Case Title: BAKER BANCORPORATION INC v DEPT

Citation: 

Docket Number: 82-121

State: montana

Court: Montana Supreme Court

Date: 1982-12-29T00:00:00Z

Document:
No. 82-121 IN THE SUPREME COURT OF THE STATE OF MONTANA 1982 BAKER BANCORPORATION, INC., et al., Petitioner and Appellants, and Respondent, DEPARTMENT OF REVENUE OF THE STATE OF MONTANA, Respondents and Respondents. .1 from: District Court of the First Judicial District, In and for the Oounty of Lewis and Clark Honorable Robert M. Holter, Judge presiding. Counsel of Record: For Appellants: Harrison, Loendorf & Poston, Helena, Montana James T. Harrison, Jr., argued, Helena, Montana J. Patrick Giblin argued, Billings, Montana For Respondents: Michael J. Rieley argued, Helena, Montana Submitted: November 16, 1982 Decided : December 29, 1982 Filed: DEC 2 9 SSEe" M r . J u s t i c e Gene B. Daly d e l i v e r e d t h e Opinion of t h e C o u r t . A p p e l l a n t s , s i x h o l d i n g companies, a p p e a l t h e d e n i a l of t h e i r claim f o r d e d u c t i o n s of d i v i d e n d s r e c e i v e d from s u b s i d i a r y cor- p o r a t i o n s i n which t h e y own 80 p e r c e n t or more of t h e v o t i n g s t o c k . The c o n t r o v e r s y h e r e c e n t e r s upon t h e i n t e r p r e t a t i o n of a 1973 amendment to S e c t i o n 84-1504, Revised Codes of Montana ( 1 9 4 7 ) , ( r e c o d i f i e d i n p a r t i n s e c t i o n 15-31-113(2), MCA) and whether case law i n t e r p r e t i n g t h a t s e c t i o n p r i o r to its amendment is s t i l l c o n t r o l l i n g . Old Revised Codes of Montana (R.C.M.) c i t e s w i l l be used s i n c e we are concerned w i t h p r o v i s i o n s enacted p r i o r to and d u r i n g 1973. S e c t i o n 84-1504, R.C.M., 1947, is p a r t of Montana's C o r p o r a t i o n L i c e n s e Tax A c t and d e s c r i b e s how t h e l i c e n s e t a x is computed. P r i o r to 1973, s e c t i o n 84-1504 provided t h e f o l l o w i n g d e f i n i - t i o n of g r o s s income and n e t income: ". . . The term g r o s s income means t h e income from a l l s o u r c e s w i t h i n t h e state of Montana recognized i n t h e d e t e r m i n a t i o n of t h e c o r p o r a t i o n ' s f e d e r a l income t a x l i a b i l i t y ; b u t s h a l l i n c l u d e i n t e r e s t exempt from f e d e r a l income t a x . The t e r m ' n e t income' means t h e -- -- - - - - - - g r o s s income o f t h e c o r p o r a t i o n less t h e - - - - - - - --- -- a l l o w a b l e --- deductyons.- ~ G e r , t h e d e f i n i t i o n s 7- - - - - - - - o f g r o s s Income and n e t income set f o r t h i% - - - I - - - - - - t h i s - E c t l o n s h a l l n o t be c o n s t r u e d as - - - ---- a l l o w i n g t h e d e d u c t i o n s s e t f o r t h i G & Z t i o T 2 4 3 o f t h e - ~ e d e r a l internal ~ e v e n u e Code as -- ----- - - - -- - - now w r i t t e n . or as t h a t s e c t i o n s h a l l i3& -- - - - -- l a b e l e d or amended. . . - - - -- ----- " (Emphasis added.) I n i n t e r p r e t i n g t h e above language, t h i s Court cons is t e n t l y h e l d t o t h e r u l e t h a t t h e d e f i n i t i o n of g r o s s income and n e t income is dependent upon and i n c o r p o r a t e s by r e f e r e n c e t h e F e d e r a l I n t e r n a l Revenue Code, e x c e p t where Montana l a w e x p r e s s l y p r o v i d e s o t h e r w i s e . Lazy J D C a t t l e Co. v . S t a t e Board of E q u a l i z a t i o n ( 1 9 7 2 ) , 1 6 1 Mont. 4 i 3 504 P.2d 287; F i r s t F e d e r a l S a v i n g s and Loan A s s o c i a t i o n v. S t a t e Tax Appeal Board ( 1 9 7 5 ) , 167 Mont, 33, , 535 P.2d 183 ( i n t e r p r e t i n g s e c t i o n 84-1504 f o r t h e t a x y e a r s p r i o r to 1 9 7 3 ) . Any f e d e r a l d e d u c t i o n was a l l o w a b l e i n Montana, u n l e s s some s e c t i o n of t h e Montana C o r p o r a t i o n License Tax A c t e x p r e s s l y provided o t h e r w i s e . I n 1973, t h e Montana L e g i s l a t u r e amended s e c t i o n 84-1504 t o