This bill proposes a comprehensive overhaul of Montana's income tax system by instituting a flat tax rate of 4.7% on all taxable income, thereby eliminating the existing tiered tax brackets that impose varying rates based on income thresholds. The legislation also introduces a flat tax rate for nonqualified taxable income, aiming to simplify the tax code and lessen the tax burden on residents. Key amendments will affect various sections of the Montana Code Annotated (MCA), including those related to withholding on lottery winnings and mineral royalty payments, which will now reference the new flat tax rate instead of the previous highest marginal rate.

Additionally, the bill establishes a pass-through entity tax requiring electing pass-through entities to pay an entity tax based on their distributive share of Montana source income, calculated at the highest marginal rate previously in effect. It allows these entities to use the income allocated to resident owners for tax computation and replaces tax obligations under specific sections of the MCA. The bill also clarifies definitions related to partnerships and production companies, ensuring compliance with federal adjustments and tax withholding regulations. Notably, it amends the recapture tax rate by removing the term "highest" and aligns withdrawal allocations with the Internal Revenue Code. The act is set to take effect on January 1, 2028, applying to income tax years beginning after December 31, 2027.

Statutes affected:
LC Text: 15-30-2103, 15-30-2522, 15-30-2538, 15-30-3312, 15-30-3313, 15-30-3326, 15-30-3404, 15-31-1003, 15-62-208, 17-1-405, 53-25-118