stations in the case of networks) located in Montana bears to the total audience for such station (or owned and affiliated stations in the case of networks). The audience factor for television or radio programming shall be determined by the ratio that the taxpayer's in-state viewing (listening) audience bears to its total viewing (listening) audience. Such audience factor shall be determined either by reference to the books and records of the taxpayer or by reference to published rating statistics, provided the method used by the taxpayer is consistently used from year to year for such purpose and fairly represents the taxpayer’s activity in Montana;

(iii) gross receipts from film programming in release to or by a cable television system shall be attributed to Montana in the ratio ("audience factor") that the subscribers for such cable television system located in Montana bears to the total subscribers of such cable television system. If the number of subscribers cannot be accurately determined from the books and records maintained by the taxpayer, such audience factor shall be determined on the basis of the applicable year's subscription statistics located in published surveys, provided that the source selected is consistently used from year to year for that purpose; and

(iv) receipts from the sale, rental, licensing, or other disposition of audio or video cassettes, discs, or similar media intended for home viewing or listening shall be included in the receipts factor as provided in ARM 42.26.257.

The following definitions apply to this chapter:

(1) "800 service" means a telecommunications service that allows a caller to dial a toll-free number without incurring a charge for the call. The service, typically marketed as toll-free calling, may utilize a prefix such as "800", "855", "866", "877", and "888" toll-free calling, or any subsequent numbers designated by the Federal Communications Commission.

(2) "900 service" means an inbound toll telecommunications service purchased by a subscriber that allows the subscriber's customers to call in to the subscriber's prerecorded announcement or live service. 900 service does not include collection services provided by the seller of the telecommunications services to the subscriber, or service or product sold by the subscriber to the subscriber's customer. The service is typically marketed under the name 900 service, and any subsequent numbers designated by the Federal Communications Commission.

(3) "Air-to-ground radio telephone service" means a radio service in which common carriers are authorized to offer and provide radio telecommunications service for hire to subscribers in aircraft.

(4) "Ancillary service" is a type of telecommunications service that includes but is not limited to the following subcategories: "related services" as defined in 15-53-129, MCA and ARM 42.31.501; "detailed telecommunications billing"; "directory assistance"; "vertical service"; "conference bridging service"; "digital downloads"; "ringtones"; and "voice mail services." The term ancillary service is defined as a broad range of services and is broader than the sum of the subcategories.

(5) "Bundled transaction" means the retail sale of two or more products.

(a) Bundled transaction includes retail sales in which the products are:

(i) otherwise distinct and identifiable; and

(ii) sold for one nonitemized price.

(b) For purposes of this rule, a bundled transaction does not include the sale of any products in which the sales price varies, or is negotiable, based on the selection by the purchaser of the products included in the transaction.

(c) A transaction that otherwise meets the definition of a bundled transaction is not a bundled transaction if it is:

(i) the retail sale of two products where the first product is essential to the use of the second product, and the first product is provided exclusively in connection with the second, and the true object of the transaction is the second;

(ii) the retail sale of more than one product, but the products are sourced the same under this rule; or

(iii) the retail sale of more than one product, but the sum of the purchase price or sales price of products which are sourced differently under this rule is de minimis.

(6) "Call-by-call basis" means any method of charging for telecommunications services where the price is measured by individual calls.

(7) "Coin-operated telephone service" means a telecommunications service paid for by inserting money into a telephone accepting direct deposits of money to operate.

(8) "Communications channel" means a physical or virtual path of communications over which signals are transmitted between or among customer channel termination points.

(9) "Conference bridging service" means an ancillary service that links two or more participants of an audio or video conference call and may include the provision of a telephone number. Conference bridging service does not include the telecommunications services used to reach the conference bridge.

(10) "Customer" means the person or entity which contracts with the seller of telecommunications services. If the end user of telecommunications services is not the contracting party, the end user of the telecommunications service is the customer of the telecommunications service. Customer does not include a reseller of telecommunications service or for mobile telecommunications service of a serving carrier under an agreement to serve the customer outside the home service provider's licensed service area.