r e a d as f o l l o w s : ". . . The term g r o s s income means a l l income r e c o g n i z e d i n d e t e r m i n i n g t h e c o r p o r a t i o n ' s g r o s s income f o r f e d e r a l income t a x purposes; b u t s h a l l i n c l u d e i n t e r e s t exempt f r o m f e d e r a l income t a x . N o c o r p o r a t i o n is exempt from t h e c o r p o r a t i o n l i c e n s e t a x u n l e s s s p e c i f i c a l l y provided f o r under s e c t i o n 84-1501. Any cor- p o r a t i o n n o t s u b j e c t t o or l i a b l e forfedgr-aT . r - - Income t a x b u t n o t exempt from t h e c o r p o r a t i o n l i c e n s e t a x under s e c t i o n 84-1501 s h a l l corn- - - - p u t e g r o s s income f o r c o r p o r a t i o n l i c e n s e t a x - - - - - P - p u r p o s e s i n t h e same manner as a c o r p o r a t i o n - - - F -- -- t h a t is s u b j e c t t o or l i a 6 i e - f E r - f x f 6 i ---- - - - - - income t a x a c c o r d i n g to t h e p r o v i s i o n s f o r ---- - 7 - - d e t e r m i n i n u Gross i n c o m e i n t h e f e d e r a l ihter- 4 4 - - - - - - n a l revenue code - i n e - £ f < c t t f o ~ ~ e e - t a x a b l e - - - --- year. The term ' n e t income' means t h e G r o s s - - -- P - income o f t h e c o r p o r a t i o n ~ < k s ~ deduc?i%-6~ ----- . - -- - - - set f o r t h i n s e c t i o n 84-1502." ( ~ r n p ~ a ~ s - a - f l e ~ . - - -- - - - - - A The d e d u c t i o n s claimed by a p p e l l a n t s a r e provided f o r i n sec- t i o n 243 o f t h e F e d e r a l I n t e r n a l Revenue Code. These d e d u c t i o n s were e x p r e s s l y d i s a l l o w e d i n t h e pre-1973 v e r s i o n of s e c t i o n 84-1504. That d i s a l l o w a n c e was d e l e t e d i n 1973. The a p p e l l a n t s h e r e are s i x one-bank h o l d i n g companies, each of which owns 80 p e r c e n t or more of t h e v o t i n g s t o c k of a commer- c i a l bank. The f o l l o w i n g is a list of t h e holding companies and t h e i r r e s p e c t i v e bank s u b s i d i a r i e s : P a r e n t Holding Company Baker Bancorporat i o n , I n c . Bozeman B a n c o r p o r a t i o n , I n c . B u t t e I n s u r a n c e Agency, I n c . Mineral County B a n c o r p o r a t i o n , I n c . Red Lodge Bancorporat i o n , I n c . Roundup I n s u r a n c e Agency, I n c . Bank S u b s i d i a r i e s - - - Montana Rank of Baker, N.A. Montana Bank of Bozeman, N.A. Montana Bank of B u t t e , N.A. Montana Bank of Mineral County Montana Bank of Red Lodge, N.A. Montana Bank of Roundup, N.A. From 1973 t o 1979, t h e a p p e l l a n t s c o n s o l i d a t e d t h e i r t a x r e t u r n s w i t h t h e i r r e s p e c t i v e s u b s i d i a r i e s . The Department of Revenue, upon examining t h e r e t u r n s , d e n i e d a p p e l l a n t s p e r m i s s i o n t o c o n s o l i d a t e them. I n r e c a l c u l a t i n g t h e r e t u r n s , t h e Department d i d n o t allow a p p e l l a n t s d e d u c t i o n s f o r d i v i d e n d s r e c e i v e d from t h e i r s u b s i d i a r i e s . The a p p e l l a n t s appealed t h e Department's d e c i s i o n to t h e S t a t e Tax Appeal Board (STAB) . STAB o v e r t u r n e d t h e D e p a r t m e n t ' s d e c i s i o n , and allowed t h e d e d u c t i o n s . STAB followed t h e case l a w which s t a t e d t h a t t h e C o r p o r a t i o n L i c e n s e Tax A c t i n c o r p o r a t e s by r e f e r e n c e t h e F e d e r a l I n t e r n a l Revenue Code. STAB reasoned t h a t s i n c e S e c t i o n 243 o f t h e F e d e r a l I n t e r n a l Revenue Code allows t h e d e d u c t i o n s , and s i n c e no p r o v i s i o n i n t h e C o r p o r a t i o n L i c e n s e Tax Act e x p r e s s l y p r o h i b i t s t h e d e d u c t i o n s , a p p e l l a n t s could d e d u c t t h e d i v i d e n d s r e c e i v e d from t h e i r s u b s i d i a r i e s . The Department appealed STAB's d e c i s i o n to t h e District Court of t h e F i r s t J u d i c i a l D i s t r i c t , L e w i s & C l a r k County. The