Montana House Taxation Committee hears SB 99 to treat nonprofit agricultural lease income as taxable UBTI

Sen. Becky Beard, sponsor of Senate Bill 99, told the House Taxation Committee the bill would classify rental income from leasing class 3 agricultural property as unrelated business taxable income (UBTI) for tax-exempt organizations beginning in tax year 2026, with collections likely in fiscal year 2027 and implementation work for the Department of Revenue (DOR). "The bill is focused on the income tax portion of it," Beard said, arguing the measure promotes fairness by taxing revenues not reinvested in an organization's mission.

Charles Denow of United Property Owners of Montana urged the committee to support SB 99 and cited a nonprofit tax return in which roughly $486,000 in gross rents from grazing leases was reported as related-to-exempt-function revenue with $0 reported as unrelated business income. "It seems incompatible that a group whose purpose is to create a nature preserve could claim those same ranching activities are part of their exempt purpose," Denow said.

Adam Jespersen, executive director of the Montana Nonprofit Association, opposed the bill. He handed the committee an IRS publication on how the agency determines UBTI and argued the IRS uses a facts-and-circumstances, case-by-case approach that accounts for varied missions across organizations. "SB 99 takes that guidance and process and says that income derived from one type of activity in every instance'regardless of the stated purpose of the organization'must be considered unrelated business," Jespersen said, urging the committee to vote no.

Conservation and land-trust witnesses warned of practical harms. Mark Aagenes (The Nature Conservancy) said the bill would force land trusts either to raise grazing fees, stop leasing, or absorb costs, a "Sophie's choice" that would harm local ranchers. Mary Hollow of Prickly Pear Land Trust and Robin Kelson of Save Farmland described mission-driven leasing models that lower access costs for beginning ranchers; Kelson said the tax would either raise lease prices or force nonprofits to raise additional donations to cover tax liabilities.

Farmers and lessees who lease nonprofit-owned grazing lands testified about local impacts. Cliff Merriman and Connie French described discounted access to grazing through programs such as the Matador Grass Bank; French gave an estimated discounted AUM rate of about $24 after conservation-value discounts compared with a $30 pre-discount private rate, and noted BLM AUM rates and surcharges can be lower yet.

DOR witnesses Finn McMichael and Mark Schoenfeld told the committee the state currently follows federal determinations of UBTI but that SB 99 would require Montana-specific reporting and tracking (including changes to K-1 reporting) and additional audit/compliance work. DOR staff said additional revenue would be deposited to the general fund. McMichael noted corporate tax rates would apply to UBTI and Schoenfeld said the department would review and ensure proper reporting.

Committee members asked whether the bill targets a single organization and whether churches, shelters, or other nonprofit entities could be affected. Senator Beard acknowledged the bill's origin in one set of concerns and said the intent was to address perceived "tax creep" and inequalities in how revenues are treated. Questions to opponents and nonprofit witnesses focused on who bears costs (nonprofit, lessee, or reduced leasing) and on gaps in the fiscal note that make total statewide revenue impacts "not specified" at the hearing.

No formal committee action was taken on SB 99 during the hearing. The sponsor closed by reiterating the bill's focus on income tax, not property tax, and thanked members for the discussion.