(11) "Customer channel termination point" means the location where the customer either inputs or receives the communications.

(12) "Detailed telecommunications billing service" means an ancillary service of separately stating information pertaining to individual calls on a customer's billing statement.

(13) "Directory assistance" means an ancillary service of providing telephone number information, and/or address information.

(14) "End user" means the person who utilizes telecommunications service. In the case of an entity, end user means the individual who utilizes the service on behalf of the entity.

(15) "Fixed wireless service" means a telecommunications service that provides radio communication between fixed points.

(16) "Home service provider" has the same meaning as provided for in Section 124(5) of Public Law 106-252 (Mobile Telecommunications Sourcing Act).

(17) "International" means a telecommunications service that originates or terminates in the United States and terminates or originates outside the United States, respectively. United States includes the District of Columbia or a U.S. territory or possession.

(18) "Interstate" means a telecommunications service that originates in one state of the United States, the District of Columbia, or a United States territory or possession, and terminates in a different state of the United States, the District of Colombia, or a United States territory or possession.

(19) "Intrastate" means a telecommunications service that originates in one state of the United States, the District of Colombia, or a United States territory or possession, and terminates in the same state of the United States, the District of Colombia, or a United States territory or possession.

(20) "Mobile telecommunications service" has the same meaning as provided for in Section 124(7) of Public Law 106-252 (Mobile Telecommunications Sourcing Act).

(21) "Mobile wireless service" means a telecommunications service that is transmitted, conveyed or routed regardless of the technology used, whereby the origination and/or termination points of the transmission, conveyance, or routing are not fixed. By way of example only, telecommunications services that are provided by a commercial mobile radio service provider would represent a mobile wireless service.

(22) "Network access service" means the provision by a local exchange telecommunications service provider of the use of its local exchange network by an inter-exchange telecommunications service provider to originate or terminate the inter-exchange telecommunications service provider's traffic carried to or from a distant exchange.

(23) "Outer jurisdictional property" means tangible personal property, such as orbiting satellites, undersea transmission cables and the like, that are owned or rented by the taxpayer and used in a telecommunications service business, but that are not physically located in any particular state.

(24) "Paging service" means a telecommunications service that provides transmission of coded radio signals for the purpose of activating specific pagers; such transmissions may include messages and/or sounds.

(25) "Pay telephone service" means a telecommunications service provided through any pay telephone.

(26) "Place of primary use" means the street address representative of where the customer's use of the telecommunications service primarily occurs, which shall be the residential street address or the primary business street address of the customer. In the case of mobile telecommunications services, place of primary use shall be within the licensed service area of the home service provider.

(27) "Postpaid calling service" means the telecommunications service obtained by making a payment on a call-by-call basis either through the use of a credit card or payment mechanism such as a bank card, travel card, credit card, or debit card, or by charge made to a telephone number which is not associated with the origination or termination of the telecommunications service.

(28) "Prepaid calling service" means the right to access exclusively telecommunications services, which must be paid for in advance and which enables the origination of calls using an access number or authorization code, whether manually or electronically dialed, and that is sold in predetermined units or dollars of which the number declines with use in a known amount.

(29) "Prepaid wireless calling service" means the sale of a telecommunications service that provides the right to utilize mobile wireless service that is sold in predetermined units of dollars of which the number declines with use in a known amount.

(30) "Private communications service" means a telecommunications service that entitles the customer to exclusive or priority use of a communications channel or group of channels between or among termination points, regardless of the manner in which such channel or channels are connected, and includes switching capacity, extension lines, stations, and any other associated services that are provided in connection with the use of such channel or channels.

(31) "Product" means tangible personal property, digital good, or service.

(32) "Service address" means:

(a) The location of the customer's telecommunications equipment, to which the customer's call is charged, and from which the call originates or terminates, regardless of where the call is billed or paid.

