Mont. Admin. r. 42.26.807

Current through Register Vol. 24, December 20, 2024

Rule 42.26.807 - AIRLINE REGULATION EXAMPLES

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

(a) It has 10 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 non-flight tangible property (n.t.p.) valued at original cost of $200,000,000.

(d) It has the following annual payroll:

Flight personnel	$ 60,000,000
Non-flight personnel	40,000,000
Total	$100,000,000

(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:

(i) 10% of its 747 flight departures

(.10 x 432,000,000 = $43,200,000);

(ii) 20% of its 727 flight departures

(.20 x 400,000,000 = $80,000,000);

(iii) 5% of its non-flight tangible property

(n.t.p.) (.05 x 200,000,000 = $10,000,000); and

(iv) 15% of its non-flight personnel payroll

(.15 x 40,000,000 = $6,000,000).

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

Property Factor:
Numerator	Denominator
43,200,000 (747s)	432,000,000 (747s)
+ 80,000,000 (727s)	+	400,000,000 (727s)
+ 10,000,000 (n.t.p.)	+	200,000,000 (n.t.p.)
133,200,000	/	1,032,000,000 = 12.91%
Receipts Factor:
Numerator	Denominator
43,200,000 (747s)	432,000,000 (747s)
+ 80,000,000 (727s)	+	400,000,000 (727s)
123,200,000	/	832,000,000 = 14.8%
departure ratio = 14.8%
7,403,846 (14.8% x 50,000,000)/50,000,000 = 14.81%
Payroll Factor:
Numerator	Denominator
6,000,000 (non-flight)	40,000,000(non-flight)
+ 8,880,000 (14.8%x60,000,000 flight)	+	60,000,000 (flight)
14,880,000	+	100,000,000 = 14.88%

Average Ratio Equals the sum of the property, sales receipts, and payroll factors divided by 3.

(12.91% + 14.81% + 14.88%) /3 = 14.20%

Taxable Income in state X:.1420 x 1,000,000 = $142,000

Tax Liability to state X:.10 x $142,000 = $14,200

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

(a) It has the following within state Y:

(i) 6% of its 747 flight departures

(.06 x 432,000,000 = $25,920,000);

(ii) 31% of its 727 flight departures

(iii) 3% of its non-flight tangible property

(n.t.p.) x (.03 x 20,000,000 = $6,000,000); and

(iv) % of its non-flight personnel payroll

(.07 x 40,000,000 = $2,800,000)

(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:

Property Factor:
Numerator	Denominator
25,920,000 (747s)	432,000,000 (747s)
+ 124,000,000 (727s)	+	400,000,000 (727s)
+ 6,000,000(n.t.p.)	+	200,000,000 (n.t.p.)
155,920,000	/	1,032,000,000 = 15.1085%
Receipts Factor:
Numerator	Denominator
25,920,000 (747s)	432,000,000 (747s)
+ 124,000,000(727s)	+	400,000,000 (727s)
149,920,000	/	832,000,000 = 18.0192%
departure ratio = 18.0192%
9,009,600 (18.0192% x 50,000,000)/50,000,000 = 18.0192%
Payroll Factor:
Numerator	Denominator
2,800,000 (non-flight)	40,000,000(non-flight)
+ 10,811,520(18.0192%x60,000,000 flight)	+	60,000,000(flight)
13,611,520	/	100,000,000=13.6114%

Average Ratio Equals the sum of the property, sales receipts, and payroll factors divided by 3.

(15.1085% + 18.0192% + 13.6114%) / 3 = 15.5797%

Taxable Income in state Y:.155797 x 1,000,000 = $155,797

Tax Liability to state Y:.065 x $155,797 = $10,127

Mont. Admin. r. 42.26.807

NEW, 1988 MAR p. 401, Eff. 2/26/88; AMD, 1993 MAR p. 572, Eff. 4/16/93; TRANS, from 42.26.286and AMD, 2001 MAR p. 2469, Eff. 12/21/01; AMD, 2017 MAR p. 2328, Eff. 12/9/2017

AUTH: 15-1-201, 15-31-313, 15-31-501, MCA; IMP: 15-1-601, 15-31-301, 15-31-302, 15-31-303, 15-31-304, 15-31-305, 15-31-306, 15-31-307, 15-31-308, 15-31-309, 15-31-310, 15-31-311, 15-31-312, MCA