Admin. R. Mont. 42.26.807
Airline Regulation Examples
Effective Jan 1, 2018Authorizing statute(s): 15-1-201, 15-31-313, 15-31-501, MCA; Implementing statute(s): 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, MCAState of Montana
(1) Assume the following facts for an airline for the tax year:
- (a) It has ten 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 nonflight 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 |
| Nonflight 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 percent of its 747 flight departures |
| (.10 x 432,000,000 = $43,200,000); |
| (ii) | 20 percent of its 727 flight departures |
| (.20 x 400,000,000 = $80,000,000); |
| (iii) | 5 percent of its nonflight tangible property |
| (n.t.p.) (.05 x 200,000,000 = $10,000,000); and |
| (iv) | 15 percent of its nonflight 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 (nonflight) | | 40,000,000 (nonflight) |
| + 8,880,000 ( 14.8% x 60,000,000 flight) | + | 60,000,000 (flight) |
| 14,880,000 | + | 100,000,000 = 14.88% |
| Average Ratio Equals the sum of the property, 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 percent of its 747 flight departures |
| (.06 x 432,000,000 = $25,920,000); |
| (ii) | 31 percent of its 727 flight departures |
| (.31 x 400,000,000 = $124,000,000); and |
| (iii) | 3 percent of its nonflight tangible property |
| (n.t.p.) x (.03 x 20,000,000 = $6,000,000); and |
| (iv) | 7 percent of its nonflight 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 percent |
| Payroll Factor: |
| Numerator | | Denominator |
| 2,800,000 (nonflight) | | 40,000,000 (nonflight) |
| +10,811,520 (18.0192% x 60,000,000 flight) | + | 60,000,000 (flight) |
| 13,611,520 | / | 100,000,000 = 13.6114% |
| Average Ratio Equals the sum of the property, 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 |
Authorizing statute(s): 15-1-201, 15-31-313, 15-31-501, MCA
Implementing statute(s): 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
History: NEW, 1988 MAR p. 401, Eff. 2/26/88; AMD, 1993 MAR p. 572, Eff. 4/16/93; TRANS, from 42.26.286 and AMD, 2001 MAR p. 2469, Eff. 12/21/01; AMD, 2017 MAR p. 2328, Eff. 1/1/18.