(b) If the location in (a) is not known, service address means the origination point of the signal of the telecommunications services first identified by either the seller's telecommunications system or in information received by the seller from its service provider, where the system used to transport such signals is not that of the seller.

(c) If the location in (a) and (b) are not known, the service address means the location of the customer's place of primary use.

(33) "Telecommunications service" means the two-way transmission of voice, image, data, or other information over wire, cable, fiber optics, microwave, radio, satellite, or similar facilities, that originates or terminates in this state.

(a) The term telecommunications service is defined as a broad range of services. The term includes, but is broader than the sum of, the following subcategories: ancillary services as defined in this chapter, related services as defined in 15-53-129(10)(c), MCA and ARM 42.31.501, 800 service, 900 service, fixed wireless service, mobile wireless service, paging service, prepaid calling service, prepaid wireless calling service, private communication service, value-added nonvoice data service, coin-operated telephone service, international telecommunications service, interstate telecommunications service, intrastate telecommunications service, network access service, and pay telephone service.

(b) The term telecommunications service does not include:

(i) data processing and information services that allow data to be generated, acquired, stored, processed, or retrieved and delivered by an electronic transmission to a purchaser where such purchaser's primary purpose for the underlying transaction is the processed data;

(ii) installation or maintenance of wiring or equipment on a customer's premises;

(iii) tangible personal property;

(iv) advertising, including but not limited to directory advertising; and

(v) billing and collection services provided to third parties.

(c) Examples of included and excluded services are:

(i) Example 1 - An entity provides dedicated network service to an entity which will resell that service as intrastate telecommunications service. Both entities are providing a telecommunications service.

(ii) Example 2 - An entity provides an interstate telecommunications service to an internet service provider which will use that service in the provision of internet access service. The entity providing interstate telecommunications service is providing a telecommunications service. The providing of internet access service is not the providing of a telecommunications service.

(iii) Example 3 - An entity primarily engaged in the provision of cable television provides an interstate telecommunications service. The entity is engaged in the provision of telecommunications services.

(34) "Value-added nonvoice data service" means a service that otherwise meets the definition of telecommunications services in which computer processing applications are used to act on the form, content, code, or protocol of the information or data primarily for a purpose other than transmission, conveyance, or routing.

(35) "Vertical service" means an ancillary service that is offered in connection with one or more telecommunications services, which offers advanced calling features that allow customers to identify callers and to manage multiple calls and call connections, including conference bridging services.

(36) "Voice mail service" means an ancillary service that enables the customer to store, send, or receive recorded messages.

(1) Except as specifically modified by the rules in this subchapter, when a person providing telecommunications services generates apportionable income from sources within and outside of Montana, the amount of such apportionable income arising from sources within Montana shall be determined pursuant to Title 15, chapter 31, part 3, MCA, and the supporting administrative rules.

(1) Outer jurisdictional property that is used by a taxpayer when providing telecommunications services shall be excluded from both the numerator and the denominator of the property factor.

(1) Gross receipts from the sale of telecommunications services, other than those defined in (3) through (7), which are sold on a call-by-call basis are in this state when:

(a) the call originates and terminates in this state; or

(b) the call either originates or terminates and the service address is also located in this state.

(2) Gross receipts from the sale of telecommunications services, other than those defined in (3) through (7), which are sold on other than a call-by-call basis, are in this state when the customer's place of primary use is in this state.

(3) Gross receipts from the sale of mobile telecommunications services, other than air-to-ground radiotelephone service and prepaid calling service, are in this state when the customer's place of primary use is in this state pursuant to the Mobile Telecommunications Sourcing Act.

(4) Gross receipts from the sale of prepaid calling service, prepaid wireless calling service and postpaid calling service are in this state when the origination point of the telecommunications signal is first identified in this state by either:

(a) the seller's telecommunications system; or

(b) information received by the seller from its service provider, where the system used to transport such signals is not that of the seller.

