Montana's corporate income tax law requires members of a unitary business to file returns on a worldwide combined basis unless a water's edge election is made to exclude foreign affiliates from the combined group. A Montana water's edge group pays tax at an elevated tax rate of 7% instead of the regular rate of 6.75%.

While many states require a water's edge election to be made by the due date or extended due date of the return for the year for which it is intended to be effective, Montana is unique in that a water's-edge election must be made within 90 days of the beginning of the first year in which it is first intended to become effective. Accordingly, a corporation wishing to make a new water's edge election, or renew an existing election, applicable to the 2019 tax year must file a Form WE-ELECT by March 31, 2019.

For more on Montana's water's-edge election, see Tax Alert 2019-0050.

Implications

The Montana water's edge election procedure is one of the most unique and missed state elections. Taxpayers that want to make a water's edge election for calendar year 2019 must file the election by the statutory deadline. In our experience, the Montana Department of Revenue will not waive a missed timely water's edge election unless the taxpayer can establish that the late filing was due to reasonable cause as defined in the Montana Administrative Rules. Sections 42.26.302, 42.2.304, 42.2.512 of these rules define and provide examples of what does, and does not, constitute reasonable cause. This is a difficult burden to meet.

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