No. 83-551 

IN THE SUPREME COURT OF THE STATE OF MONTALJA 

TED SCHWINDEN, In his Official Capacity 

as Governor of the State of Montana; 

ELLEN FEAVER, In her Official Capacity 

as Director of Revenue of the State of 

Montana; DEPARTMENT OF REVENUE of the 

State of Montana; MONTANA ASSOCIATION 

OF COUNTIES; MONTANA LEAGUE OF CITIES 

AND TOWNS; URBAN COALITION; and MONTANA 

SCHOOL BOARDS ASSOCIATION, 

Plaintiff s, 

-vsBURLINGTOL.? NORTHERN, INC. , 

Defendant. 

ORIGINAL PROCEEDING: 

COUNSEL OF RECORD: 

For Plaintiff: 

David W. Woodgerd argued, Dept. of Revenue, Helena, 

Montana 

G. Steven Brown, Mont. Assoc. of Counties, Helena, 

Montana 

Robert M. McCarthy, Silver Bow County Atty. for League 

of Cities & Towns, Butte, Montana 

Mike McGrath, L & C County Attorney for Urban Coalition, 

Helena, Montana 

Chip Erdmann, Montana School Boards Assoc., Helena 

For Defendant: 

Stanley T. Kaleczyc argued, Helena, Montana 

For Amicus Curiae: 

George Bennett argued for Montana Bankers, Helena, 

Montana 

William David Dexter for Multi-Tax C~mmission, Seattle, 

Washington 

Submitted: October 9, 1984 

Decided: November 23, 1984 

Filed: fdijv 2 5 1984 

Clerk 
Mr. Justice John C. Sheehy delivered the Opinion of the 

Court. 

This is an original proceedings in this Court brought by 

Governor Ted Schwinden, Ellen Feaver, Director of the State 

Department of Revenue, and interested associations for a 

declaratory judgment determining the validity of section 

15-31 -1 16, MCA. The defendant taxpayer is Burlington 

Northern, Inc. 

We deemed important the issue raised by the complaint 

for declaratory judgment because it implicated the validj ty 

of state corporation license tax statutes which allocate 

revenue between the state and counties. We therefore 

accepted jurisdiction of the cause and remanded the case to 

the District Court, First Judicial District, Lewis and Clark 

County, to determine any factual controversies involved. 

The District Court scheduled hearings, determined facts 

under our remand, and returned its written findings of fact 

to this Court on May 25, 1984. Thereafter we provided time 

for the filing of objections by the parties, submission of 

briefs by the parties and amici on the issues and find-ings, 

and heard oral arguments on the cause. At the conclusion of 

oral argument, we asked for additional briefs from the 

parties on an issue raised by an amicus curiae. The cause 

now deemed submitted for decision, we proceed to our 

determination. 

I. 

HISTORY 

Prior to 1978, Montana counties were empowered by state 

law to impose a property tax on bank stock shares. Because 

federal obligations were included in the calculation of hank 
assets subject to that tax, the Montana hank shares tax was 

held unconstitutional and a ~~iolation of 31 U.S.C. S 742 

11976), (now 31 U.S.C. S 3124), in Montana Bankers 

Association v. Department of Revenue (1978), 177 Mont. 1.1.2, 

580 P.2d 909. 

The United States Supreme Court made a similar holding 

with regard to a Texas bank shares tax law in American Bank 

and Trust Company v. Dallas County (1983), No. 81-1717, Slip 

OP- I - U.S. - , 103 S.Ct. 3369, 77 L.Ed.2d 1072. 

The bank shares tax which was held unconstitutional in 

Montana Bankers was clearlv a property tax. The governing 

statutes were section 15-24-501 through -508, MCA 11978), 

which were codified in the special property tax applications 

chapter of the cocte. The property tax was measured as a 

percentage of the property owned and the revenue generated by 

the tax was collected and kept hy the counties. 

Until the Montana Bankers decision, Montana banking 

institutions paid a bank shares tax but no corporation 

license tax to the State. Although banks have been subject 

to the corporation license or income tax statutes since 1971-, 

(section 15-31 -101 (4) 1 , interest earned on federal 

obligations was excluded from t~xable income under those 

statutes. This applied to all corporations. No corporation 

paid a corporation license or income tax if its expenses were 

greater than its income after deducting excludable federal 

interest income. This was true even though the corporation 

was profitable when federal interest income was considered. 

Because financial institutions held a substantial portion of 

their assets in federal obligations, it was inevitable that, 

after deducting federal interest income, they owed no 

corporation license tax. After Montana Bankers the banks 
paid neither the bank shares tax nor a corporation license 

tax and the counties ,-ost an important source of revenue. 