(5) Gross receipts from the sale of a private communication service are in this state:

(a) if such service is for a separate charge related to a customer channel termination point, when the customer channel termination point is located in this state;

(b) if under such service all customer termination points are located entirely within one state, when the customer channel termination points are located in this state;

(c) if such service is for segments of a channel between two customer channel termination points located in different states and such segments of channel are separately charged, when one of the customer channel termination points is in this state, provided however that only fifty percent of such gross receipts shall be sourced to this state; and

(d) if such service is for segments of a channel located in more than one state and such segments are not separately billed, when the customer channel termination points are in this state, provided however that only a percentage of such gross receipts, determined by dividing the number of customer channel termination points in the state by the total number of customer channel termination points, are in this state.

(6) A portion of the total gross receipts from sales of telecommunications services to other telecommunications service providers for resale is in this state in an amount determined by multiplying such total gross receipts by a fraction, the numerator of which is total carrier's carrier service revenues for this state and the denominator of which is the sum of total carrier's carrier service revenues for all states in which the taxpayer is doing business, as reported by the Federal Communications Commission in its report titled Telecommunications Revenues by State, Table 15.6, or successor reports which include such information, for the most recent year available as of the due date of the return, determined without regard to extensions.

(7) Gross receipts attributable to the sale of telecommunications services sold as part of a bundled transaction are in this state when such gross receipts would be in this state in accordance with the provisions of (1) through (6).

(a) The amount of gross receipts attributable to the sale of a telecommunications service which is sold as part of a bundled transaction shall be equal to the price charged by the taxpayer for such service when sold separately, adjusted by an amount equal to the quotient of the difference between:

(i) the price charged by the taxpayer for the bundled transaction;

(ii) the sum of the prices charged by the taxpayer for each of the included products when sold separately; and

(iii) the number of products included in the bundled transaction.

(b) If the amount of such gross receipts is not determinable under (a), then it may be determined by reasonable and verifiable standards from taxpayer's books and records that are kept in the regular course of business for purposes including, but not limited to, nontax purposes.

(8) Gross receipts from the sale of telecommunications services which are not taxable in the state to which they would be apportioned pursuant to (1) through (6), shall be excluded from the denominator of the receipts factor.

(1) The rules contained in this subchapter are effective for tax years beginning after December 31, 2011.

The following definitions apply to terms used in this subchapter.

(1) "Billing address" means the location indicated in the books and records of the taxpayer on the first day of the taxable year, or on such later date in the taxable year when the customer relationship began, as the address where any notice, statement, and/or bill relating to a customer's account is mailed.

(2) "Borrower or credit card holder located in this state" means:

(a) a borrower, other than a credit card holder, that is engaged in a trade or business which maintains its commercial domicile in Montana; or

(b) a borrower that is not engaged in a trade or business or a credit card holder whose billing address is in Montana.

(3) "Card issuer's reimbursement fee" means the fee a taxpayer receives from a merchant's bank because one of the persons to whom the taxpayer has issued a credit, debit, or similar type of card has charged merchandise or services to the card.

(4) "Commercial domicile" means:

(a) the headquarters of the trade or business, that is, the place from which the trade or business is principally managed and directed; or

(b) if a taxpayer is organized under the laws of a foreign country, or of the Commonwealth of Puerto Rico, or any territory or possession of the United States, such taxpayer's commercial domicile shall be deemed for the purposes of the rules in ARM Title 42, chapter 26, subchapter 13 to be the state of the United States or the District of Columbia from which such taxpayer's trade or business in the United States is principally managed and directed. It shall be presumed, subject to rebuttal, that the location from which the taxpayer's trade or business is principally managed and directed is the state of the United States or the District of Columbia to which the greatest number of employees are regularly connected or out of which they are working, irrespective of where the services of such employees are performed, as of the last day of the taxable year.

(5) "Credit card" means a card, or other means of providing information, that entitles the holder to charge the cost of purchases, or a cash advance, against a line of credit.

(6) "Debit card" means a card, or other means of providing information, that enables the holder to charge the cost of purchases, or a cash withdrawal, against the holder's bank account or a remaining balance on the card.

