Administrative Rules of Montana › Department 42 - REVENUE › Chapter 42.26 - CORPORATE MULTISTATE ACTIVITIES › Subchapter 42.26.9 - Special Rules for Construction Contracts › Rule 42.26.903 - APPORTIONMENT OF APPORTIONABLE INCOME

Current through Register Vol. 13, July 5, 2024
(1)
				Apportionable income, in general, is apportioned to this state by a
				three-factor formula consisting of property, payroll, and receipts regardless
				of the method of accounting for long-term contracts elected by the taxpayer.
				The total of the property, payroll, and receipts percentages is divided by
				three to determine the apportionment percentage. The apportionment percentage
				is then applied to apportionable income to determine the amount apportioned to
				this state.
(2) Under the
				percentage of completion method of accounting for long-term contracts, the
				amount to be included each year as apportionable income from each contract is
				the amount by which the gross contract price that corresponds to the percentage
				of the entire contract that has been completed during the income years exceeds
				all expenditures made during the income year in connection with the contract.
				In so doing, the account must be made of the material and supplies on hand at
				the beginning and end of the income year for use in each such
				contract.
(3) Under the completed
				contract method of accounting, apportionable income derived from long-term
				contracts is reported for the income year in which the contract is finally
				completed and accepted. Therefore, a special computation is required to compute
				the amount of apportionable income attributable to this state from each
				completed contract. Thus, all receipts and expenditures applicable to such
				contracts, whether complete or incomplete as of the end of the income year, are
				excluded from apportionable income derived from other sources. For example,
				short-term contracts, interest, rents, royalties, etc., which are apportioned
				by the regular three-factor formula of property, payroll, and
				receipts.
(4) In general the
				numerator and denominator of the property factor shall be determined as set
				forth in ARM
				42.26.231 through
				42.26.237 and
				42.26.262. However, the following
				special rules are also applicable:
(a) The
				average value of the taxpayer's cost (including materials and labor) of
				construction in progress, to the extent such costs exceed progress billings
				(accrued or received depending on whether the taxpayer is on the accrual or
				cash accounting method) shall be included in the denominator of the property
				factor. The value of any such construction costs attributable to construction
				projects in this state shall be included in the numerator of the property
				factor.
(b) Rent paid for the use
				of equipment directly attributable to a particular construction project is
				included in the property factor at eight times the net annual rental rate even
				though such rental expense may be capitalized into the cost of
				construction.
(c) The property
				factor is computed in the same manner for all long-term contract methods of
				accounting and is computed for each income year even though under the completed
				contract method of accounting, apportionable income is computed
				separately.