BEFORE THE DEPARTMENT OF REVENUE

OF THE STATE OF MONTANA

 

In the matter of the adoption of New Rule I (42.15.329), amendment of ARM 42.15.107, 42.15.108, 42.15.109, 42.15.110, 42.15.112, 42.15.119, 42.15.120, 42.15.204, 42.15.205, 42.15.206, 42.15.213, 42.15.214, 42.15.215, 42.15.216, 42.15.217, 42.15.218, 42.15.219, 42.15.220, 42.15.221, 42.15.222, 42.15.301, 42.15.303, 42.15.310, 42.15.312, 42.15.315, 42.15.316, 42.15.317, 42.15.318, 42.15.319, 42.15.320, 42.15.321, 42.15.322, 42.15.325, 42.15.326, 42.15.327, 42.15.328, 42.15.401, 42.15.402, 42.15.403, 42.15.407, 42.15.414, 42.15.427, 42.15.510, 42.15.523, 42.15.524, 42.15.525, 42.15.526, 42.15.601, 42.15.602, 42.15.603, 42.15.604, 42.15.605, 42.15.802, 42.15.803, 42.15.804, 42.15.805, 42.15.806, 42.15.807, 42.15.903, 42.15.906, relating to individual income taxes

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NOTICE OF ADOPTION AND AMENDMENT

 

TO:  All Concerned Persons

 

1.  On March 11, 2010, the department published MAR Notice No. 42-2-820 regarding the proposed adoption and amendment of the above-stated rules at page 614 of the 2010 Montana Administrative Register, issue no. 5.

 

2.  A public hearing was held on March 31, 2010, to consider the proposed adoption and amendment.  No one appeared at the hearing to testify and no public comments were received either at the hearing or by the close of comment date.

 

            3.  The department proposes additional amendments as shown below to ARM 42.15.112 to reflect the recently enacted Military Spouses Residency Relief Act and to correct an inconsistency within the example in ARM 42.15.119 (3)(c).

 

42.15.112  NONRESIDENT MILITARY PERSONNEL  (1)  A nonresident member of the United States armed forces who is living in this state solely by reason of compliance with military orders does not become a Montana resident solely by reason of being present in this state in compliance with military orders and their compensation for military service is not Montana source income.  Starting in 2009, some nonresident spouses who move to Montana solely to be with that nonresident serviceperson are also allowed to retain their home residence or "domicile" and, subject to certain rules and limitations described in (6), their wage and other personal services income is not Montana source income.

(2) through (5)(e) remain the same.

(6)  Retroactive to the beginning of calendar year 2009, the Military Spouses Residency Relief Act, Public Law No. 11197 (MSRRA), enacted special rules that affect how Montana and other states tax the wage and other personal service income earned by nonmilitary spouses (for simplicity, the term "wages" will be used to describe all personal services income).

(a)  If a military serviceperson and nonmilitary spouse are residents of the same state (the "home state"), when the nonmilitary spouse moves to Montana solely to be with the military spouse who is serving in Montana in compliance with military orders MSRRA allows the nonmilitary spouse to remain a resident of the home state.  If that nonmilitary spouse does remain a resident of the home state, only the home state may tax the nonmilitary spouse's wages.  Wages earned in Montana that are sourced to the home state are not Montana source income.

(b)  Qualified nonmilitary spouses must claim an annual exemption from wage withholding by completing Form MSR – Employee Certificate of Status under the Military Spouses Residency Relief Act.

(c)  If and when a nonmilitary spouse no longer meets the requirements of MSRRA, their wages are sourced to Montana as provided in 15-30-2101, MCA.  The following events disqualify the nonmilitary spouse's wages for special treatment under MSRRA:

(i)  the military spouse leaves the military;

(ii) the nonmilitary spouse becomes a resident of Montana;

(iii)  the marriage to the military spouse terminates; and

(iv)  physical separation due to a duty change when the military spouse's orders move them outside Montana and their spouse is allowed to join them but chooses not to.