(7) "Employee" means, with respect to a particular taxpayer, any individual who, under the usual common-law rules applicable in determining the employer-employee relationship, has the status of an employee of that taxpayer.

(8) "Financial institution" means:

(a) any corporation or other business entity registered under state law as a bank holding company or registered under the Federal Bank Holding Company Act of 1956, as amended, or registered as a savings and loan holding company under the Federal National Housing Act, as amended;

(b) a national bank organized and existing as a national bank association pursuant to the provisions of the National Bank Act, 12 U.S.C. sections 21 et seq.;

(c) a savings association or federal savings bank as defined in the Federal Deposit Insurance Act, 12 U.S.C. section 1813(b)(1);

(d) any bank or thrift institution incorporated or organized under the laws of any state;

(e) any corporation organized under the provisions of 12 U.S.C. sections 611 through 631;

(f) any agency or branch of a foreign depository as defined in 12 U.S.C. section 3101;

(g) any corporation whose voting stock is more than fifty percent owned, directly or indirectly, by any person or business entity described in (a) through (f) above other than an insurance company;

(h) a corporation or other business entity that derives more than fifty percent of its total gross income for financial accounting purposes from finance leases. For purposes of the rules in ARM Title 42, chapter 26,  subchapter 13, a "finance lease" shall mean any lease transaction which is the functional equivalent of an extension of credit and that transfers substantially all of the benefits and risks incident to the ownership of property. The phrase shall include any "direct financing lease" or "leverage lease" that meets the criteria of Financial Accounting Standards Board Statement No. 13, "Accounting for Leases," or any other lease that is accounted for as a financing by a lessor under generally accepted accounting principles. For this classification to apply:

(i) the average of the gross income in the current tax year and immediately preceding two tax years must satisfy the more than fifty percent requirement; and

(ii) gross income from incidental or occasional transactions shall be disregarded; or

(i) any other person or business entity, other than an insurance company, a real estate broker, or a securities dealer which derives more than fifty percent of its gross income from activities that a person described in (b), (g), or (h) above.

(9) "Loan" means any extension of credit resulting from direct negotiations between the taxpayer and its customers, and/or the purchase, in whole or in part, of such extension of credit from another. Loans include participations, syndications, and leases treated as loans for federal income tax purposes. Loans shall not include: futures or forward contracts; options; notional principal contracts such as swaps; credit card receivables, including purchased credit card relationships; non-interest bearing balances due from depository institutions; cash items in the process of collection; federal funds sold; securities purchased under agreements to resell; assets held in a trading account; securities; interests in a REMIC, or other mortgage backed or asset backed security; and other similar items.

(10) "Loan secured by real property" means that fifty percent or more of the aggregate value of the collateral used to secure a loan or other obligation, when valued at fair market value as of the time the original loan or obligation was incurred, was real property.

(11) "Merchant discount" means the fee (or negotiated discount) charged to a merchant by the taxpayer for the privilege of participating in a program whereby a credit, debit, or similar type of card is accepted in payment for merchandise or services sold to the card holder, net of any card holder charge-back and unreduced by any interchange transaction or issuer reimbursement fee paid to another for charges or purchases made by its card holder.

(12) "Participation" means an extension of credit in which an undivided ownership interest is held on a pro rata basis in a single loan or pool of loans and related collateral. In a loan participation, the credit originator initially makes the loan and then subsequently resells all or a portion of it to other lenders. The participation may or may not be known to the borrower.

(13) "Person" means an individual, estate, trust, partnership, corporation, or any other business entity.

(14) "Principal base of operation" with respect to transportation property means the place of more or less permanent nature from which said property is regularly directed or controlled. With respect to an employee, the "principal base of operations" means the place of more or less permanent nature from which the employee regularly starts his or her work and to which he or she customarily returns in order to receive instructions from his or her employer; or communicates with his or her customers or other persons; or performs any other functions necessary to the exercise of his or her trade or profession at some other point or points.

(15) "Regular place of business" means an office at which the taxpayer carries on its business in a regular and systematic manner and which is continuously maintained, occupied, and used by employees of the taxpayer.

