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Montana Adjustment Details and Codes

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Montana Adjustment Details and Codes

Montana Additions – Codes

CodeDefinition
AAInterest and mutual fund dividend income that the entity received from bonds and obligations of another state, territory or political subdivision of another state (county, municipality, district, etc.)
ABState, local and foreign income taxes based on income or profits
ACTaxes paid by the S corporation on its federal Form 1120S that resulted in a reduction of federal taxable income (e.g., built-in gains tax)
ADRecoveries:
To the extent that a Montana subtraction for business deduction you claimed on one of your previous Montana returns reduced the amount of your Montana income tax liability, any subsequent refund of the amount
AEAddition for Dependent Care Assistance Credit adjustment:
If you claimed business expenses for providing dependent care assistance and now are claiming the Montana Dependent Care Assistance Credits on behalf of your owners, you must add the amount of the dependent care assistance expenses used to calculate your Montana Dependent Care Assistance credits on Montana Form DCAC as an addition.
AFFarm and Ranch Risk Management Account taxable distributions:
If you are a family farm corporation, a distribution from your Montana Farm and Ranch Risk Management Account is taxable in either of the following situations:
  • The distribution is from a fund that was previously excluded from Montana Adjusted Gross Income as a Farm and Ranch Risk Management Account deposit; or
  • The distribution was not distributed within five years from the date the original deposit was made.
Refer to Montana Form FRM for detailed instructions. Report your Montana Farm and Ranch Risk Management Account taxable distributions as an addition to your Federal Adjusted Gross Income. Add any statement that your shareholders would need to complete their return and apply the penalty in case of a late distribution.
AGTitle plant depreciation and amortization:
If you are taking a federal deduction for depreciation and amortization on a title plant, you must add back to your Federal Adjusted Gross Income the amount of this depreciation and amortization when you determine your Montana Adjusted Gross Income.
AHOther additions:
Any other additions to income that must be included for Montana tax purposes.

Montana Subtraction Codes

Do not include separately stated deductions that are subject to an election or limitation on a partner’s income tax return (e.g., depletion from oil and gas).

CodeDescription
SAInterest on United States government obligations and mutual fund dividends attributable to that interest:

The entity can subtract these amounts from total federal income as long as they are included on Form PTE, line 12. Interest on obligations that are only guaranteed by the United States government is not tax exempt. If the entity received interest or mutual fund dividends attributable to Government National Mortgage Association (Ginnie Mae) bonds, Federal National Mortgage Association (Fannie Mae) bonds or Federal Home Loan Mortgage Corporation (FHLMAC) securities, a pass-through entity cannot subtract the interest or mutual fund dividends.

United States obligations that are exempt include:
Series E, EE, F, G and H savings bonds

  • U.S. treasury bills

  • U.S. government notes

  • U.S. government certificates


Refer to a pass-through entity’s federal Form 1099-DIV to determine what percentage of the dividends qualify for an exemption from Montana individual income tax.
SBBusiness-related expenses for purchasing recycled material:

Deduct an additional amount equal to 10% of the expenditures for the purchase of qualified recycled material that was otherwise deductible as business-related expenses in Montana, as computed on Montana Form RCYL, Part V. Form RCYL must be included with the tax return if the entity files a paper return. If the entity files electronically, the entity represents that it has a copy in its records.
SCBusiness expenses not deducted due to an existing federal credit:

If you incurred a business expense which was disallowed because you claimed a federal credit, you can deduct this business expense for Montana tax purposes. This subtraction includes wages deduction reduced by federal targeted jobs credit or the credit for the portion of employer Social Security taxes paid with respect to employee cash tips.

Do not include any recoveries of capital expenditures through depreciation, depletion and amortization. Depreciation, depletion or amortization deductions must be the same for federal and Montana income tax purposes.
SDCertain expenses incurred by medical marijuana providers:

If you are a medical marijuana provider registered in the state of Montana, you can subtract on this line your ordinary and necessary business expenses typically disallowed under IRC 280E.

Under IRC 280E, providers are generally not allowed a deduction on their federal return for business expenses associated with the production and sale of marijuana other than those directly related to the cost of manufacturing the
SESales of Land to Beginning Farmers:

You can subtract 100 percent of your income or capital gain (up to a maximum of $50,000) that you recognized from the sale of at least 80 acres or more of land to a beginning farmer at 9 percent or less interest on a long-term contract. To qualify for this deduction, you need to apply to and be approved by the Agricultural Loan Authority of the Montana Department of Agriculture. You need to include a copy of this approval with your individual income tax return.

Learn more about the Montana Beginning Farm or Ranch Loan Program.
SFCapital gains from SBICs:

If you have capital gains or dividend income from an investment in a small business investment company (SBIC) included in your Federal Adjusted Gross Income, you can exempt these capital gains or dividends if all of the following conditions are met:

  • The SBIC must be organized with the purpose of diversifying and strengthening employment opportunities of companies in Montana.

  • Within one year of being licensed by the federal Small Business Administration, 75 percent of the SBIC’s investments must be in manufacturing or timber companies located in Montana.

  • The SBIC’s manufacturing and timber companies have at least 50 percent of their employees working in Montana.
SGCertain gains recognized by a liquidating corporation:

You can subtract that portion of your gain from the liquidation of a reporting corporation to the extent that this gain is included in the gross income of the liquidating corporation’s Montana corporate income tax return from your Federal Adjusted Gross Income.
SHFarm and Ranch Risk Management Account deposits:

You can subtract any deposits you made into a Farm and Ranch Risk Management Account equal to the lesser of 20 percent of the net income that is attributable to your agricultural business or $20,000. This account is designed to be used as a risk management tool for your individual or family farm corporation’s agricultural business. It is established as a Montana trust with your financial institution as the trustee.