The legislature responded to the tax revenue loss 

growing out of our decision in Montana Bankers by passing Ch. 

634, Laws of Montana (1979). The passage of that act made 

savings and loans i.nstitutions subject to the corporation 

license tax, made interest income from Montana obliqations 

includable in corporate taxable income hy repealing the 

exemption for Montana interest, and allocated to the counties 

a portion of the corporation license tax revenue. 

Subjecting savings and loan associ-ations to the 

corporation 1-icense tax brought about First Federal Savings 

and Loan Association v. Department of Revenue (Mont. 19821, 

654 P.2d 496, 39 St.Rep. 1802, cert. den. 103 S.Ct. 312.8 

(1983). In First Federal, the savings and loan associations, 

in computing their corporation license tax, deducted from 

yross income the interest income earned from federal 

obligations. The Department of Revenue, in examining their 

tax returns for the year involved, disallowed the deduction 

for interest income earned from federal obligations. One of 

the issues coming before this Court in that case was whether 

the inclusion of interest from federal obligations in income 

subject to the corporation 3icense tax violated 31 [J.S.C. S 

742 (1976) , which stated that "Except as otherwise provided 

by law, all . . . obligations of the United States, shall be 

exempt from taxation by or under State or municipal or local 

authority . . . " In First Federal, this Court determined 

that federal obligation interest income received by the 

taxpayers was not includable in income for the purpose of 

calculating the Montana corporation license tax. 
After the decision in First Federal, Montana banks and 

savings and 1-oan associations paid no corporation license 

tax, no corporation income tax, and no property taxes on 

their Sa.nk shares. The legislature responded in 1983 by 

passing section 3-5-31-11.6, MCA, which is the center of 

controversy here. 

Burlington Northern, Inc. is a corporation which 

operates a railroad and other business interests in and out 

of Montana. Montana imposes either a license tax or an 

income tax on corporations. The license tax, section 

?-5-31-101, MCA, is imposed on every corporation for the 

privilege of doing business in Montana. The income tax, 

section 1.5-31.-403, MCA, is a "back-up" statute to impose a 

tax on mu1tj.-state corporations that derive income from 

Montana but are not doing business here. Eecause of the 

broad definition given to "doing business" in Montana., rost 

corporations with business connections in the state are 

subject to the corpora.tion ,icense tax. Both the corporation 

income and the corporation license taxes are calculated in 

the same manner, using the same statutes to determine the 

amount of the tax. 

We remind. the reader, though it is not an issue in this 

case, that Montana follows the unitary principles of state 

taxatior, where multistate corporations are involved. This 

method of a. taxation has been approved by this Court, Ward 

Paper Box Co. v. Dept. of Rev. Etc. (1981), 1.96 Mont. 87, 638 

P.2d 1053; and the United States Supreme Court in Mobi3.e Oil 

Corporation v. Commissioner of Taxes of Vermont (1980) , 445 

U.S. 425, 436, 100 S.Ct. 1223, 1231, 63 L.Ed.2d 510, 520. 
IS SECTION 15-31-116, MCA VALIJD? 

As we have said, after cur decision in First Federal 

interest income from federal. obligations was not includable 

in the taxable income of corporations subject to the state 

corporation license tax. Section 15-31-116, MCA, provides, 

however, that when a corporate taxpayer computes allowable 

deductions from gross income, those deductions a.re decreased 

by i! ratio of the fed-era1 interest income to al-1 interest 

income earned by the corporation. This section provides as 

follows: 

" (1) A corporation, taxable under this part, that 

excludes interest from grcss income which would be 

taxable except for federal law must adjust its 

allowable deductions for all taxable periods for 

which interest js excluded in the following manner: 

" (a) the total amount of interest excluded from 

gross income by federal law must be determined; 

" (b) the tota J amount of all. interest i-ncome from 

all sources must be determined; 

" (c) the ratio of excluded interest income to all 

interest income must be determined; and 

" (d) the total deductions allowable under 

15-31-11.4 must be reduced by an amount determined 

by multiplying the amount of deduction otherwise 

allowehle by the ratio of excluded interest to all 

interest income; however, the product of this 

calculation may not exceed the amount of excluded 

interest income. 

" (2) Allowable deductions must he reduced with 

respect to all corporations that exclude interest 

income otherwise taxable upon returns filed for all 

taxable periods for which such exclusion is claimed 

and for all taxable periods for which a claim for 

refund is made." 