 

AUTH: 15-30-2620, MCA

IMP: 15-30-2101, MCA

 

            42.15.219  PENSION AND ANNUITY INCOME EXCLUSION  (1) and (2) remain the same.

            (3)  When married taxpayers file separately, each spouse's exclusion and phase-out are computed independently and a spouse's exclusion begins to be phased out only when his or her federal adjusted gross income exceeds the amount allowed in (1)(a).  Examples for tax years beginning before January 1, 2010, are:

            (a)  Jane, a single taxpayer has federal adjusted gross income of $20,000 which is made up of $5,000 of pension income and $15,000 of other income.  Her pension and annuity exclusion for Montana purposes is $3,600.

            (b)  Frank and Edith, a married couple, file a joint income tax return and both receive pension and annuity income. Frank's taxable pension included in federal adjusted gross income is $5,600.  Edith's taxable pension included in federal adjusted gross income is $2,000.  Their combined federal adjusted gross income is $25,000.  Their Montana pension and annuity exclusion is $5,600 (the maximum $3,600 for Frank and the full taxable amount of $2,000 for Edith).  Even though their combined federal adjusted gross income is below $30,000, Edith is not entitled to a $3,600 pension exclusion as the exclusion is limited to her taxable pension of $2,000.

            (c)  John, a single taxpayer, has federal adjusted gross income of $31,000.  This consists of $8,000 7,000 of taxable pension income and $24,000 of other income.  John's Montana pension exclusion is $1,600.  ($3,600 - (($31,000 - $30,000) x 2)).

            (d)  John and Barbara, a married couple, file a joint income tax return and both report federal taxable pension income.  John's federal taxable pension is $5,600 and Barbara's federal taxable pension income is $3,000.  Their combined federal adjusted gross income is $33,000.  Their combined Montana pension and annuity exclusion is $600.  ($6,600 - (($33,000 - $30,000) x 2)).

 

            AUTH: 15-30-2620, MCA

            IMP: 15-30-2110, MCA

 

4.  Therefore the department amends ARM 42.15.112 and 42.15.219 with the amendments listed above, adopts New Rule I (42.15.329), and amends ARM 42.15.107, 42.15.108, 42.15.109, 42.15.110, 42.15.112, 42.15.119, 42.15.120, 42.15.204, 42.15.205, 42.15.206, 42.15.213, 42.15.214, 42.15.215, 42.15.216, 42.15.217, 42.15.218, 42.15.219, 42.15.220, 42.15.221, 42.15.222, 42.15.301, 42.15.303, 42.15.310, 42.15.312, 42.15.315, 42.15.316, 42.15.317, 42.15.318, 42.15.319, 42.15.320, 42.15.321, 42.15.322, 42.15.325, 42.15.326, 42.15.327, 42.15.328, 42.15.401, 42.15.402, 42.15.403, 42.15.407, 42.15.414, 42.15.427, 42.15.510, 42.15.523, 42.15.524, 42.15.525, 42.15.526, 42.15.601, 42.15.602, 42.15.603, 42.15.604, 42.15.605, 42.15.802, 42.15.803, 42.15.804, 42.15.805, 42.15.806, 42.15.807, 42.15.903, 42.15.906 as proposed.

 

5.  An electronic copy of this adoption notice is available through the department's site on the World Wide Web at www.mt.gov/revenue, under "for your reference"; "DOR administrative rules"; and "upcoming events and proposed rule changes."  The department strives to make the electronic copy of this adoption notice conform to the official version of the notice, as printed in the Montana Administrative Register, but advises all concerned persons that in the event of a discrepancy between the official printed text of the notice and the electronic version of the notice, only the official printed text will be considered.  In addition, although the department strives to keep its web site accessible at all times, concerned persons should be aware that the web site may be unavailable during some periods, due to system maintenance or technical problems.

 

 

/s/ Cleo Anderson                                         /s/ Dan R. Bucks

CLEO ANDERSON                                      DAN R. BUCKS

Rule Reviewer                                               Director of Revenue

 

Certified to Secretary of State April 19, 2010