Tax Structure

Montana's taxes are more than competitive with those of surrounding states, especially when tax incentives are applied for a new industry. Montana's business taxes include a moderate corporate income tax, property taxes on real property, and payroll taxes.

The property taxes are more than competitive with surrounding states when tax incentives are applied. The state also has payroll taxes, including unemployment taxes and workers' compensation. Montana has no sales and use tax, inventory tax, or gross proceeds tax, and does not levy any impact fees or special taxes on business.

The most important tax incentives for businesses are the property tax incentives. Montana has an industry property tax break (granted by the State of Montana), an expanding industry property tax break (granted by the local government), and tax incentives provided by the TIFID (tax increment financing industrial district) statute.

Through the TIFID, Butte/Silver Bow uses a portion of property taxes to retire the debt on tax increment bonds used to finance infrastructure development.

How It Can Work: ASiMI In the recent financing package assembled to enable ASiMI to locate a new $500 million dollar polysilicon processing plant in Butte-Silver Bow County, Butte/Silver Bow is using 60% of ASiMI's property taxes to acquire infrastructure in support of the project. Use of that 60% reduces the effective property tax rate for ASiMI to .83% of the market value of the property. In addition, Montana allows a corporate income tax break equal to 1% of the gross wages paid by ASiMI over its first three years of operation. Financing assistance will be provided for ASiMI through the TIFID infrastructure assistance program and through low-interest debt provided by the Montana Board of Investments. The TIFID program off-sets capital costs of $33-$35 million for ASiMI, while the Montana Board Of Investments loan program makes up to $14.9 million available at rates as low as 5.91%. Utility incentives are provided through the TIFID handling the capital cost of the utility infrastructure and by the rates provided by the Montana Power Company.

Business Taxes

The state of Montana does not levy any impact fees, special taxes, inventory taxes, no gross proceeds tax, or a sales and use tax.

Corporate Income Tax

The corporate income tax rate for firms operating in Montana is 6.75% of its taxable net income. The tax rate is only applied to that portion of net income attributable to a company's Montana operations. The apportionment formula which is used for calculations is the standard Uniform Division of Income for Tax Purposes Act (UDITPA). Allowable deductions include all ordinary and necessary business expenses, certain losses and depreciation of assets, interest paid on business debts, taxes paid (except all taxes measured by net income or profits), and certain charitable contributions.

The state of Montana allows a corporate income credit for firms entering manufacturing operations in Montana for the first time. This tax credit is equal to 1% of the wages paid during each of the first three years of operations. In addition, a qualified research and development company may receive an exemption from corporate income tax during its first five taxable years of activity in Montana.

Property Tax

Business real property (land, buildings, etc.) and business equipment are subject to an ad-valorem tax in the State of Montana. All non-exempt property is taxed based on its full market value. Different classes of property are subject to different assessment rates. Prior to any tax incentives, real property (land and buildings) in the City and County of Butte-Silver Bow is currently taxed at 1.54% of its market value annually.

Business equipment taxes have been declining in recent years because of actions of the Legislature. In 1995, the Legislature enacted a law which results in a continued decline in business equipment property taxes. In 1999, this legislative action has resulted in a decrease in business equipment taxes to 2.39% of the market value annually, prior to the application of any tax incentives.

Business inventories, goods-in-transit, intangible assets and freeport merchandise are statutorily exempt from property taxation. In addition, business equipment belonging to qualified research and development companies may be taxed at approximately 1% of market value in perpetuity.

Payroll Taxes

Unemployment Insurance

Montana law requires employers to contribute to unemployment insurance for eligible workers. Current new employer premium rates for manufacturing operations are 2.1% of the first $15,800 in wages per employee. After the initial experience period of three years, premium rates are adjusted on an actuarial basis. The minimum premium rate for employers with a positive fund balance is 0.4%.

Workers' Compensation

Employers in Montana must provide Workers' Compensation Insurance for their employees. A company can provide workers' compensation insurance for its employees through the State of Montana Compensation Insurance Fund, private carriers, or by self-insuring.

The State of Montana Compensation Insurance Fund calculates its premium based upon every $100 of wages earned by a particular class of employee. These rates are determined by the amount of benefits claimed in risk classification. Below is an example of the State of Montana Workers Compensation Insurance Fund premium:

Description	NCCI Code	Premium per $100 of wages
Chemical Manufacturing	4829	$3.49
Clerical/office	8810	$.48
Outside Sales	8742	$.76

NOTE: These rates are from the Montana State Workers Compensation

Insurance Fund as of January 1999. The premium rates are "Selected Rates"

prior to calculating experience modification factors or volume discounts.

Many large companies find it less expensive to cover worker's compensation expenses through the private carrier or self-insurance route.

Sales and Use Tax

The State of Montana and the City and County of Butte-Silver Bow do not levy any general sales or use taxes.

Individual Taxes

Personal Income Tax

Montana's individual income tax is the state's largest source of state revenue. It is collected at rates ranging from 2% to 11% of taxable income. It is important to note that Montana allows for the full deduction of federal income tax liability prior to computing state taxable income, reducing the top rate from 11% to an effective rate of approximately 7.15%. The average Montana citizen pays approximately 3.25%. In calculating taxable income, the personal exemption, standard deduction, and tax brackets are adjusted annually in response to inflation.

Real Property Taxes for Individuals

Real property taxes are those paid on an individual's personal land and buildings. Individual real property in the City and County of Butte-Silver Bow ranges from an effective rate of 1.82% to 1.54% of the actual market value of the property.