In its findings of fact, the District Court found th.a.t 

an algebraic formula adopted by the state department of 

revenue in 42.23.417 A.R.M. demonstrates how to compute the 

deductions disallowed on the basis of federal interest 

income. That formula follows: 
Exempt Interest Jncome x Total Deductions = Deductions Disall-owed 

Total Interest Income 

For the year 1982 (th.e only year which we are concerned 

with) RN's total interest income from all sources constituted 

1.74% of its gross income; the percentage of BN's total 

interest income made up of federally exempt income was 20.4%. 

Application of the section 15-31-116, MCA formula to EN'S 

1982 interest and expense data produces the following result: 

$18,328,000 x $4,677,639,000 = $952,765,750 

$89,982,000 

Because, however, section 15-31-11-6, MCA, limits the 

amount of disallowed deductions to the amount of the federal 

interest income received, the amount of deductions actual1 y 

disallowed BN in tax year 1982 $18,328,000. The District 

Court found that the effect of the statutory formula, 

combined with the statutory limit, is to add back to RN's 

taxable income 100% of BN's federal interest in tax year 

1982. 

The Department of Revenue argues that (1) deductions 

allowable to compute state taxab1.e income are a matter of 

legislative grace; (2) there is precedent for section 

1-5-31-116, MCA, in the Internal Revenue Code, 26 U.S.C. 291; 

and, (3) the except-ion enacted in 31 U.S.C. S 742 (1976), 

(now 31 U.S.C. S 3124), shows that federal interest can be 

taxed in some instances. 

BN responds that 31 U.S.C. 5 31.24 forbids circuitous as 

well as direct attempts to tax federal interest income, 

citing American Bank and Trust Company v. Dallas County 

(1983), No. 81-1717 Slip Op., US - , 103 S.Ct. 3369, 77 

L.Ed.2dI 1072 to the effect that "Congress intended to sweep 

away formal distinctions and to invalidate all taxes measured 
directly or indirect-ly by the value of federal obligations, 

except those specified in the amendment." 103 S.Ct. at 

3377, 77 L.Ed.2d at 1082. 

We determine that the net effect of section 15-31-11 6, 

MCA, is to add back to taxable income interest income fro^ 

federal obligations for the purpose of determining state 

corporation license tax. This, states are not permitted to 

do. Under 31 U.S.C. S 3124 both federal obligations and 

interest therefrom are exempt from taxation by states 

directly or indirectly in the computation of tax, unless the 

tax is specifically excepted in 3124(1) or (2). 

Because our holding in First Federal was that the 

corporation license tax was not a franchise tax, section 

15-31-116, MCA, standing alone, is invalid. It directly 

contravenes a federal law and as such violates the supremacy 

clause of the federal Constitution (Art. VI, C1. 2). 

111. 

OUR DECISION IN FIRST FEDERAL 

The issuance of our decision in First Federal created an 

emergency of sorts for the counties because of the material 

reduction in their tax revenue because of the decision. One 

consequence was that the Department of Revenue petitioned the 

United States Supreme Court for a writ of certiorari relative 

to our decision, a petition which was joined in by 25 other 

states. Certiorari was denied by the United States Supreme 

Court (cert.den. 103 S.Ct. 3128 (1983)). 

The legislature disagreed with our decision in First 

Federal and said so in its preface to the adoption of Ch. 

673, Laws of Montana (1983) , which became section 15-31-116, 

MCA. The legislature was also careful to state that the 

passage of the new enactment was for the purpose of 
maintaining current levels of revenue to the state and local 

governments. 

Thus, our decision today that section 15-31-11-6, MCA, is 

invalid returns the State to the position it was in prior to 

the enactment after First Federal. Banking institutions will 

owe no corporation license tax. The question naturally 

arises, were we correct in First Federal, the centerpiece of 

the problem? 

We have determined to reexamine First Federal, though 

over the objection of BN that we should not consider an issue 

raised by an amicus curiae, the Montana Rankers Association. 

A. First Federal was incorrect 

In First Federal we held that under 31 U.S.C. 5 742 

(1976) corporate taxpayers filing tax returns under the 

Montana corporation license tax law could not be required to 

inc1ud.e in their reported income, interest earned on federal 

obligations during the taxable year. The operating paragraph 

of First Federal follows: 

"The Department argued that the Montana Corporation 

License Tax is a franchise tax on the privilege of 

doing business in Montana with the tax based upon 

or measured by the net income of the taxpayer. 

