United States

Montana: Market-Based Sourcing Signed Into Law

May 15, 2017
From KPMG TaxWatch

Loading the player...

Montana House Bill 511, which was signed into law on May 3, 2017, incorporates into Montana law recent changes to the Multistate Tax Compact. These changes are effective for tax years beginning after December 31, 2017. One change to Article IV of the Compact that is incorporated into Montana law is that the term “business income” is replaced with “apportionable income” and the definition is expanded to include all income that is apportionable under the U.S. Constitution.  Another change is that the word “sales” is replaced, for purposes of the sales factor, with the term “receipts.” “Receipts” is defined as all gross receipts not allocated that are received from transactions and activity in the regular course of the taxpayer's trade or business. Receipts from hedging transactions and from the maturity, redemption, sale, exchange, loan, or other disposition of cash or securities are excluded. House Bill 511 also adopts market-based sourcing rules.  Specifically, under Montana’s revised Compact, receipts other than receipts from sales of tangible personal property are attributed to Montana if the taxpayer's market for the sale is in the state. Specific rules apply to determine if the taxpayer's market for sales is in Montana.

  • In the case of receipts from the sale, rental, lease, or license of real property, the receipts are sourced to Montana if and to the extent the property is located in Montana.
  • In the case of receipts from the rental, lease, or license of tangible personal property, the receipts are sourced to Montana if and to the extent the property is located in Montana.
  • In the case of receipts from the sale of a service, the receipts are sourced to Montana if and to the extent the service is delivered to a location in Montana.In the case of receipts from intangible property that is rented, leased, or licensed, the receipts are sourced to Montana if and to the extent the property is used in Montana.
  • Intangible property utilized in marketing a good or service to a consumer is considered used in Montana if the good or service is purchased by a consumer who is in Montana.
  • In the case of receipts from the sale of intangible property, the receipts are sourced to Montana if and to the extent the intangible property is used in Montana. A contract right, government license, or similar intangible property that authorizes the holder to conduct a business activity in a specific geographic area is used in Montana if the geographic area includes all or part of Montana. Receipts from intangible property sales that are contingent on the productivity, use, or disposition of the intangible property will be treated as receipts from the rental, lease, or licensing of such intangible property.

All other receipts from the sale of intangible property not addressed by the above sourcing rules are excluded from the numerator and denominator of the receipts factor entirely. Further, if the state or states of assignment under the market-based sourcing rules cannot be determined, the state or states of assignment are to be reasonably approximated. If the taxpayer is not taxable in a state to which a receipt is assigned, or if a state of assignment cannot be determined, the receipts are thrown out of the receipts factor.

Finally, House Bill 511 revises Article 18 to provide that, if the statutory allocation and apportionment provisions do not fairly represent the extent of the business activity of taxpayers engaged in a particular industry or transaction or activity, the tax administrator may establish appropriate regulations for determining alternative methods for such taxpayers. Any such regulation is required to be applied uniformly. The bill also clarifies that the party seeking to require the use of an alternative method must prove by a preponderance of the evidence that the statutory method does not fairly represent the extent of the taxpayer’s business activity in Montana and that the alternative method is reasonable. If the tax administrator requires any method to effectuate an equitable allocation and apportionment of the taxpayer's income, the tax administrator cannot impose any civil or criminal penalties with reference to the tax due that is attributable to the taxpayer's reasonable reliance solely on the statutory allocation and apportionment provisions. Please contact Rob Passmore at (503) 820-6844 or Chris Canale at (503) 820-6862 with questions on Montana House Bill 511.


For more information about TWIST or to view archived episodes, please visit our TWIST homepage.

 Subscribe to TWIST via iTunes, or  Subscribe via RSS.

To receive TWIST e-mails each Monday morning, make sure that state, local and indirect is checked off as one of your topics of interest on the KPMG TaxWatch registration site.


The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.