Amounts that you contributed to your Farm and Ranch Risk Management Account that were excluded from your Montana Adjusted Gross Income in prior years are taxable to you and should be included in your Montana Adjusted Gross Income when you distribute your funds. Amounts that you contributed to your Farm and Ranch Risk Management Account that are not distributed before the last business day on the fifth year from the date that this contribution was deposited are considered distributed and are assessed a 10 percent penalty on the amount of tax resulting from the Farm and Ranch Risk Management Account principal.

For further instructions about the Montana Farm and Ranch Risk Management Account, see Montana Form FRM. When you claim this exclusion, include a copy of Form FRM with your Montana tax return.
SIDonation of mineral exploration information to the Montana Tech Foundation:

If you received a Montana Schedule K-1 showing a deduction, or you incurred the expense yourself, for the donation of mineral exploration information to the Montana Tech Foundation within the limitations of 15-32-510, MCA, you can subtract the amount on this line.
SJGain on eligible sale of mobile home park:

If you were the owner of a mobile home park and you sold the park to a tenants’ or mobile home park residents’ association, a 501(c)(3) organization or a county or municipal housing authority, you may be able to subtract all or a portion of the gain you recognized. Complete Montana Form MHPE to determine the amount of the exclusion.
SKContributions made by a small business to its independent liability fund. (33-27-117, MCA)
SLPortion of an investment made in a building for the purpose of conserving energy:

To qualify, the building has to be used in a pass-through entity’s business and the result of the investment must be a substantial reduction in the amount of energy needed to render the building usable. See 15-32-103, MCA.

Pass-Through Entity Tax Credits

A tax credit claimed by a pass-through entity is passed through to its owners.

The pass-through entity identifies how much credit is available to each owner on Montana Schedule K-1. It provides a copy of the Montana Schedule K-1 and a copy of the credit form that was used to calculate the credit to each owner.

Owners determine any necessary limitations when reporting the credit on their tax returns.

Income tax credits cannot be taken as a credit against composite tax reported on the Montana Pass-Through Entity Tax Return (Form PTE).

Unused credits may not be redistributed to other owners. For example, if the ownership of the pass-through entity consists of a resident owner and a nonresident owner, the nonresident owner’s share of a credit could not be claimed by the resident owner even though the nonresident owner is not eligible to use it.

If a pass-through entity is eligible for a credit, include the appropriate form with the tax return. If a pass-through entity files electronically, it represents that it kept a copy in a pass-through entity’s records and will provide a copy to the department if requested.

Learn more about income tax credits available in Montana.

Montana Source Income

Montana source income includes but is not limited to any income, gains, losses, or credits from:

  • Work or services performed in Montana
  • Products sold to Montana customers
  • Selling, renting, or leasing property in Montana

If a business receives income from another pass-through entity, any Montana source income that entity passes-through counts as Montana source income.

Please Note:

Resident inviduals, estates, and trusts are taxed on their world-wide income. Therefore, they include a pass-through entities entire income as Montana source income.

Montana Source Income from Activities in Montana

An entity may earn Montana source income from activities carried out inside or outside Montana.

Only in Montana
If you are doing business only in Montana, all your income is Montana source income.
In and Out of Montana

If you do business both inside and outside Montana, your Montana source income includes:

  • The apportionable income apportioned to Montana
  • The non-apportionable income allocated to Montana
  • All Montana source income passed through from another entity

With some exceptions, states are prohibited from imposing income tax on businesses whose only activity in that state is the sale of tangible personal products. Please refer to ARM 42.26.501 and Public Law 86-272 for more information on what business activities are taxable versus non-taxable.

If a business is required to file a return in Montana, the business is said to have nexus in Montana.

The Nexus Questionnaire (Form NEXUS) can be used to help determine if a business has nexus in Montana.

Allocating and Appropriating Income to Montana

Montana has adopted sections of the Multistate Tax Compact guidelines for determining what share of your business income is reportable to Montana.

See ARM Title 42, Chapter 9 and Chapter 26 for more details.

Please Note:

If these rules do not fairly respresent a business’s activity in Montana, it may petition the department to use an alternate method such as separate accounting, excluding one or more factors, or including additional factors.

This petition must be filed before the entity files its first Montana return.

See 15-31-3 and 15-1-6, MCA.

Apportionable Income

Apportionable income is determined using a transactional test and a functional test. These tests do not depend on the type of income, but if the income is derived by the entity’s trade or business.

This determination is done at the entity level and ignores how the income is treated on on the owner’s return. As a result, dividend and interest income used to apply the passive loss limitation rules under IRC § 469 on the owner’s return has not effect on classification:

Interest
Interest income is apportionable if the source of the interest came from, or was created by, the regular course of the taxpayer’s trade or business operations.
Dividends
Dividends are apportionable income if derived from stocks acquired in the regular course of the taxpayer’s trade or business operations.
If the entity regularly engages in the ownership, sale, or other disposition of investments and as part of the ordinary course of business, then the income arising from such transactions is presumptively apportionable income.
Property Sales
Gain or loss from the sale, exchange, or other disposition of real, tangible, or intangible personal property is apportionable income if it was used in the taxpayer’s trade or business while owned by the taxpayer or was included in the apportionment factor.
Rental Income
Rental income from real and tangible property is apportionable if the property the entity rents and receives income on is used in the entity’s trade or business, is incidental to the trade or business, or includable in the property factor.

See ARM 42.9 and 42.26 for more information.

Apportionment Factors

Income is apportioned to the state using three equally weighted factors.

Property Factor

The property factor is a fraction determined by the average values of real and tangible property owned, leased, or rented by the entity.

Find the factor by dividing the average value of property in Montana used to produce apportionable income during the tax period by the average value of all property used to produce apportionable income during the tax period.

\text{Property Factor} = \frac{\text{Montana Property Value}}{\text{Total Property Value}}

See ARM 42.26.231 and 42.26.237 for more information.

Property owned by the pass-through entity is valued at its original cost.

Real and tangible personal property used in the course of business includes:

  • land,
  • buildings,
  • machinery,
  • equipment,
  • stocks of goods,
  • inventories, or
  • any other tangible property actually used in connection with the production of apportionable income.

