No. 12412 INTHE SUPREME COURT OF THE STATE OF MONTANA 1973

HAROLD and EVELYN MAGNUSON, Plaintiffs and Respondents,

MONTANA STATE BOARD OF EQUALIZATION, Defendant and Appellant.

Appeal from: District Court of the First Judicial District, Honorable Peter Meloy, Judge presiding. Counsel of Record: For Appellant: Edward Jene Bell, argued, Helena, Montana. For Respondents: Harrison, Loendorf and Poston, Helena, Montana. James T. Harrison, 

### Jr. argued, Helena, Montana.

Submitted: May 29, 1973 Decided:

## Jfi 

## 161973 Filed: 

### JUL 

## 16 1973Mr, Justice John Conway Harrison delivered the Opinion of the Court. Plaintiffs, Harold and Evelyn Magnuson, filed an application forrevision with defendant StateBoard of Equalization seeking refund of $269.50 for income taxes paid for the tax years 1965, 1966, 1967, and 1968. The applicationwas denied by the Board and plaintiffsbrought this action in the district court of the firstjudicial district, Lewis and Clark County, for review of the ~oard's decision. The Honorable Peter Meloy, sittingwithout



### a jury, rendered judgment for plaintiffs, holding that traveling expenses claimed were deductible. Defendant Board moved the court to amend itsfindings of fact and conclusions of law, but was denied. The Board appeals from thejudgment and order denying the motion to amend, The facts arenot in dispute. Plaintiff taxpayers are long time residents of Harlem, Montana, Plaintiff owns and operates a salvage yard business inHarlem and alsoconducts an accounting business there. HisHarlem residence was hisplace of business in Harlem. He 

### isalso employed by the Burlington Northern Railroad inHavre, Montana, where he works the midnight to 8:00 a.m. shift, five days a week. During the period 1965-1968, forwhich travel expenses are claimed, he drove his personal car from his residence inHarlem tohis railroadjob in Havre and returned toHarlem each working day. ~~agnuson's financial return from his employment with Burlington Northern was greater than that from the total of his two independent businesses operated inHarlem, The travel expenses claimed but not allowed by the Board, were car mileage expenses for approximately 96 miles per day, five days a week, between the two communities. These were claimed as a business deduction on plaintiffs' Montana tax returns for the years 1965 through 1968. The determination of a taxpayer's Montana income tax liability isprimarily based upon the Federal Internal Revenue Code. Section84-4905, R.C.M, 1947, provides that Montana adjusted gross income isthe taxpayer's federal adjusted gross income as defined in Section 62 of the Internal Revenue Code of 1954, In determining deductions allowable from adjusted gross income toreach net income, section 84-4906, R.C,M. 1947, provides that those deductions are allowed which are permitted by Sections 161 and 211 of the Internal Revenue Code of 1954. Sections 161and 211 allow specific deductions subject to the exceptions provided for in Section 261, et.seq. In addition, section 84-4909(1), R. C.M. 1947, specifically disallows a deduction for personal, living

or family expenses. Montana has adopted the Federal Internal Revenue Code as the guide tobe used to determine matters such as income and expense for computation of Montana income tax. Section 162 of the Internal Revenue Code of 1954, 

### is the basis for the allowance of traveling expenses. It provides: "(a) Ingeneral. 

# - There shallbe allowed as a deduction allthe ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade orbusiness, including

# -

1I(2) traveling expenses (including amounts expended for meals and lodging other than amollnts which are lavish or extravagant under the circumstances) while away from home in the pursuit of a trade orbusiness; and

Federal Regulation number 1,162,2 interprets the above section and amplifies the code provisionby indicating that traveling expenses which arereasonable and necessary may be deducted. It provides: "1f the trip is solely on business, the reasonable and necessary traveling expenses, including travel fares, meals and lodging and expenses incident to travel arebusiness expenses. 11 In determining whether ornot the travel expenses here were deductible, the Board relied on 

### a United States Supreme Court case, Commissioner of Internal R,evenuev, Flowers, 326 U,S, 465, 66 S, Ct. 250, 90 L,Ed, 203, 207, and several tax court cases: Adelbergv, Commissioner, CCH Dec. 30, 

### 622(M)

## , Dlct, 1475-68, January 20, 1971, T.C, Memo. 1971-15; Deming v. Commissioner, CCH Dec. 31, 482(M), Dkt. 2806-69 SC, August 