(16) "State" means a state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States, or any foreign country.

(17) "Syndication" means an extension of credit in which two or more persons fund and each person is at risk only up to a specified percentage of the total extension of credit or up to a specified dollar amount.

(18) "Transportation property" means vehicles and vessels capable of moving under their own power, such as aircraft, trains, water vessels, and motor vehicles, as well as any equipment or containers attached to such property, such as rolling stock, barges, trailers, or the like.

(1) Except as specifically modified by the administrative rules in this subchapter, a financial institution whose business activity is taxable both within and without Montana shall allocate and apportion its net income as provided in Title 15, chapter 31, part 3, MCA, and the supporting administrative rules located in ARM Title 42, chapter 26.

(1) The receipts factor is a fraction, the numerator of which is the receipts of the taxpayer in Montana during the taxable year and the denominator of which is the receipts of the taxpayer within and without Montana during the taxable year. The method of calculating receipts for purposes of the denominator is the same as the method used in determining receipts for purposes of the numerator. The receipts factor shall include only those receipts described herein which constitute apportionable income and are included in the computation of the apportionable income base for the taxable year.

(2) Interest, fees, and penalties imposed in connection with loans secured by real property.

(a) The numerator of the receipts factor includes interest, fees, and penalties imposed in connection with loans secured by real property if the property is located within Montana. If the property is located both within Montana and one or more other states, the receipts described in this subsection are included in the numerator of the receipts factor if more than fifty percent of the fair market value of the real property is located within Montana. If more than fifty percent of the fair market value of the real property is not located within any one state, then the receipts described in this subsection shall be included in the numerator of the receipts factor if the borrower is located in Montana.

(b) The determination of whether the real property securing a loan is located within Montana shall be made as of the time the original agreement was made and any and all subsequent substitutions of collateral shall be disregarded.

(3) Interest, fees, and penalties imposed in connection with loans not secured by real property. The numerator of the receipts factor includes interest, fees, and penalties imposed in connection with loans not secured by real property if the borrower is located in Montana.

(4) Net gains from the sale of loans. The numerator of the receipts factor includes net gains from the sale of loans. Net gains from the sale of loans includes income recorded under the coupon stripping rules of Section 1286 of the Internal Revenue Code.

(a) The amount of net gains (but not less than zero) from the sale of loans secured by real property included in the numerator is determined by multiplying such net gains by a fraction the numerator of which is the amount included in the numerator of the receipts factor pursuant to (2) above, and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans secured by real property.

(b) The amount of net gains (but not less than zero) from the sale of loans not secured by real property included in the numerator is determined by multiplying such net gains by a fraction the numerator of which is the amount included in the numerator of the receipts factor pursuant to (5) below, and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans not secured by real property.

(5) Receipts from fees, interest, and penalties charged to card holders. The numerator of the receipts factor includes fees, interest, and penalties charged to credit, debit, or similar card holders, including but not limited to annual fees and overdraft fees, if the billing address of the card holder is in Montana.

(6) Net gains from the sale of credit card receivables. The numerator of the receipts factor includes net gains (but not less than zero) from the sale of credit card receivables multiplied by a fraction, the numerator of which is the amount included in the numerator of the receipts factor pursuant to (5) above, and the denominator of which is the taxpayer's total amount of interest and fees or penalties in the nature of interest from credit card receivables and fees charged to card holders.

(7) Card issuer's reimbursement fees. The numerator of the receipts factor includes:

(a) All credit card issuer's reimbursement fees multiplied by a fraction, the numerator of which is the amount of fees, interest, and penalties charged to credit card holders included in the numerator of the receipts factor pursuant to (5) above, and the denominator of which is the taxpayer's total amount of fees, interest, and penalties charged to credit card holders.

(b) All debit card issuer's reimbursement fees multiplied by a fraction, the numerator of which is the amount of fees, interest, and penalties charged to debit card holders included in the numerator of the receipts factor pursuant to (5) above, and the denominator of which is the taxpayer's total amount of fees, interest, and penalties charged to debit card holders.