It does not include money, accounts receivable, other intangible property, real property that is held for investment or nonbusiness purposes or idle property of any nature.

Migratory or mobile property used in Montana must be included in both average property values.

Unless otherwise required, the average value of owned property is determined by averaging the values at the beginning and end of the tax period.

Rented property is valued at eight times the net annual rental rate. Rental expense cannot be averaged and the current year’s rental expense must be used in the property factor.

Payroll Factor

The payroll factor is determined by the amount paid for compensation attributable to the production of apportionable income during the tax period.

Find the factor by dividing the compensation paid in Montana by the total compensation.

\text{Payroll Factor} = \frac{\text{Montana Compensation}}{\text{Total Compensation}}

See ARM 42.26.241, 42.26.243 and 42.26.244 for more information.

Payroll is considered paid in Montana if:

  • the base of operations is in Motnana;
  • there is no base of operations and the place from which the service is controlled is in Montana; or
  • the base of operations or place of controll is not in Montana, but the person providing the service is in Montana.

Receipts Factor

The receipts factor is determined by the income from selling tangible personal property during the tax period.

Find the factor by dividing the total gross receipts received in Montana by the total of all gross receipts received by the entity.

\text{Receipts Factor} = \frac{\text{Montana Receipts}}{\text{Total Receipts}}

Assigning receipts:

  • Receipts from selling tangible personal property are in Montana if the property is delivered or shipped to a purchaser in Montana other than the United States government, or the property is shipped from Montana and the pass-through entity is not taxable in the purchaser’s state.
  • Beginning January 1, 2018, receipts other than from the sale of tangible personal property must be assigned based on the entity’s market. (ARM 42.26.245 through 42.26.250)

Allocation of Nonapportionable Income

Nonapportionable income means all income other than apportionable income.

More specifically nonapportionable income is income for which both the transactional test and the functional test failed.

Nonapportionable income is allocated to Montana depending on its character and the facts attached to the income.

For income determined to be nonapportionable, the following are examples of items that must be allocated to Montana:

  • Net rents and royalties from real property located in Montana.
  • Net rents and royalties from tangible personal property if and to the extent the property is utilized in Montana, or the entire net rent or royalty if the entity’s commercial domicile is in Montana and the entity is not organized under the laws of the state in which the property is utilized, and the net rents or royalties are not taxable in that state.
  • Capital gains and losses from sales of real property located in Montana.
  • Capital gains and losses from sales of tangible personal property are allocable to Montana if the property had a situs in Montana at the time of the sale, or the entity’s commercial domicile is in Montana and the capital gains or loss is not taxable in the state in which the property had a situs.
  • Capital gains and losses from sales of intangible personal property if the entity’s commercial domicile is in Montana.
  • Interest and dividends if the entity’s commercial domicile is in Montana.
  • Patent and copyright royalties to the extent that the patent or copyright is utilized by the payer in Montana, or to the extent that the patent or copyright is utilized by the payer in a state in which the patent and copyright dividend is not taxable and the entity’s commercial domicile is in Montana.

A patent is utilized in Montana to the extent that it is employed in production, fabrication, manufacturing, or other processing in Montana or to the extent that a patented product is produced in Montana.

A copyright is utilized in Montana to the extent that printing or other publication originates in Montana.

If the basis of receipts from copyright or patent royalties does not permit allocation to states or if the accounting procedures do not reflect states of utilization, the copyright or patent is utilized in the state in which the taxpayer’s commercial domicile is located.

Pass-through Income

The original entity that generates income determines the state sourcing and characteristic of the income. The type of income and state sourcing stays the same when passed on to another entity.

Montana source income received from another pass-through entity is not included in apportionment and cannot be re-characterized.

The practical consequence is that flow-through income received on Schedules K-1 issued by a first-tier must be separated from the trade or business of a second-tier before this second-tier classifies its items of income from its own trade or business into apportionable income and nonapportionable income. In a second step, the flow-through Montana source income from the first-tier must be added to the Montana source income derived from the second-tier trade or business activities.

See ARM 42.9.107 for more information on how to report income received from another pass-through entity.

Items of Montana source income that are aggregated on the second-tier return determine the basis used for the calculation of withholding or composite tax if required. Thus, income may be offset by a loss derived from activities occurring at another tier.

Please Note:

This does not apply to partnerships and S corporations computing Montana source income in a tiered structure.

However, if one of the direct or indirect owners of a partnership is a C corporation, the operations of the partnership may be unitary with the C corporation.

See Corporate Income Tax for more information.

Guaranteed Payments

Guaranteed payments representing a return of capital are apportionable.

If the guaranteed payment stems from an item of nonapportionable income per the partnership agreement, and this income is allocated to Montana, then the guaranteed payment is Montana source income.

Payments for Services

Payments made to a partner for services are considered nonapportionable income allocable to the state where the services were performed. Guaranteed payments must be included in the calculation of the federal self-employment taxes of the owner to qualify as guaranteed payments made for services rendered.

If any part of the guaranteed payment is compensation a nonresident partner for services performed in Montana, then that portion of guaranteed payment is Montana source income and must be reported on Column II of Montana Schedule K-1. If the guaranteed payment is paid to a resident of Montana for services rendered, the entire guaranteed payment is Montana source income and must be reported on Column I.

See ARM 42.9.303 for more information about sourcing guaranteed payments.

Disregarded Entities

In general, disregarded entities must follow the same sourcing rules used by partnership and S corporations. However, because of the disregarded entities unique relation with their owner, specific rules apply based on the type of their owner.

Disregarded entities owned by a partnership or an S corporation

There can be two types of disregarded entities owned by a partnership or an S corporation:

  • disregarded entities that carry on a trade or business, and
  • disregarded entities that are segments of the trade or business of their owner.

Disregarded Entities Carrying on a Trade or Business

These entities determine their amount of gross income and Montana source income the same way partnerships or S corporations calculate their income.

