Calculating property tax in Montana can be complicated. While this is often true for real property, this can be especially true for personal property, which has a lot more definitions, exceptions, and exemptions which may or may not apply, often turning on very nuanced factual circumstances. Since Montana imposes a property tax on the value of personal property used in many businesses, this process should be of interest to anyone operating a business in Montana.
The following is a short summary which attempts to demystify the process for taxing one common type of property in Montana – “Class 8” or “business equipment” property.
Property in Montana is taxed as follows:
- Determine the property’s market value;
- Determine the property’s tax class;
- Multiply the property’s market value by a percentage according to its property class, which results in the property’s taxable value;
- Determine the mill rate for the property (set by the state and municipality); and
- Multiply the taxable value by the mill rate, which results in the tax liability.
The market value of property is the value at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. Mont. Code Ann. § 15-8-111. The market value is determined annually for personal property and in two-year cycles for most real property.
The market value of tangible personal property can be determined by one or a combination of three methods of valuation: cost, income, or comparable sales. Tangible personal property is generally valued using the cost approach to market value by multiplying a trended depreciation percentage times the installed original cost of the property. Mont. Admin. R. § 42.21.154. When assessing property, if the Montana Department of Revenue uses the cost approach as one approximation of market value, it is required to consider reductions in value caused by depreciation, whether through physical depreciation, functional obsolescence, or economic obsolescence. Mont. Code Ann. § 15-8-111.
Intangible personal property is exempt from taxation. Mont. Code Ann. § 15-6-218. The value of exempt intangible personal property will be for the amount stated in the taxpayer’s accounting records, subject to review and verification by the Montana Department of Revenue. Mont. Admin. R. § 42.21.116
Montana employs a self-reporting system for property tax purposes, whereby each taxpayer is responsible for reporting their personal property to the state. Mont. Admin. R. § 42.21.158. The taxpayer’s statement in compliance with the rule may be made through the Montana Department of Revenue’s TransAction Portal (https://tap.dor.mt.gov/_/) or via a paper/PDF Personal Property Reporting Form (the “Form”).
The taxpayer’s statement must provide pertinent information about each item of personal property, including the year acquired, acquired cost, and installation cost. For any items acquired through a means other than the open marketplace, the owner must provide a reasonable estimate of the item’s open market value at the time of acquisition. Mont. Admin. R. § 42.21.158. Additionally, the Form’s instructions state that “[t]he acquired/installed cost and acquired year reported on the reporting form should match the acquired cost and year reported on your federal income tax return.” Commercial property taxpayers must provide documentation of the installed costs of intangible personal property included on the taxpayer’s accounting records, or provide other alternative methodologies or information regarding market value for consideration by the department. Mont. Admin. R. § 42.21.158.
Property Tax Class and Percentage:
The class into which property fits is generally determined by statute. See Mont. Code Ann. § 15‑6‑101, et seq. Montana has over a dozen classes of property, and assigns each a taxable percentage which differs by class. Class 8 is a broad class of property which generally includes: agricultural implements; machinery, equipment, and tools used for mining, manufacturing, or oil and gas; furniture, fixtures, and equipment used in commercial establishments; cell phones, cable TVs, and, in case it was not broad enough, “all other property that is not included in any other class…, except that property that is subject to a fee in lieu of a property tax.”
Courtesy of House Bill 303 (signed into law May 11, 2021), Class 8 property generally has a taxable value as follows:
(a) Market value: from $0 up to $300,000 – Taxable value: $0
(a) Market value: over $300,000 and up to $6,000,000 – Taxable value: 1.5% of market value over $300,000
(a) Market value: over $6,000,000 – Taxable value: 1.5% of market value over $300,000 plus 3% of market value over $6,000,000.
Mont. Code Ann. § 15-6-138.
The mill rate is generally best determined by contacting the county in which the property is located. While imperfect, past years’ mill rates can often be a good indicator of what to expect in years to come.
If you believe your tax liability has been incorrectly calculated or have questions, consider contacting a tax attorney earlier rather than later. Contesting errors in taxes is a process which often includes harsh deadlines designed to cut of a taxpayer’s ability to contest their taxes after a relatively short amount of time.
About the Author. Lucas H. Forcella is an Associate in the firm’s Billings office whose practice includes commercial transactions (including mergers and acquisitions and commercial real estate acquisitions, sales, and leases), trust and estate planning, and tax controversies (including audits and appeals of federal and state taxes).
When not considering the intricacies of tax issues, Lucas serves as a counterintelligence and intelligence officer in the United States Marine Corps and spends time with his wife and kids in Montana’s great outdoors.
Date of information: July 12, 2022.
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