No. 12412 

IN THE 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 1 6 1973 

Filed : JUL 16 1973 
Mr, Justice John Conway Harrison delivered the Opinion of the 

Court. 

Plaintiffs, Harold and Evelyn Magnuson, filed an application 

for revision with defendant State Board of Equalization seeking 

refund of $269.50 for income taxes paid for the tax years 1965, 

1966, 1967, and 1968. The application was denied by the Board 

and plaintiffs brought this action in the district court of the 

first judicial district, Lewis and Clark County, for review of 

the ~oard's decision. The Honorable Peter Meloy, sitting without 

a jury, rendered judgment for plaintiffs, holding that traveling 

expenses claimed were deductible. Defendant Board moved the court 

to amend its findings of fact and conclusions of law, but was 

denied. The Board appeals from the judgment and order denying 

the motion to amend, 

The facts are not in dispute. Plaintiff taxpayers are long 

time residents of Harlem, Montana, Plaintiff owns and operates a 

salvage yard business in Harlem and also conducts an accounting 

business there. His Harlem residence was his place of business in 

Harlem. He is also employed by the Burlington Northern Railroad 

in Havre, Montana, where he works the midnight to 8:00 a.m. shift, 

five days a week. During the period 1965-1968, for which travel 

expenses are claimed, he drove his personal car from his residence 

in Harlem to his railroad job in Havre and returned to Harlem 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 in Harlem, 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 

is primarily based upon the Federal Internal Revenue Code. Section 
84-4905, R.C.M, 1947, provides that Montana adjusted gross 

income is the 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 

to reach 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 161 and 

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 to be 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) In general. - There shall be allowed as a 

deduction all the ordinary and necessary expenses 

paid or incurred during the taxable year in carrying 

on any trade or business, including - 

1 I (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 or business; and 

Federal Regulation number 1,162,2 interprets the above 

section and amplifies the code provision by indicating that 

traveling expenses which are reasonable 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 are business expenses. 11 

In determining whether or not the travel expenses here were 

deductible, the Board relied on a United States Supreme Court case, 

Commissioner of Internal R,evenue v, Flowers, 326 U,S, 465, 66 S, 

Ct. 250, 90 L,Ed, 203, 207, and several tax court cases: Adelberg 
v, 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 is now Section 162(a)(2), Internal 

Revenue Code of 1954, In Flowers the taxpayer, an attorney, 

resided in Jackson, 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 to represent 

the Gulf, Mobile & Ohio Railroad in Mobile, Alabama, acting as 

trial counsel for the railroad in Mississippi, 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 at which 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 in Mobile, 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 cities covering 

the taxable years in question. The railroad company provided office 

space in Mobile, but when in Jackson he used his old law firm 

which provided space for working; 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 incurred while traveling, 
t t (2) The expense must be incurred 'while 

away from home, 1 

I I (3) The expense must be incurred in pursuit of business. This means that there must 

be a direct connection between the expenditure 

and the carrying on of the trade or business 

of the taxpayer or of his employer. Moreover, 

such an expenditure must be necessary or appropriate to the 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, in Flowers clearly 

indicate that plaintiff taxpayers' transportation expenses are 

not deductible and the trial court in its ruling overlooked the 

third condition of Flowers as to the deductibility of traveling 

I I expenses, that is: to be 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 all the 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 scrap business, 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 to job. 

In their brief, plaintiffs note that the ~oard's summary of 

facts would indicate Magnuson had two income producing bona fide 

jobs. In Flowers there was but one employment--the railroad. Here, 

there was one job and two separate business 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 to be strictly construed 

against the taxing authorities, and in favor of the 

taxpayer, see 51 Am.Jur. Taxation, 5 650. See also, 

State ex rel. Tillman v, District Court 101 Mont. 

176, 53 P.2d 107, 103 A.L.R. 376 ' * 

See also: Perham v. Putnam, 82 Mont. 349, 267 P, 305. 