This determination must be made before the pass-through owner determines the amount of Montana source income from its own trade or business.

A disregarded entity with Montana source income from activity in Montana must be included on List of Disregarded Entities (Form PTE, Schedule VII) of the owner’s Form PTE.

Segments

A disregarded entity is a segment if:

  • the owner segregated a trade or business into functions or assets; and
  • contributed a function, asset, or both to the disregarded entities so the determination of Montana source income at the disregarded entity level does not represent the activities carried on in Montana.

Segments remain disregarded for the determination of Montana source income.

All their items or income, loss, deduction and credit remain in the apportionable income of their owner and their items of property, compensation or receipts are used in the determination of the apportionment factor.

Please Note:

If the partnership or the S corporation remains at risk based on a recourse debt related to a trade or business held in a disregarded entity holding functions or assets of such trade or business, the disregarded entity would still be considered a segment. If the debt is nonrecourse, such debt and its related expenses are automatically allocated to the entity holding the collateral.

If the disregarded entity is a segment and it carries on its own activities constituting a fully functioning and independent trade or business, the disregarded entity must complete the List of Disregarded Entities (Form PTE, Schedule VII) to determine the amount of Montana source income stemming from its own trade or business activities.

Items of income, (loss), deduction, credit or apportionment included in the segment are not reported on Schedule DE.

Disregarded Entities Owned by a C Corporation

Disregarded entities owned by a C corporation are deemed unitary and must report their items of income, loss, deduction, credit, and apportionment on their owner’s Corporate Income Tax Return.

Disregarded Entities Owned by a Resident Individual

Disregarded entities owned by resident individuals must report their items of income, loss, deduction and credit on their owner’s federal Schedule C.

Disregarded Entities Owned by a Nonresident Individual, Estate or Trust

Disregarded Entities Owned by a nonresident individual, an estate or a trust must file Form DER-1 to report their Montana source income.

Form DER-1 includes Worksheet DE, that the disregarded entity may use to determine their Montana source income.

Income Sourced to Montana Based on the Residency Status of the Owner

Pass-through income received by resident owners is Montana source income whether the entity carries on a trade or business in Montana.

Income sourced to Montana based on the residency status of the owner does not create a filing requirement for the pass-through entity. However, pass-through entities, including investment clubs, may still file an information return if they deem it necessary to provide Montana adjustments information to their Montana resident owners.

Investment Clubs

Partnerships formed by individual owners exclusively for the purpose of holding stock and securities, the so-called investment clubs, do not have a filing requirement.

The income is always sourced to the state of residence of owners because the income derived from such holding never relates to a trade or business.

This exemption to file does not extend to investment clubs that are corporations or trusts.

Retired Partner

Guaranteed payments made to a retired partner are sourced to the state of residence of this partner.

Pass-Through Information Return Filing Requirements

A pass-through entity must file an Informational Tax Return if:

  • the pass-through entity has any amount of Montana source income, whether a gain or loss;
  • the pass-through entity filed a return in a prior year and did not mark the return final; or
  • the pass-through entity is registered to do business with the Montana Secretary of State.

An informational return calculates and reports Montana adjustments to income, the entity’s Montana source income, and the Montana tax credits passed to owners.

Partnerships and S Corporations
Partnerships and S corporations file the Montana Pass-Through Entity Tax Return (Form PTE).
Disregarded Entities

Disregarded entities file the Montana Disregarded Entity Information Return (Form DER-1) if:

  • it is owned by a nonresident owner,
  • it is owned by an electing § 761 IRC partnership, or
  • it is an electing § 761 IRC partnership.

Disregarded entities owned directly or indirectly by a partnership or an S corporation are included on the owner’s return:

  • A disregarded entity with Montana source income from activity in Montana must be included on List of Disregarded Entities (Form PTE, Schedule VII) of the owner’s Form PTE.
  • A pass-through entity with Montana source income it receives only from another pass-through entity does not need to file Schedule VII.
Disregarded entities owned by a C corporation report their Montana source income on the Montana Corporate Income Tax Return (Form CIT)
Inactive Pass-through Entities
If a pass-through entity filed a return for a prior year or is registered with the Montana Secretary of State but did not engage in any activity in Montana, the entity must file an Affidavit of Inactivity for Corporations, Partnerships and Disregarded Entities (Form INA-CT).

Federal Tax Reform – 965 Income, GILTI, and FDII

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Montana Corporate Income Tax Treatment of International Tax Provisions under Tax Cuts and Jobs Act of 2017

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The Tax Cuts and Jobs Act (TCJA) was enacted on December 22, 2017. The TCJA, in part, makes significant changes to the taxation of foreign-sourced income earned by U.S. corporations and their foreign subsidiaries. The following provides guidance on the treatment for Montana Corporate Income Tax purposes of Internal Revenue Code (IRC) §§ 965 (deemed repatriation of foreign dividends); 951A and 250 (global intangible low-taxed income [GILTI] and the GILTI deduction); and 250 (Foreign-Derived Intangible Income [FDII]). This guidance applies to the 2017 and subsequent tax years.

Montana Corporate Income Tax Treatment of International Tax Provisions under Tax Cuts and Jobs Act of 2017 Memo Preview Image

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IRC §965 – Deemed Repatriation of Foreign Income

The TCJA requires a mandatory “deemed repatriation of deferred foreign earnings” as Subpart F income. IRC §965 requires certain foreign corporations to add to Subpart F income the greater of their accumulated post-1986 deferred foreign earnings and profits, and deficits of certain foreign corporations (IRC §965 Inclusion Income). These taxpayers are then able to deduct a portion of the IRC §965 Inclusion Income (IRC §965 Deduction). While the deemed repatriation is required to be reported in the 2017 tax year, a taxpayer may make a federal election to pay the liability over eight years. Corporations that have IRC §965 income must include an IRC §965 Transition Tax Statement (Transition Tax Statement) with their federal return.

