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Committee debates SB99: lawmakers weigh whether to treat certain nonprofit rental and lodging income as taxable
Summary
Senate Bill 99 would classify rental income from agricultural leases and short-term accommodations as unrelated business taxable income for nonprofits; proponents said the change would level the playing field with for-profits and cited a specific landowner’s tax filings, while nonprofit advocates warned the categorical change could sweep in mission-related activity and create confusion.
Senator Becky Beard opened the hearing on Senate Bill 99, explaining the bill would treat rental income from certain agricultural leases and short-term accommodations as unrelated business taxable income (UBTI) for tax-exempt organizations. Senator Beard told the committee the provision would take effect for the 2026 tax year with collections likely in fiscal year 2027 and that the Department of Revenue may need rule and form changes to implement it.
Charles (name as recorded), speaking for United Property Owners of Montana, said his organization was prompted by members worried that a wealthy nonprofit buying ranch land was 'rewilding' and earning substantial rental and visitation revenue while reporting $0 in unrelated business taxable income on federal returns. He presented excerpts (handout) he said showed roughly $486,000 reported as gross rents and about $269,000 in visitation income on a nonprofit’s federal filings and argued the state should explicitly classify leasing agricultural property and accommodations as taxable to maintain fairness with for-profit ranchers.
Adam Jespersen, executive director of the Montana Nonprofit Association, opposed the bill. Jespersen summarized IRS guidance that UBTI determinations are fact-specific, and he warned that a categorical state definition would tax activities that federal rules treat as mission-related for some nonprofits — for example, land trusts leasing property to beginning farmers or nonprofits offering subsidized lodging for veterans or medical families. He urged the committee not to supersede federal case-by-case determinations with a blanket state rule.
Department of Revenue officials Finn McMichael and Mark Schoenfeld participated as informational witnesses. Schoenfeld said the department generally starts with an organization’s federal return and reported UBTI figures but that a state-specific change could produce new implementation and compliance tasks. On property-tax spillover, witnesses said they did not have an immediate answer about whether UBTI treatment would trigger property-tax reclassification.
Committee members asked detailed follow-ups about federal-state coordination, whether public schools or public universities could be affected, how enforcement would work, and whether the legislation would unintentionally push nonprofits to sell donated land. Witnesses and proponents acknowledged many of the tests are fact-driven, and several senators urged caution and additional analysis.
Next steps: The committee closed the SB99 hearing after extensive Q&A. SB99 drew the most sustained questioning of the day; committee members requested clarifications during subsequent deliberations.
