The Policy Institute, based in Helena, Montana, blends authoritative research and hands-on political engagement to create public policy based on economic justice, fair taxation, corporate accountability and environmental responsibility.

How Electrical Transmission is Taxed in Montana

Corporate Income Tax (15-31-101 et seq, MCA)

Known also in Montana tax parlance as the corporate “license” tax, this tax is levied at a rate of 6.75% on net income earned in the state.

In the case of an independent “merchant” transmission line – a privately owned line on which capacity is sold to sundry energy producers, such as the Montana Alberta Tie Ltd. (aka MATL; say “Mattle”) – any corporate income tax owed reflects the net profits of that particular line. In the case of a line owned by a utility, e.g., Northwestern Energy’s Mountain States Transmission Intertie, or MSTI (“Misty”), the profitability and taxes generated by the line itself would be part of the overall profitability and tax obligation of the total corporate operation.

Wholesale Energy Tax (15-72-104 et seq, MCA)

The “WET tax” was instituted by the Montana Legislature in 1999 to replace some of the state revenue lost due to the lowering of property taxes on electrical utilities that accompanied deregulation of the energy industry in 1997. The tax is levied at a rate of $0.00015 per kilowatt hour on all electricity transmitted by a transmission service provider in the state.

From 2002 through 2008, the WET tax generated an average of $3.5 million annually. The revenue from the tax is distributed to the state general fund.

The proposed Montana Alberta Tie Line (MATL; say “mattle”), operating 24/7 at its full capacity of 300 megawatts, would pay about $395,000 in WET tax annually. The proposed Chinook line, at 3000 megawatts, would generate about $3,950,000 annually. Keep in mind that the lines are not likely to run at 100% capacity continually, if ever, and that it’s possible that some proposed lines would, in some situations, carry electricity that is currently transmitted – and taxed – on existing lines.

The WET tax is not paid by the line owner (“transmission service provider” in statutory language), but by the electricity generator (if the power is leaving the state) or the electricity distributor (if the power is being delivered in the state). For the major new lines currently proposed, most of the power transmitted is destined for out-of-state markets, so the WET tax would be paid by the firms generating the transmitted electricity.

Property Tax (15-6-157 MCA)

Because the major transmission line projects for Montana have been promoted as lines that would transmit wind-generated electricity, the lines would fall into Class 14 of Montana’s property tax system. Class 14 property is taxed at a rate of 3% of market value, compared with the rate of 12% paid on transmission lines that carry electricity generated from traditional sources, such as hydro and coal (15-6-141 MCA).

Class 14 and its reduced tax rate for wind-generated production was established by the 2005 Legislature to promote development of wind facilities, and the enabling statute was amended in 2007 to include other renewable operations, including biomass, biodiesel, coal gasification, ethanol, geothermal, and others, as well as extend the 3% tax rate to transmission lines built after June 1, 2007 that carry wind-generated power.

The 3% tax rate applies to the portion of a transmission line’s rated capacity that is occupied by power generated by wind and other renewable sources (as identified in 15-6-157, MCA). For example, if a 300 megawatt line transmitted 180 megawatts of wind-generated power and 100 megawatts of coal-generated power (leaving 20 megawatts of unused capacity on the line), 60% of the line’s market value would be taxed at 3% and 40% would be taxed at 12%.

Market values for all transmission lines in Montana, both in Class 9 and Class 14, are centrally assessed by the Department of Revenue, and the market value of a line within a particular property tax jurisdiction, e.g., a county, is determined by the portion of the entire line that is located within that jurisdiction.

For example, the MATL line is estimated (in the project Environmental Impact Statement prepared jointly by the Montana Department of Environmental Quality and the U.S. Department of Energy) to have a market value of $363,284 per mile. For one possible route of the line (Alternative 2), 12.76 of the line’s 129.89 miles in Montana would be located in Cascade County. Thus, the line’s market value in Cascade County would be $4,635,504, which, after applying the county’s average rural mill levy of 504 mills, would generate $70,105 annually in property taxes for the county. (This example assumes that the line’s entire capacity would be dedicated to renewable power, and thus taxed at a 3% rate.)

The estimated total property tax payment of the MATL line is $731,525 per year (using the assumptions described above). This is the single most significant source of revenue from any of the Montana taxes that would be levied on new transmission lines.

Property Tax Abatement for Energy Production (15-24-3101 et seq, MCA)

This provision of Montana’s tax law was passed in a special session of the 2007 Legislature. It allows the owner of a transmission line constructed after June 1, 2007 and carrying electricity generated by a renewable source to seek a reduction in property taxes of 50% for a period of up to 19 years. Thus, this abatement would decrease the property tax rate for the renewable-generated electricity on a new transmission line from 3% to 1.5%.

Continuing the scenario described for the MATL line in the preceding discussion on property taxation, the MATL line could decrease its annual property tax bill from $731,525 to $365,762. The property tax due to Cascade County would drop from $70,105 to $35,052 annually.

Application for this abatement is made to the Montana Department of Environmental Quality, which also develops administrative rules for the abatement and monitors compliance with the law. More Information