In its conclusions of law the trial court noted that in 

Flowers the travel between Mobile and Jackson "was occasioned 

solely by his (the employee's) personal propensities. I' Such 

is not the fact here for Magnuson was required to be in Havre 

by his employer, the railroad. The trial court also noted 

I I The State's position is that since Mr, Magnuson lives in Harlem 

he cannot deduct his travel expense to Havre, but the state has 

admitted that if Mr, Magnuson lived in Havre where his railroad 

job was located, he could deduct the travel to his businesses in 

Harlem, This is a strange position," With that conclusion of 

the trial court, we most certainly concur. 

It was stipulated between the parties that the jobs or 

businesses in the two different communities were bona fide 

trades or businesses and not hobbies, Under such facts and 

conditions, we find the travel expense to be deductible, In 

so holding we in no way hold that travel expenses from a taxpayer's home to his business or job site are deductible, We 

find support for this position in several Tax Court and Board 

of Tax Appeal cases. Joseph W, Sherman, Jr. et ux v. Commissioner, 

16 T.C. 332, 337; Joseph W, Powell v, Commissioner, 34 B.T,A, 

655; Walter F, Brown v. Commissioner, 13 B,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 in Worcester, Massachusetts, all his 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 in Worcester. At Haskins he had 

no proprietary interest in the company, but worked as production 

manager and purchasing agent. This position did not require full 

time and attention so he formed a business to sell plastic 

products in New York City, in which he was sole proprietor. He 

maintained an address in New York City and spent four days a 

week there, including travel between the two cities. Petitioner 

Sherman claimed a deduction under Section 23 (a) (1) (A) , Internal 

Revenue Code, for expenditures made in connection with his business 

trips to New York.. This was contested by the Internal Revenue 

Service and the Tax Court in its opinion noted that it was not a 

Flowers - case situation: 

"This is not the case of a taxpayer who keeps his 

place of residence at a point where he is not engaged in carrying on a trade or business 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 or business, 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 his residence, Walter F. Brown, 

13 B.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; it was of a permanent 

character; and his roots were in Worcester where he spent the greater 

part of his time during the tax year, He had no office or place 

of business in New York, other than a mailing address. On his 

trips to New York he would stay at a hotel, at most only a few 

days at a time, While it is true that his rewards for the New 

York venture in 1945 exceeded his Worcester earnings for that year, 

that fact alone cannot shift his "home" from Worcester to New York, 

Everything said by the court in Sherman is applicable in the instant 

case, That court found the "traveling expenses" between the two 

cities deductible. 
Both the Board and Magnuson cite a 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 trial court in its conclusions of law raised a collateral 

issue with respect to businesses at two different locations where 

the problem is "major" and "minor" employment, The trial court's 

conclusions seem to indicate that if a taxpayer has bona fide - in 

jobs or businesses/two or more localities, that all his travel 

expenses are deductible, The Board contends that such conclusion 

is much too broad, is not applicable to the instant case, and 

the court's conclusion in this regard was directed towards those 

situations where a taxpayer leaves one business or employment 

situation and incurs travel expenses directly necessary to arrive 

at another business or employment situation, 

In Adelberg, the taxpayer drove from his home to a job 

with Space Technology Laboratories in El Segundo, California. 

After work there, he drove to UCLA in Los Angeles to teach and 

then drove home to Sherman Oakes, California. He was allowed 

to deduct travel expenses from El Segundo to UCLA, but was not 

allowed travel expenses from his home to El Segundo or from 

UCLA to his home. 

While Adelberg is more complex than the instant case, we 

find the trial court properly applied the holding there to this 

case for the travel expense attributed to travel between two 

employments was allowed, The court in Adelberg noted: 

"* * * where the taxpayer has two places of 

employment the cost of traveling from one of 

them to the other is a deductible business expense. t I 

The judgment of the district court is affirmed. --. 
We Concur: 

<. . , ................................ Associate Justices. 

Mr, Chief Justice James T, Harrison did not participate 

in the foregoing Opi-ni~n,