All taxpayers must treat IRC §965 Inclusion Income as Subpart F income for Montana purposes and attach federal Form 965 (Transition Tax Statement) to their Montana return. Any §965 income recognized as IRC §78 gross up for federal purposes will also be recognized as §78 gross up income for Montana purposes.

Water's Edge Filers

Tax Year 2017

To properly reflect the §965 inclusion income on the Montana return for taxpayers who file on a water’s edge basis, add the total amount of income reported on line 1 of federal Form 965 on Montana Form CIT page 3, line 2i “other additions.” §15-31-325(4), MCA, allows a corresponding deduction as a foreign dividend deduction on Montana Form CIT, page 3, line 3g “other reductions” totaling 80% of the §965 inclusion income added back for Montana purposes.

However, if any of the §965 inclusion income included in “other additions” is received from subsidiaries included in the Montana water’s edge filing, such as those incorporated in tax haven countries listed in §15-31-322, MCA, a 100% deduction of the total amount of inclusion income related to these entities is allowed as an intercompany dividend elimination rather than 80%. This amount should be reported on page 3, line 3g “other reductions.”

Furthermore, if any of the §965 inclusion income included in “other additions” is received by 80/20 companies, a 100% deduction of the total amount of inclusion income related to these entities is allowed rather than 80% pursuant to §15-31-322, MCA. This amount should be reported on page 3, line 3g “other reductions.”

To properly reflect §78 gross up income related to the §965 income on the Montana return for taxpayers who file on a water’s edge basis, add the total amount of income reported on line 4a of the federal Form 965 on Montana Form CIT page 3, line 2i “other additions.” Pursuant to §15-31-325(5), MCA, a 100% corresponding deduction is allowed on Montana Form CIT, page 3, line 3g “other reductions” totaling the amount included in “other additions.”

Tax Year 2018

The §965 inclusion income is already properly reflected in federal taxable income, line 28 of federal Form 1120. The §965 inclusion income received by members of the Montana water’s edge group will not require a state addback. Pursuant to §15-31-325(4), MCA, a corresponding deduction is allowed as a foreign dividend deduction on Montana Form CIT, page 3, line 3g “other reductions” totaling 80% of the §965 inclusion income received by members of the Montana water’s edge group (figured without regard to any §78 gross up income). This deduction is allowed rather than the amount shown on federal Form 1120, Schedule C, line 15, column c. §78 gross up that is included in the calculation of §965 inclusion income must be removed from the §965 deduction allowable for Montana purposes, as the gross up deduction is calculated elsewhere as described below.

However, if any of the §965 inclusion income is received from subsidiaries included in the Montana water’s edge filing, such as those incorporated in tax haven countries listed in §15-31-322, MCA, a 100% deduction of the total amount of inclusion income related to these entities is allowed as an intercompany dividend elimination rather than 80%. This amount should be reported on page 3, line 3g “other reductions.”

Income of 80/20 companies is excluded from the calculation of Montana taxable income on Montana Form CIT, page 3, line 3e; consequently, §965 inclusion income, including any §78 gross up, received by an 80/20 company is already properly excluded so no deduction is allowed.

§78 gross up income related to the §965 income is already properly reflected in federal taxable income, line 28 of federal Form 1120. This gross up income received by members of the Montana water’s edge group will not require a state addback. Pursuant to §15-31-325(5), MCA, Montana water’s edge filers are allowed a deduction of 100%, but not more than 100%, of the §78 gross up that has been included in apportionable income. The §78 gross up related to §965 income is included in this allowable deduction. The total Montana gross up deduction should be reported on Montana Form CIT, page 3, line 3g “other reductions” totaling the amount included on federal Form 1120, Schedule C, line 18, column (a) that represents amounts received by members of the Montana water’s edge group.

Worldwide Filers

Tax Year 2017

To properly reflect the §965 inclusion income on the Montana return for taxpayers who file on a worldwide basis, add the total amount of income reported on line 1 of the federal Form 965 on Montana Form CIT page 3, line 2i “other additions.” A corresponding deduction is allowed as an intercompany dividend elimination on Montana Form CIT, page 3, line 3g “other reductions” totaling 100% of the §965 inclusion income added back for Montana purposes.

If any of the §965 inclusion income is received from subsidiaries that are not included in the Montana worldwide filing, see instructions for Limited Combination filers below.

To properly reflect §78 gross up income related to the §965 income on the Montana return for taxpayers who file on a worldwide basis, add the total amount of income reported on line 4a of the federal Form 965 on Montana Form CIT page 3, line 2i “other additions.” A 100% corresponding deduction is allowed on Montana Form CIT, page 3, line 3g “other reductions” totaling the amount included in “other additions.”

Tax Year 2018

The §965 inclusion income is already properly reflected in federal taxable income, line 28 of federal Form 1120. The §965 inclusion income received by members of the Montana worldwide group will not require a state addback. A corresponding deduction is allowed as an intercompany dividend elimination on Montana Form CIT, page 3, line 3g “other reductions” totaling 100% of the §965 inclusion income received from members of the Montana worldwide group (figured without regard to any §78 gross up income). This deduction is allowed rather than the amount shown on federal Form 1120, Schedule C, line 15, column c. §78 gross up that is included in the calculation of §965 inclusion income must be removed from the §965 deduction allowable for Montana purposes, as the gross up deduction is calculated elsewhere as described below.

§78 gross up income related to the §965 income is already properly reflected in federal taxable income, line 28 of federal Form 1120. This gross up income received by members of the Montana worldwide group will not require a state addback. A deduction is allowed to Montana taxpayers filing on a worldwide basis for 100%, but not more than 100%, of the §78 gross up that has been included in apportionable income. The §78 gross up related to §965 income is included in this allowable deduction. The total Montana gross up deduction should be reported on Montana Form CIT, page 3, line 3g “other reductions” totaling the amount included on federal Form 1120, Schedule C, line 18, column (a) that represents amounts received by members of the Montana worldwide group.