### 1, 1972, T.C. Memo, 1972-163; Gurney v, Commissioner, CCH Dec. 31, 135(M), Dkt. 2572-70 SC, December 28, 1971, T.C. Memo 1971-329, The Flowers case interpreted Section 23(a)(1)(A), Internal Revenue Code of which 

### isnow Section 162(a)(2), Internal Revenue Code of 1954, In Flowers the taxpayer, an attorney, resided inJackson, Mississippi, where he had practiced law for many years associated some of the time with other law firms and then forming his own law firm. In 1906, he began torepresent the Gulf, Mobile & Ohio Railroad inMobile, Alabama, acting as trialcounsel for the railroad inMississippi, Later, from 1928 to 1927, he was special counsel, In 1930, he was made general counsel for the railroad and served as such until 1940 atwhich time the railroad company merged with another railroad and he became vice-president and general counsel of the new company, The main office of the company was inMobile, Alabama. 

### As a result of an arrangement made so that he could continue to Live in Jackson, Mississippi, it was agreed he would pay his traveling and living expenses between the two cities. Flowers determined the amount of time he would spend traveling between the two citiescovering the taxable years in question. The railroad company provided office space inMobile, but when in Jackson he used his old law firm which provided space forworking; he did not participate in the firm's business or profits. The United States Supreme Court denied Flowers the deduction claimed for travel expenses between the two cities for the tax year 1940, holding: "Three conditions must thus be satisfied before a traveling expense deduction may be made under Section 

### 23 (a)

### (I)(A) : (1) The expense nmst be a reasonable and necessary traveling expense, as that term is generally understood, This includes such items as transportation fares and food and lodging expenses incurredwhile traveling,tt(2) The expense must be incurred 'while away from home, 1

II

### (3) The expense must be incurred inpursuit of business. This means that there must be a direct connection between the expenditure and the carrying on of the trade orbusiness of the taxpayer or of his employer. Moreover, such an expenditure must be necessary or appropriate tothe development and pursuit of the business or trade. 11 Here, the Board contends that I.R,S. Regulations 1,162-2(a) and 1.162-17(a) and the Supreme Court's interpretation of Section 162(a)(2), Internal Revenue Code of 1954, inFlowers clearly indicate that plaintiff taxpayers' transportation expenses are not deductible and the trialcourt initsruling overlooked the third condition of Flowers as to the deductibility of traveling

II expenses, that 

### is: tobe deductible the transportation expenses must be connected to the business of his employer, the railroad." Plaintiffs and defendant Board recognize that Flowers is the key case concerning travel expenses and allthe tax court cases cited here discuss it,however, Flowers 

### -is factually distinguishable. In Flowers there was one employer, one salary; in the instant case plaintiff Magnuson had several. He received a salary from the railroad, an income from his scrapbusiness, and an income from his accounting business. It was stipulated and agreed by the parties that the latter two businesses were bona fide. In Flowers, the United States Supreme Court in 

### its third condition stressed what expenses could be considered as deductible in a one employment situation. Here, the question concerns deductibility for expenses between two or more jobs, not from home tojob. In their brief, plaintiffsnote that the ~oard's summary of factswould indicateMagnuson had two income producing bona fide jobs. In Flowers therewas but one employment--the railroad. Here, there was one job and two separatebusiness ventures. The trips between Harlem and Havre were not personal preference, but were of necessity in the pursuit of business.In Swartz v. Berg, 147 Mont. 178, 182, 411 P,2d 736, this Court said: "In interpreting tax statutes it should always be kept in mind that they are tobe strictlyconstrued against the taxing authorities, and in favor of the taxpayer, see 51Am.Jur. Taxation, 

### 5 650. See also, State ex rel. Tillman 

### v, District Court 101Mont. 176, 53 P.2d 107, 103A.L.R. 376 

# '* See also: Perham v. Putnam, 

### 82Mont. 349, 267 P, 305. In 

### its conclusions of law the trialcourt noted that in Flowers the travel between Mobile and Jackson "was occasioned solelyby his (the employee's) personal propensities. I' Such 

### isnot the facthere forMagnuson was required tobe inHavre by his employer, the railroad. The trialcourt alsonoted

IIThe State's position 

### is that since Mr, Magnuson lives inHarlem he cannot deduct his travel expense toHavre, but the statehas admitted that ifMr, Magnuson lived inHavre where his railroad job was located, he could deduct the travel tohis businesses in Harlem, This is a strange position," With that conclusion of the trialcourt, we most certainly concur. It was stipulatedbetween the parties that thejobs or businesses inthe two different communities were bona fide trades orbusinesses and not hobbies, Under such facts and conditions, we find the travel expense tobe deductible, In

soholding we inno way hold that travel expenses from a taxpayer's home to hisbusiness 