(c) All other card issuer's reimbursement fees multiplied by a fraction, the numerator of which is the amount of fees, interest, and penalties charged to all other card holders included in the numerator of the receipts factor pursuant to (5) above, and the denominator of which is the taxpayer's total amount of fees, interest, and penalties charged to all other card holders.

(8) Receipts from merchant discount.

(a) If the taxpayer can readily determine the location of the merchant and if the merchant is in Montana, the numerator of the receipts factor includes receipts from the merchant discount.

(b) If the taxpayer cannot readily determine the location of the merchant, the numerator of the receipts factor includes such receipts from the merchant discount multiplied by a fraction:

(i) in the case of a merchant discount related to the use of a credit card, the numerator of which is the amount of fees, interest, and penalties charged to credit card holders that is included in the numerator of the receipts factor pursuant to (5) above, and the denominator of which is the taxpayer's total amount of fees, interest, and penalties charged to credit card holders; and

(ii) in the case of a merchant discount related to the use of a debit card, the numerator of which is the amount of fees, interest, and penalties charged to debit card holders that is included in the numerator of the receipts factor pursuant to (5) above, and the denominator of which is the taxpayer's total amount of fees, interest, and penalties charged to debit card holders.

(c) The taxpayer's method for sourcing each receipt from a merchant discount must be consistently applied to such receipt in all states that have adopted sourcing methods substantially similar to (a) and (b) above, and must be used on all subsequent return for sourcing receipts from such merchant unless the department permits or requires application of the alternative method.

(9) Receipts from ATM fees. The receipts factor includes all ATM fees that are not forwarded directly to another bank.

(a) The numerator of the receipts factor includes fees charged to a card holder for the use at an ATM of a card issued by the taxpayer if the card holder's billing address is in Montana.

(b) The numerator of the receipts factor includes fees charged to a card holder, other than the taxpayer's card holder, for the use of such card at an ATM owned or rented by the taxpayer, if the ATM is in Montana.

(10) Loan servicing fees.

(a) The numerator of the receipts factor includes loan servicing fees derived from loans secured by real property multiplied by a fraction the numerator of which is the amount included in the numerator of the receipts factor pursuant to (2) above, and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans secured by real property.

(b) The numerator of the receipts factor includes loan servicing fees derived from loans not secured by real property multiplied by a fraction the numerator of which is the amount included in the numerator of the receipts factor pursuant to (3) above, and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans not secured by real property.

(c) In circumstances in which the taxpayer receives loan servicing fees for servicing either the secured or the unsecured loans of another, the numerator of the receipts factor shall include such fees if the borrower is located in Montana.

(11) Receipts from the financial institution's investment assets and activity and trading assets and activity.

(a) Interest, dividends, net gains (but not less than zero), and other income from investment assets and activities and from trading assets and activities that are reported on the taxpayer's financial statements, call reports, or similar reports shall be included in the receipts factor. Investment assets and activities and trading assets and activities include but are not limited to: investment securities; trading account assets; federal funds; securities purchased and sold under agreements to resell or repurchase; options; futures contracts; forward contracts; notional principal contracts such as swaps; equities; and foreign currency transactions. With respect to the investment and trading assets and activities described in (i) and (ii) below, the receipts factor shall include the amounts described.

(i) The receipts factor shall include the amount by which interest from federal funds sold and securities purchased under resale agreements exceeds interest expense on federal funds purchased and securities sold under repurchase agreements.

(ii) The receipts factor shall include the amount by which interest, dividends, gains, and other income from trading assets and activities, including but not limited to assets and activities in the matched book, in the arbitrage book, and foreign currency transactions, exceed amounts paid in lieu of interest, amounts paid in lieu of dividends, and losses from such assets and activities.

(b) The numerator of the receipts factor includes interest, dividends, net gains (but not less than zero), and other income from investment assets and activities and from trading assets and activities described in (a) above, that are attributable to Montana.