If any of the §965 inclusion income is received from subsidiaries that are not included in the Montana worldwide filing, see instructions for Limited Combination filers below.

Separate Company, Domestic or Limited Combination Filers

Tax Year 2017

To properly reflect the §965 inclusion income on the Montana return for taxpayers who file on a separate company, domestic or limited combination basis, add the total amount of income reported on line 1 of the federal Form 965 that was received by the entity or group of entities included in the Montana return. This amount should be reported on Montana Form CIT page 3, line 2i “other additions.” A corresponding deduction is allowed on Montana Form CIT, page 3, line 3g “other reductions” totaling only those amounts reported on line 3 of the federal Form 965 that are associated with the entity or group of entities included in the Montana return.

However, if any of the §965 inclusion income is received from subsidiaries that are included in the Montana limited combination filing, a 100% deduction of the total amount of inclusion income related to these entities is allowed as an intercompany dividend elimination rather than the amount reported on federal Form 965.

To properly reflect §78 gross up income related to the §965 income on the Montana return for taxpayers who file on a separate company, domestic or limited combination basis, add the total amount of income reported on line 4a of the federal Form 965 that is received by the entity or group of entities included in the Montana return, on Montana Form CIT page 3, line 2i “other additions.” A 100% corresponding deduction is allowed on Montana Form CIT, page 3, line 3g “other reductions” totaling the amount included in “other additions.”

Tax year 2018

The §965 inclusion income is already properly reflected in federal taxable income, line 28 of federal Form 1120. The §965 inclusion income will not require a state addback. A corresponding deduction is allowed on Montana Form CIT, page 3, line 3g “other reductions” totaling only those amounts reported on federal Form 1120, Schedule C, line 15, column (c) that are received from the entity or group of entities included in the Montana return (figured without regard to any §78 gross up income). This deduction is allowed rather than the amount shown on federal Form 1120, Schedule C, line 15, column c. §78 gross up that is included in the calculation of §965 inclusion income must be removed from the §965 deduction allowable for Montana purposes, as the gross up deduction is calculated elsewhere as described below.

However, if any of the §965 inclusion income is received from subsidiaries that are included in a Montana limited combination filing, a 100% deduction of the total amount of inclusion income related to these entities is allowed as an intercompany dividend elimination rather than the amount reported on federal Form 1120, Schedule C.

§78 gross up income related to the §965 income is already properly reflected in federal taxable income, line 28 of federal Form 1120. This gross up income will not require a state addback. A deduction is allowed to Montana taxpayers for 100%, but not more than 100%, of the §78 gross up that has been included in apportionable income. The §78 gross up related to §965 income is included in this allowable deduction. The total Montana gross up deduction should be reported on Montana Form CIT, page 3, line 3g “other reductions” totaling the amount included on federal Form 1120, Schedule C, line 18, column (a) that represents amounts received by the entity or group of entities included in the Montana return.

IRC §951A – Global Intangible Low-Taxed Income (GILTI) and IRC §250 GILTI deduction

Beginning with tax year 2018, the TCJA created this new category of foreign income under IRC §951A. GILTI requires the U.S. owner of a CFC to potentially include a portion of the CFC’s earnings in the U.S. owner’s federal taxable income. As deemed income to the U.S. owner, GILTI is comparable to Subpart F income. The TCJA also created a deduction related to the GILTI under IRC §250 (GILTI deduction).

For Montana Corporate Income Tax purposes, Montana considers GILTI a foreign dividend that is included in the owner’s federal taxable income. All taxpayers must attach federal Form 8992 (U.S. Shareholder Calculation of GILTI) and federal Form 8993 (§250 Deduction for FDII and GILTI) to their Montana return. Any GILTI recognized as IRC §78 gross up for federal purposes will also be recognized as §78 gross up income for Montana purposes.

Water's Edge Filers

Tax Year 2018

The GILTI is already properly reflected in federal taxable income, line 28 of federal Form 1120. No state addback is required. Pursuant to §15-31-325(4), MCA, a corresponding deduction is allowed as a foreign dividend deduction. The allowable deduction totals 80% of GILTI received by members of the Montana water’s edge group, figured without regard to any §78 gross up income included in the federal calculation. The deduction should be reported on Montana Form CIT, page 3, line 3g “other reductions.” This deduction is allowed rather than the amount shown on federal Form 1120, Form 8993, Part IV, line 9. §78 gross up that is included in the calculation of GILTI must be removed from the GILTI deduction allowable for Montana purposes, as the gross up deduction is calculated elsewhere as described below.

If any of the GILTI is received from subsidiaries included in the Montana water’s edge filing, such as those incorporated in tax haven countries listed in §15-31-322, MCA, a 100% deduction of the total amount of GILTI (figured without regard to any §78 gross up income included in the federal calculation) related to these entities is allowed as an intercompany dividend elimination rather than 80%. This amount should be reported on page 3, line 3g “other reductions.”

§78 gross up income related to GILTI is already properly reflected in federal taxable income, line 28 of federal Form 1120. This gross up income received by members of the Montana water’s edge group will not require a state addback. Pursuant to §15-31-325(5), MCA, Montana water’s edge filers are allowed a deduction of 100%, but not more than 100%, of the §78 gross up that has been included in apportionable income. The §78 gross up related to GILTI is included in this allowable deduction. The total Montana gross up deduction should be reported on Montana Form CIT, page 3, line 3g “other reductions” totaling the amount included on federal Form 1120, Schedule C, line 18, column (a) that represents amounts received by members of the Montana water’s edge group.

Income of 80/20 companies is excluded from the calculation of Montana taxable income on Montana Form CIT, page 3, line 3e; consequently, any of the GILTI received, including §78 gross up associated with the GILTI, by an 80/20 company is already properly excluded so no deduction is allowed.

