Montana hearing on SB 99 would treat rental income from agricultural leases as unrelated business income for nonprofits

Sen. Becky Beard told the House Taxation Committee that Senate Bill 99 would classify rental income from leasing agricultural property as unrelated business taxable income for tax-exempt organizations, potentially making some conservation and land‑trust lease revenue subject to state income tax beginning in tax year 2026.

Proponents said the change would align state law with the goal of taxing income that is not related to an organization’s exempt purpose. Charles Denow, representing United Property Owners in Montana, said an organization such as the American Prairie Reserve has reported grazing lease income as related to its exempt purpose and not as unrelated business income; Denow urged the committee to “level the playing field” for for‑profit ranchers. The fiscal note attached to the bill says the change would be effective for tax year 2026 with collections likely in fiscal year 2027; the Department of Revenue told the committee it would likely need new forms and rules to identify such revenue on K‑1s but expects to implement changes without adding FTEs.

Opponents — including the Montana Nonprofit Association, the Nature Conservancy, regional land trusts, and local ranchers — argued the federal UBTI (unrelated business taxable income) test is applied on a case‑by‑case basis and that the state’s proposal would treat one activity the same for every nonprofit regardless of mission. Adam Jespersen, executive director of the Montana Nonprofit Association, said the IRS guidance evaluates whether an activity “contributes importantly to accomplishing that purpose” and warned that the bill would force a single rule for all organizations. Mark Aagenes of The Nature Conservancy said the bill would force nonprofits to choose between raising fees, ending grazing on conserved lands, or absorbing new costs.

Nonprofit and ranching witnesses described current lease practices they say support agriculture and local producers. Witnesses described the Nature Conservancy’s Matador Grass Bank as offering discounted grazing rates that help beginning ranchers; one witness said a typical AUM (animal unit month) rate before discounts is about $30 per AUM and that discounts can bring effective rates to roughly $24 per AUM. The Ruby Habitat Foundation described leasing irrigated hay ground and river bottom to local ranch families and said lease income supports agricultural education and demonstration work.

Department of Revenue staff said Montana currently begins with federal UBTI reporting and would continue to start with federal UBTI for administration, but that if the state required reporting that does not appear on federal returns, the department would review and ensure proper reporting. Bureau chief Bryce Kautz (Property Assessment Division) explained that property‑tax exemptions for nonprofits and agricultural classifications are governed by Montana statutory provisions and that some entities discussed in the hearing already pay property tax under ag classification rather than receiving an exemption.

The hearing included multiple questions from legislators about lease rates, how discounts are calculated, and whether the state’s approach would diverge from federal administration of UBTI. No committee vote occurred; the committee closed the hearing and moved to the next item.