Montana has unusual laws regarding the water's-edge election for multinational unitary taxpayers. Unlike many unitary states, Montana does not allow taxpayers to make a water's-edge election with a tax return. Instead, Montana law requires unitary taxpayers to make the water's-edge election on or before the 90th day of the tax year for which the election is to be effective.¹ For calendar-year taxpayers, that date for making a 2016 Montana water's edge election is March 30, 2016.²

Further, under Montana law, the water's-edge election is not automatic but must be approved by the Montana Department of Revenue. Once made, the water's-edge election is valid for three tax years and must be reelected via a timely election during the fourth tax year. This approach differs from other states providing a water's-edge election.

If time for filing the water's-edge election is short, the completed application may be faxed to the Department of Revenue at the number listed on the form (Montana WE-ELECT).

Implications

Taxpayers and tax practitioners generally consider making a water's-edge election during the tax preparation process, not during the tax year. While not problematic for most states, this delay could be a costly mistake for multinational unitary companies filing in Montana, as statutory law does not allow retroactive elections or provide for any waiver of the filing date requirement. Generally, a taxpayer that misses the election date must wait until the following year to elect to be taxed on a water's-edge basis. Taxpayers not making a timely water's-edge election must file a worldwide combined return.

If a taxpayer has not considered and made the water's-edge election before the return is prepared, it is too late for the tax year. A taxpayer that attempts to make the water's-edge election with a timely-filed return will be delayed for two tax years. (By the time the tax return for the intended election year is filed, the due date for the next succeeding tax year has also passed.) Similar rules apply to re-election following closure of the preceding election period.

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ENDNOTES

¹ If the tax year is less than 90 days, the water's edge election must be made before the close of the tax year. See, Mont. Admin.R.42.26.302.

² During leap years (such as 2016), the final day for calendar year taxpayers to file the water's edge election is March 30.