(i) The amount of interest, dividends, net gains (but not less than zero), and other income from investment assets and activities in the investment account to be attributed to Montana and included in the numerator is determined by multiplying all such income from such assets and activities by a fraction, the numerator of which is the average value of such assets which are properly assigned to a regular place of business of the taxpayer within Montana, and the denominator of which is the average value of all such assets.

(ii) The amount of interest from federal funds sold and purchased and from securities purchased under resale agreements and securities sold under repurchase agreements attributable to Montana and included in the numerator is determined by multiplying the amount described in (a)(i) above, from such funds and such securities by a fraction, the numerator of which is the average value of federal funds sold and securities purchased under agreements to resell which are properly assigned to a regular place of business of the taxpayer within Montana and the denominator of which is the average value of all such funds and such securities.

(iii) The amount of interest, dividends, gains, and other income from trading assets and activities, including but not limited to assets and activities in the matched book, in the arbitrage book, and foreign currency transactions (but excluding amounts described in (i) and (ii) above, attributable to Montana and included in the numerator is determined by multiplying the amount described in (a)(ii) above, by a fraction, the numerator of which is the average value of such trading assets which are properly assigned to a regular place of business of the taxpayer within Montana and the denominator of which is the average value of all such assets.

(iv) For purposes of this section, average value shall be determined using the rules for determining the average value of tangible personal property set forth in 15-31-307, MCA.

(c) In lieu of using the method set forth in (b) above, the taxpayer may elect, or the department may require in order to fairly represent the business activity of the taxpayer in Montana, the use of the method set forth in this subsection.

(i) The amount of interest, dividends, net gains (but not less than zero), and other income from investment assets and activities in the investment account to be attributed to Montana and included in the numerator is determined by multiplying all such income from such assets and activities by a fraction, the numerator of which is the gross income from such assets and activities which are properly assigned to a regular place of business of the taxpayer within Montana and denominator of which is the gross income from all such assets and activities.

(ii) The amount of interest from federal funds sold and purchased and from securities purchased under resale agreements and securities sold under repurchase agreements attributable to Montana and included in the numerator is determined by multiplying the amount described in (a)(i) above, from such funds and such securities by a fraction, the numerator of which is the gross income from such funds and such securities which are properly assigned to a regular place of business of the taxpayer within Montana and denominator of which is the gross income from all such funds and such securities.

(iii) The amount of interest, dividends, gains, and other income from trading assets and activities, including but not limited to assets and activities in the matched book, in the arbitrage book, and foreign currency transactions (but excluding amounts described in (c)(i) and (c)(ii) above), attributable to Montana and included in the numerator is determined by multiplying the amount described in (a)(ii) by a fraction, the numerator of which is the gross income from such trading assets and activities which are properly assigned to a regular place of business of the taxpayer within Montana and the denominator of which is the gross income from all such assets and activities.

(d) If the taxpayer elects or is required by the department to use the method set forth in subsection (c) above, it shall use this method on all subsequent returns unless the taxpayer receives prior permission from the department to use, or the department requires, a different method.

(e) The taxpayer shall have the burden of proving that an investment asset or activity or trading asset activity was properly assigned to a regular place of business outside of Montana by demonstrating that the day-to-day decisions regarding the asset or activity occurred at a regular place of business outside Montana. Where the day-to-day decisions regarding an investment asset or activity or trading asset or activity occur at more than one regular place of business and one such regular place of business is in Montana and one such regular place of business is outside Montana, such asset or activity shall be considered to be located at the regular place of business of the taxpayer where the investment or trading policies or guidelines with respect to the asset or activity are established. Unless the taxpayer demonstrates to the contrary, such policies and guidelines shall be presumed to be established at the commercial domicile of the taxpayer.

(12) Attribution of certain receipts to commercial domicile. All receipts which would be assigned under this rule to a state in which the taxpayer is not taxable shall be included in the numerator of the receipts factor, if the taxpayer's commercial domicile is in Montana.