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American Recovery and Reinvestment Act of 2009 Impact on Taxes in Montana
The American Recovery and Reinvestment Act of 2009 contains many provisions that reduce or delay individuals’ and business’ federal taxes. It also affects state taxes because Montana law is tied to federal law in many ways and because federal tax changes affect the itemized deduction that many people take for federal income taxes.
Total Impact
The following table shows estimates of total changes in federal and state taxes for Montana individuals and businesses for 2009 through 2013.
Montana Tax Impacts of American Recovery and Reinvestment Act of 2009
($ millions)
|
|
2009
|
2010
|
2011
|
2012
|
|
Montana Individuals' Federal Tax Cuts
|
-$261.515
|
-$223.676
|
-$5.104
|
-$5.308
|
|
Delay Alternative Minimum Tax Increase
|
-$196.542
|
$0.000
|
$0.000
|
$0.000
|
|
Montana Business' Federal Tax Cuts
|
-$43.002
|
-$47.521
|
-$7.093
|
$2.008
|
|
Federal Total
|
-$501.058
|
-$271.197
|
-$12.196
|
-$3.300
|
|
Montana Individuals' State Taxes
|
$5.909
|
$8.163
|
$3.912
|
$0.000
|
|
Montana Business' State Taxes
|
-$5.610
|
-$9.216
|
-$1.075
|
$0.878
|
|
State Total
|
$0.300
|
-$1.053
|
$2.837
|
$0.878
|
|
Total
|
-$500.759
|
-$272.250
|
-$9.359
|
-$2.421
|
The largest single impact is from delaying a scheduled increase in the alternative minimum tax from 2009 to 2010. Most of the tax reductions are for the years 2009 and 2010 only, but some have effects in later years. Individual’s state taxes are affected primarily by the fact that they will have smaller deductions for federal taxes, leading to a small increase in state income taxes. Business’ state taxes are affected primarily by provisions which delay recognition of certain income, resulting in delayed federal and state taxes.
Impact on Individuals
The next table shows federal tax reductions and credits for individuals. Most of these provisions apply only to 2009 and 2010, but some of the energy incentives and the higher limits on tax exempt bond issues in 2009 and 2010 will reduce taxes in later years too.
Tax Reductions and Credits for Individuals in ARRA
($ millions)
|
|
2009
|
2010
|
2011
|
2012
|
|
Making Work Pay Credit and Payments and Credit for Retirees
|
-$180.020
|
-$164.320
|
$0.000
|
$0.000
|
|
Temporary Increase to Earned Income Credit
|
-$6.531
|
-$6.531
|
$0.000
|
$0.000
|
|
Temporary Increase in Refundability of Child Credit
|
-$24.843
|
-$24.681
|
$0.000
|
$0.000
|
|
American Opportunity Education Credit
|
-$22.251
|
-$22.251
|
$0.000
|
$0.000
|
|
Expand First-Time Home Buyer's Credit
|
-$13.251
|
$0.000
|
$0.000
|
$0.000
|
|
Increase AMT Exemptions for 2009
|
-$196.542
|
$0.000
|
$0.000
|
$0.000
|
|
Exclusion of $2,400 in Unemployment Compensation
|
-$10.924
|
$0.000
|
$0.000
|
$0.000
|
|
Energy Production and Conservation Incentives
|
-$2.776
|
-$2.438
|
-$0.711
|
-$0.237
|
|
Additional Tax Exempt Bonds
|
-$0.918
|
-$3.455
|
-$4.393
|
-$5.071
|
|
Total
|
-$458.057
|
-$223.676
|
-$5.104
|
-$5.308
|
Impact on Businesses
The next table shows changes in federal and state taxes for Montana Businesses. Some provisions, such as the increase in the work opportunity credit and the energy incentives are temporary tax reductions. Others, such as bonus depreciation and the temporary ability to carry net operating losses back for five years, delay taxes. One, a change to the rules for recognizing income in a corporate restructuring, results in a small increase in taxes for 2009 and 2010 and a larger reduction in taxes after 2012.
Impact of ARRA on Montana Business' Federal and State Taxes
($ million)
|
|
2009
|
2010
|
2011
|
2012
|
|
Change in Federal Taxes
|
|
|
|
|
|
Temporary 5 Year Net Operating Loss Carryback
|
-$11.853
|
$1.770
|
$1.883
|
$1.620
|
|
Reduce Required Estimated Payments in 2009
|
-$0.688
|
$0.688
|
$0.000
|
$0.000
|
|
Increase Work Opportunity Tax Credit
|
-$0.080
|
-$0.203
|
-$0.175
|
-$0.070
|
|
Defer Recognition of Income from Debt Forgiveness
|
-$15.141
|
-$28.504
|
-$9.349
|
-$0.604
|
|
Changes to Income Recognition in Restructuring
|
$0.005
|
$0.015
|
$0.005
|
$0.000
|
|
Bonus Depreciation and Expensing
|
-$13.945
|
-$19.281
|
$3.774
|
$5.157
|
|
Energy Production and Conservation Incentives
|
-$1.300
|
-$2.006
|
-$3.230
|
-$4.095
|
|
Total
|
-$43.002
|
-$47.521
|
-$7.093
|
$2.008
|
|
Change in State Taxes
|
|
|
|
|
|
Defer Recognition of Income from Debt Forgiveness
|
-$2.920
|
-$5.497
|
-$1.803
|
-$0.116
|
|
Bonus Depreciation and Expensing
|
-$2.689
|
-$3.719
|
$0.728
|
$0.995
|
|
Total
|
-$5.610
|
-$9.216
|
-$1.075
|
$0.878
|
|
Combined Federal and State Taxes
|
-$48.611
|
-$56.737
|
-$8.168
|
$2.887
|
Montana’s individual and corporate income taxes are tied to federal definitions of income, so that two of the provisions that delay the recognition of income also affect state taxes.
Impact on State Budget
The final table shows changes to state revenue. The provisions that delay recognition of income reduce state taxes in the first years, but increase them in later years. Smaller deductions for federal taxes increase state taxes each year. The net effect is an increase in state taxes in fiscal years 2010, 2012, and 2013, and a decrease in fiscal year 2011.
State Revenue Impacts of ARRA
($ millions)
|
|
FY 2010
|
FY 2011
|
FY 2012
|
FY 2013
|
|
Bonus Depreciation and Higher Expensing Limit
|
-$2.689
|
-$3.719
|
$0.728
|
$0.995
|
|
Defer Recognition of Income from Debt Forgiveness
|
-$2.920
|
-$5.497
|
-$1.803
|
-$0.116
|
|
Feedback From Higher 2009 AMT Exemptions
|
$3.529
|
$0.000
|
$0.000
|
$0.000
|
|
Feedback from Temporary Federal Credit Increases
|
$2.381
|
$8.163
|
$3.912
|
$0.000
|
|
Total
|
$0.300
|
-$1.053
|
$2.837
|
$0.878
|