Worldwide Filers

Tax Year 2018

The GILTI is already properly reflected in federal taxable income, line 28 of federal Form 1120. No state addback is required. A corresponding deduction is allowed as an intercompany dividend elimination. The allowable deduction totals 100% of GILTI received from members of the Montana worldwide group, figured without regard to any §78 gross up income included in the federal calculation. The deduction should be reported on Montana Form CIT, page 3, line 3g “other reductions.” This deduction is allowed rather than the amount shown on federal Form 1120, Form 8993, Part IV, line 9. §78 gross up that is included in the calculation of GILTI must be removed from the GILTI deduction allowable for Montana purposes, as the gross up deduction is calculated elsewhere as described below.

§78 gross up income related to GILTI is already properly reflected in federal taxable income, line 28 of federal Form 1120. This gross up income received by members of the Montana worldwide group will not require a state addback. Montana worldwide filers are allowed a deduction of 100%, but not more than 100%, of the §78 gross up that has been included in apportionable income. The §78 gross up related to GILTI is included in this allowable deduction. The total Montana gross up deduction should be reported on Montana Form CIT, page 3, line 3g “other reductions” totaling the amount included on federal Form 1120, Schedule C, line 18, column (a) that represents amounts received by members of the Montana worldwide group.

If any of the GILTI is received from subsidiaries that are not included in the Montana worldwide filing, see instructions for Limited Combination filers below.

Separate Company, Domestic or Limited Combination Filers

Tax Year 2018

The GILTI is already properly reflected in federal taxable income, line 28 of federal Form 1120. No state addback is required. A corresponding deduction is allowed on Montana Form CIT, page 3, line 3g “other reductions” totaling only those amounts reported on federal Form 1120, Form 8993, Part IV, line 9 (figured without regard to any §78 gross up income included in the federal calculation) associated with the entity or group of entities included in the Montana return. §78 gross up that is included in the calculation of GILTI must be removed from the GILTI deduction allowable for Montana purposes, as the gross up deduction is calculated elsewhere as described below.

However, if any of the GILTI is received from subsidiaries that are included in the Montana limited combination filing, a 100% deduction of the total amount of GILTI (figured without regard to any §78 gross up income) related to these entities would be allowed as an intercompany dividend elimination rather than the amount reported on federal Form 8993.

Any §78 gross up income related to GILTI received from the entity or group of entities included in the Montana return is already properly reflected in federal taxable income, line 28 of federal Form 1120. This gross up income will not require a state addback. Montana filers are allowed a deduction of 100%, but not more than 100%, of the §78 gross up that has been included in apportionable income. The §78 gross up related to GILTI is included in this allowable deduction. The total Montana gross up deduction should be reported on Montana Form CIT, page 3, line 3g “other reductions” totaling the amount included on federal Form 1120, Schedule C, line 18, column (a) that represents amounts received by the entity or group of entities included in the Montana return.

IRC §250 – Deduction for Foreign Derived Intangible Income (FDII)

For tax years beginning after December 31, 2017, the TCJA created this new deduction for corporations under IRC §250. The deduction relates to certain federal taxable income to which a special federal tax rate is intended to apply. FDII is not considered a foreign dividend for Montana Corporate Income Tax purposes. To claim a deduction for FDII, all taxpayers must attach federal Form 8993 (§250 Deduction for FDII and GILTI) to their Montana return.

Water's Edge Filers

Tax Year 2018

FDII is already properly reflected in federal taxable income, line 28 of federal Form 1120. A deduction is allowed on Montana Form CIT, page 3, line 3g “other reductions” totaling the amount reported on federal Form 1120, Form 8993, Part IV, line 8 (figured without regard to any §78 gross up income included in the federal calculation) that represents amounts related to those entities included in the Montana water’s edge group. §78 gross up that is included in the calculation of the §250 FDII deduction must be removed from the calculation for Montana purposes, as the gross up deduction is calculated elsewhere for Montana purposes as described below.

§78 gross up income related to FDII is already properly reflected in federal taxable income, line 28 of federal Form 1120. Pursuant to §15-31-325(5), MCA, Montana water’s edge filers are allowed a deduction of 100%, but not more than 100%, of the §78 gross up that has been included in apportionable income. The §78 gross up related to FDII is included in this allowable deduction. The total Montana gross up deduction should be reported on Montana Form CIT, page 3, line 3g “other reductions” totaling the amount included on federal Form 1120, Schedule C, line 18, column (a) that represents amounts received by members of the Montana water’s edge group.

If any of the federal FDII deduction is related to entities excluded from the Montana water’s edge group, such as an 80/20 company, the deduction from federal Form 1120, Form 8993, Part IV, line 8 attributable to these entities is not allowed, as the income related to these entities has already been excluded.

Worldwide Filers

Tax Year 2018

FDII is already properly reflected in federal taxable income, line 28 of federal Form 1120. A deduction is allowed on Montana Form CIT, page 3, line 3g “other reductions” totaling the amount reported on federal Form 1120, Form 8993, Part IV, line 8 (figured without regard to any §78 gross up income included in the federal calculation) that represents amounts related to those entities included in the Montana worldwide group. §78 gross up that is included in the calculation of the §250 FDII deduction must be removed from the calculation for Montana purposes, as the gross up deduction is calculated elsewhere for Montana purposes as described below.

§78 gross up income related to FDII is already properly reflected in federal taxable income, line 28 of federal Form 1120. Montana worldwide filers are allowed a deduction of 100%, but not more than 100%, of the §78 gross up that has been included in apportionable income. The §78 gross up related to FDII is included in this allowable deduction. The total Montana gross up deduction should be reported on Montana Form CIT, page 3, line 3g “other reductions” totaling the amount included on federal Form 1120, Schedule C, line 18, column (a) that represents amounts received by members of the Montana worldwide group.

If any of the federal FDII deduction is related to entities excluded from the Montana worldwide filing, see instructions for Limited Combination filers below.