District Court r e v e r s e d STAB's d e c i s i o n , s t a t i n g t h a t STAB i n c o r r e c t l y a p p l i e d pre-1973 s t a t u t o r y and case l a w i n computing t a x r e t u r n s f o r t h e y e a r s 1973 through 1979. The District Court concluded t h a t s e c t i o n 84-1504 a s amended i n 1973, i n its p l a i n meaning, l i m i t s d e d u c t i o n s t o o n l y t h o s e allowed i n s e c t i o n - - - 84-1502. S i n c e t h e d e d u c t i o n claimed by a p p e l l a n t s w a s n o t pro- v i d e d f o r i n s e c t i o n 84-1502, t h e D i s t r i c t Court d i s a l l o w e d t h e d e d u c t i o n , r e g a r d l e s s of t h e p r o v i s i o n i n t h e f e d e r a l t a x code. The sole i s s u e on review is whether under s e c t i o n 84-1504, R.C.M., 1947, ( r e c o d i f i e d i n p a r t i n s e c t i o n 15-31-113(2), MCA) , a p p e l l a n t s are allowed to d e d u c t d i v i d e n d s r e c e i v e d from sub- s i d i a r i e s i n which t h e y own 80 p e r c e n t or more of t h e v o t i n g s t o c k . I n i n t e r p r e t i n g s e c t i o n 84-1504 p r i o r to its 1973 amendment, t h i s Court acknowledged t h a t t h e F e d e r a l I n t e r n a l Revenue Code would be used t o d e f i n e " g r o s s income," " n e t income," and " a l l a l l o w a b l e d e d u c t i o n s , * I u n l e s s a n o t h e r p r o v i s i o n e x p r e s s l y pro- v i d e d o t h e r w i s e . Lazy J D C a t t l e C o . v. S t a t e Board of E q u a l i z a t i o n ( 1 9 7 2 ) , 1 6 1 Mont. 40, 504 P.2d 287; F i r s t F e d e r a l S a v i n g s & Loan v. S t a t e Tax Appeal Board (1975)r 167 Mont. 33, 535 P.2d 183 ( a p p l y i n g pre-1973 s t a t u t e s ) . I n Lazy J D C a t t l e C o . - - - - - -- w e s t a t e d t h e r u l e as f o l l o w s : "Thus t h i s Court h a s c o n s i s t e n t l y h e l d t h a t t h e d e f i n i t i o n of g r o s s income and n e t income f o r state c o r p o r a t i o n l i c e n s e t a x purposes is dependent upon and i n c o r p o r a t e s by r e f e r e n c e t h e p r o v i s i o n s of t h e F e d e r a l I n t e r n a l Revenue Code e x c e p t as e x p r e s s l y provided o t h e r w i s e , as i n t h e case of t h e exempt i n t e r e s t exclu- s i o n and t h e d i v i d e n d d e d u c t i o n . " 504 P.2d a t 290. See also Board of E q u a l i z a t i o n v. Farmer's Union G r a i n Terminal A s s l n ( 1 9 6 2 ) , 140 Mont. 523, 374 P.2d 231; Home B u i l d i n g & Loan A s s l n of Helena v. Board of E q u a l i z a t i o n ( 1 9 6 2 ) , 1 4 1 Mont. 113, 375 P.2d 312; and B a r t h v. S t a t e Board of E q u a l i z a t i o n ( 1 9 6 6 ) , 148 Mont. 259, 419 P.2d 484. These cases have n o t been o v e r r u l e d and are still good l a w i n Montana. STAB based its d e c i s i o n on t h e above cases; t h e District C o u r t d i d n o t . W e a g r e e w i t h t h e STAB r e a s o n i n g and h e r e b y r e i n s t a t e its o r d e r . The 1973 amendment to s e c t i o n 84-1504 d i d n o t a l t e r t h e i n t e r r e l a t i o n s h i p t h a t e x i s t s be tween t h e F e d e r a l I n t e r n a l Revenue Code and t h e Montana C o r p o r a t i o n L i c e n s e Tax A c t . The I n t e r n a l Revenue Code i n s e c t i o n 243 p e r m i t s c o r p o r a t i o n s t o t a k e a d e d u c t i o n f o r 100 p e r c e n t of t h e d i v i d e n d s r e c e i v e d by them from s u b s i d i a r y c o r p o r a t i o n s i n which t h e y own 80 p e r c e n t or more o f t h e v o t i n g s t o c k . N o p r o v i s i o n i n t h e Montana C o r p o r a t i o n L i c e n s e Tax A c t e x p r e s s l y p r o h i b i t s t h e s e c t i o n 243 d e d u c t i o n . A p p e l l a n t s are t h e r e f o r e e n t i t l e d to d e d u c t a l l d i v i d e n d s r e c e i v e d by them from s u b s i d i a r y c o r p o r a t i o n s i n which they own 80 p e r c e n t or more of t h e s t o c k . The D i s t r i c t C o u r t ' s judgment i a t e d and t h e STAB o r d e r r e i n s t a t e d . Chief Ju'sticc