### orjob sitearedeductible, We find support for this position in severalTax Court and Board of Tax Appeal cases. Joseph 

### W, Sherman, 

### Jr. etux v. Commissioner, 16 T.C. 332, 337; Joseph W, Powell v, Commissioner, 34 B.T,A, 655; Walter F, Brown v. Commissioner, 13B,T.A, 832; Adelberg



### v. Commissioner, CCH Dec, 30, 622(M), Dkt, 1475-68, January 20, 1971, T.C. Memo. 1971-15, In Sherman the taxpayer had lived inWorcester, Massachusetts, allhis life, He owned real property there, paid his taxes there, voted there, and his children attended school there,He was employed by the Haskins Manufacturing Company which manufactured plastic praducts inWorcester. AtHaskins he had

no proprietary interest in the company, but worked asproduction manager and purchasing agent. This position did not require full time and attention so he formed a business to sellplastic products inNew York City, inwhich he was sole proprietor. He maintained an address inNew York City and spent four days a week there, including travelbetween the two cities. Petitioner Sherman claimed a deduction under Section 23(a)(1)(A)

## , Internal Revenue Code, for expenditures made inconnection with his business trips toNew York.. This was contestedby the Internal Revenue Service and the Tax Court in itsopinion noted that itwas not a Flowers 

### - case situation: "This isnot the case of a taxpayer who keeps his place of residence ata point where he isnot engaged in carrying on 

### a trade orbusiness and claims deductions for living expenses and cost of traveling to and from his residence. +C 9~ 

### " 4b This Court has heretofore recognized that a taxpayer may have more than one occupation orbusiness, and has held where it is sho~m that the taxpayer has two occupations which require him ta spend 

### a substantial amount of time in each of two cities, he is entitled to the deduction of traveling and other ordinary and necessary business expenses incurred in connection with attendance upon the one removed from hisresidence, Walter F. Brown, 13B.T.A. 

### 832; Joseph F, Powell, 

### 34 B.T.A. 

### 555, affd, 

### 94 Fed. (2d) 

### 483(CA-1)

# ." The Court further noted in Sherman that petitioner's Worcester employment was a significant source of income; itwas of a permanent character; and hisroots were inWorcester where he spent the greater part of his time during the tax year, He had no office or place of business inNew York, other than a mailing address. On his trips toNew York hewould stayat

### a hotel, atmost only a few days at a time, While it 

### is true that his rewards for the New York venture in 1945 exceeded hisWorcester earnings for that year, that fact alone cannot shifthis "home" fromWorcester toNew York, Everything saidby the court 

### in Sherman 

### is applicable in the instant case, That court found the "traveling expenses" between the two citiesdeductible.Both the Board and Magnuson citea recent Tax Court case, Adelberg v, Commissioner, CCH Dec. 

### 30, 662(M), Dkt. 1175-68, January 

### 20, 1971, T,C. Memo, 1971-15. Here, the Board argues that the trialcourt in 

### its conclusions of law raised a collateral issuewith respect tobusinesses attwo different locations where the problem 

### is "major" and "minor" employment, The trial court's conclusions seem to indicate that ifa taxpayer has bona fide

-in jobs orbusinesses/two or more localities, that allhis travel expenses are deductible, The Board contends that such conclusion ismuch toobroad, 

### isnot applicable to the instant case, and the court's conclusion in this regard was directed towards those situationswhere a taxpayer leaves one business or employment situation and incurs travel expenses directlynecessary toarrive atanother business or employment situation, InAdelberg, the taxpayer drove from his home to a job with Space Technology Laboratories inElSegundo, California. After work there, he drove to

### UCLA inLos Angeles to teach and then drove home to Sherman Oakes, California. He was allowed to deduct travel expenses from ElSegundo to UCLA, but was not allowed travel expenses from his home toElSegundo or from UCLA tohishome. While Adelberg 

### ismore complex than the instant case, we find the trialcourt properly applied the holding there tothis

case for the travel expense attributed totravelbetween two employments was allowed, 

### The court inAdelberg noted: 

# "**

# * where the taxpayer has two places of employment the cost of traveling from one of them to the other isa deductible business expense. tI The judgment of the district court isaffirmed.

--.

### We Concur:

<.

., 

# ................................ Associate Justices.


### Mr, Chief Justice James 

### T, Harrison did 

### not participate 

### in the foregoing Opi-ni~n,