Separate Company, Domestic or Limited Combination Filers

Tax Year 2018

FDII is already properly reflected in federal taxable income, line 28 of federal Form 1120. A deduction is allowed on Montana Form CIT, page 3, line 3g “other reductions” totaling only those amounts reported on federal Form 1120, Form 8993, Part IV, line 8 (figured without regard to any §78 gross up income included in the federal calculation) that represents amounts related to the entity or group of entities included in the Montana return. §78 gross up that is included in the calculation of the §250 FDII deduction must be removed from the calculation for Montana purposes, as the gross up deduction is calculated elsewhere for Montana purposes as described below.

§78 gross up income related to FDII is already properly reflected in federal taxable income, line 28 of federal Form 1120. Montana filers are allowed a deduction of 100%, but not more than 100%, of the §78 gross up that has been included in apportionable income. The §78 gross up related to FDII is included in this allowable deduction. The Montana total gross up deduction should be reported on Montana Form CIT, page 3, line 3g “other reductions” totaling the amount included on federal Form 1120, Schedule C, line 18, column (a) that represents amounts received by the entity or group of entities included in the Montana return.

If any of the federal FDII deduction is related to entities excluded from the Montana domestic or limited combination filing, the deduction from federal Form 1120, Form 8993, Part IV, line 8 attributable to these entities is not allowed, as the income related to these entities has already been excluded.

Medical Marijuana Provider Tax

Quick Information

Due Dates

First Quarter
April 15
Second Quarter
July 15
Third Quarter
October 15
Fourth Quarter
January 15

Fees

4% of Gross Sales

Related Resources

Medical marijuana providers pay a 4% tax on gross marijuana and marijuana products sales.

Fees

Montana charges a 4% tax on marijuana and marijuana products sales beginning October 1, 2019. Previous sales were charged a 2% tax.

The tax applies to the gross retail price when a product is:

  • Sold
  • Exchanged
  • Bartered
  • Gifted
My Revenue Logo

Due Dates

The Medical Marijuana Provider Tax Return is due on the 15th of the next month following the end of the quarter:

First Quarter
April 15
Second Quarter
July 15
Third Quarter
October 15
Fourth Quarter
January 15

Reporting and Payment Options

Providers file their Medical Marijuana Provider Tax Return in My Revenue.

Pay Online

You can pay online using My Revenue when you file your Medical Marijuana Provider Tax Return or after you file your return, using the Medical Marijuana Provider Tax Payment Voucher.

Mail a Check or Money Order

Mail checks and money orders along with your Medical Marijuana Provider Tax Payment Voucher to:

Montana Department of Revenue
PO Box 6169
Helena, MT 59604-6309

Make a Cash Payment

We only accept cash payments at our drop box in Helena:

Montana Department of Revenue
340 N. Last Chance Gulch
Helena, MT 59601

Monday through Friday, 9:00 AM to 4:00 PM

Get Directions

All cash payments must be in a tamper-evident deposit bag no larger than 11″ x 13″.

Multiple bags may be used if needed. Bags may be purchased online at numerous locations and office supply stores.

  1. Print a Medical Marijuana Provider Tax Payment Voucher
  2. Include a copy of the voucher in each deposit bag
  3. Write your name and Provider ID on each deposit bag

To maintain the accuracy of your deposit, please sort cash by denomination and face all bills in the same direction. We will not accept any mutilated or contaminated currency.

Exact amount is required. The department is not equipped to provide change.

Sample Deposit Bag

Penalties and Interest

The Medical Marijuana Provider Tax is subject to uniform penalties and interest.

Frequently Asked Questions

Am I required to file a Medical Marijuana Providers Tax Return if I have no sales for the quarter?

Yes. You must still submit a tax return on My Revenue for zero dollar returns.

What is taxed by the Medical Marijuana Providers tax?

All gross sales of marijuana and marijuana infused products are taxable.

The tax is on the gross retail price, which is the established price for which a marijuana product is sold to a purchaser before any discount or reduction.

“Sale” or “sell” means any transfer of marijuana products for consideration, exchange, barter, gift, offer for sale, or distribution in any manner or by any means.

Can I change my established retail price for medical marijuana?

Yes, if you change your price and that price is offered to all customers, that is the new established retail price.

The established retail price and any changes to that price should be documented and maintained in your records.

Can I offer a reduced price for bulk purchases of medical marijuana?

Yes, if the bulk price is consistent, documented and offered to all customers.

How do I calculate the tax on discounts to individual medical marijuana customers?

The tax will be applied on the established retail price for the product. Discounts for a group or individual do not change the established retail price.

Products priced below the established price for a select demographic is considered a reduction price, tax must be applied to the established retail price.

Can I reduce the price for aged product?

Yes, if the new price is offered to all customers that is the new established price.

Will I be taxed on bad debt sales (sales deemed uncollectible)?

Yes, the medical marijuana tax is calculated on the Marijuana product provider’s gross sales.

Can I claim a reduction on my Medical Marijuana Return for using higher value products or superior production techniques?

No, the law does not provide for exemptions or reductions of medical marijuana tax for cost of goods sold.

Will I be taxed on complimentary marijuana or marijuana infused products I give away?

Yes, the complimentary gifts are taxed at the established retail price.

Will the Department of Revenue accept payment from another entity on behalf of the taxpayer?

Yes, we can accept payment for taxes on behalf of another entity if the payment is properly directed by payee.

If I am a registered cardholder that cultivates my own product, am I subject to medical marijuana taxation?

No, the taxpayer is the Licensed Providers. If you only cultivate for personal use this is not taxable, being a licensed provider for additional cardholders is a taxable relationship.

If I am a guardian and registered provider for a minor, are those transactions taxable?

No, in this situation the law provides that the guardian as the registered provider is responsible for the control of the product and this would not create a taxable situation. If the product is purchased from a licensed provider who is not the guardian of the minor, this does create a taxable transaction.

If I offer product on credit, when is the tax reported?

The tax is reported in the quarter the transfer of product occurred.

Do I need a license separate from my medical marijuana license to sell vapor products or tabacco?

Yes, by law you need a separate license to sell vapor products or any tobacco products.

For more information or to purchase one of these licenses go to eStop Business Licenses.

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