Hence, it was argued, that the tax is not on the 

property (interest income), but is on the 

privilege. This Court finds the argument to be 

unpersuasive. It is a distinction without a 

difference in our opinion. If the franchise tax is 

on the privilege and the tax is based on the net. 

income, this Court concludes that the tax is on the 

privilege - and the net income. If the net income 

includes tax-exempt interest, the tax is on exempt 

income which is prohibited by the specific federal 

statutes creating the federal obligations and 

granting the tax exemption . . . Jt also appears 

to this Court that by the Department's including 

the tax-exempt interest in net income, the 

Department is seeking to tax indirectly what it 

cannot tax directly, in violation of the general 

rule set forth in 31 U.S.C. ?42 (1976) . . . " 654 

P.2d at 498. 
It is apparent that this Court concluded that, because 

the corporation license tax laws of this state provided a tax 

that was measured by net income, the corporation license tax 

violated. federal law in that regard. We now d-etermine that 

we were erroneous in that conclusion and that the holding in 

First Federal should be reversed. 

We base our determination on these factors: (a) the 

Montana corporation license tax was fashioned after the 

federal corporation franchise tax statutes; (b) several of 

our cases preceding First Federal had held the Montana 

corporation license tax to be a franchise tax; (c) Congress 

has amended 31 U.S.C. § 742 (1976) to clarify when states may 

tax federal obligations and interest income; (d) the United 

States Supreme Court has enunciated the clarifying effect of 

the present federal statute, 31 U.S.C. S 3124; and (e) one 

other court has held other acts similar to the Montana 

corpora.tion license tax valid. 

We want it understood that we do not reach our 

determination reversing First Federal because of the tax 

I-oss to the state and counties if we were to continue First 

Federal in effect. If we were not convinced. of the error in 

First Federal, we would reluctantly hut candid.1~ ad.vise the 

1-egislature to look to other sources of tax revenues. 

By its terms, section 15-31-101, MCA, the corporation 

license tax sta.tute, is a franchise tax. It provides in 

pertinent part: 

" (3) Every corporation . . . engaged in business 

in the state of Montana shall annually pay to the 

state treasurer as a license fee for the privilege 

of carrying on business in this state such 

percentage or percentages of its total net income 

+or the preceding taxable year at the rate 

hereinafter set forth . . ." 
The precursor of section 15-31-101, MCA, came before the 

Montana Supreme Court in Equitable Life Insurance Company v. 

Hart, et al. (1918), 55 Mont. 76, 173 P. 1062. Equitable 

mainta.ined, among other arguments, that because it also paid 

a special tax for the privilege of conducti.ng an insurance 

business in the state, it should not be subjected to a 

further corporation license tax. This Court determined that 

Equitable was required to pay the Montana corporation license 

tax even though it paid other insurance license taxes. The 

Court reviewed the history leading to this statute and 

pointed out that the Montana corporation license tax followed 

verbatim the corporate franchise tax in the fed.era1 Tariff 

Act of 1909. This Court then referred to the United States 

Supreme Court case of Flint v. Stone Tracy Company (19101, 

220 U.S. 107, 31 S.Ct. 342, 55 L.Ed 389. 

". . . In the present case the tax is not payable 

unless there be a carrying on or doing of business 

in the designated capacity, and this is made the 

occasion for the tax, measured by the standard 

prescribed . . . the tax is laid upon the 

privileges which exist in conductinq business with 

the advantages which inhere in the corporate 

capacity of those taxed, and which are not enjoyed 

by private firms or individuals . . . Jt is this 

distinctive privilege which is the subject of 

taxation . . . " 55 Mont. 76, 83, 173 P. 1062, 

quoting Flint in part. 

In State v. J. C. McGuire Construction Company (1942), 

113 Mont. 324, 328, 125 P.2d 433, 434, this Court said: 

"In all Later decisions of this court wherein this 

tax has been under consideration or has been 

referred to in any way it has been spoken of as a 

Eranchise tax, or license tax, an excise upon the 

privilege of doing business in the state in a 

corporate capacity. Cottonwood Coal Company v. 

Junod, 73 Mont. 392, at page 398, 236 P. 1080; East 

Helena State Bank v. Rogers, 73 Mont. 210, at page 

213, 236 P. 1090; OIConnell v. State Board of 

Equalization, 95 Mont. 91 at page 118, 25 P.2d 114. 

It has been clearly distinguished from the license 

fees exacted upon the grant of privilege and from 

taxes imposed upon income or property. With the 

history of jud.icia1 interpreFation of the act as we 
have it thus harmorlized with other tax measures, 

and the administration of the law in accord.a.nce 

therewith, the question of the character of the tax 

is so well settled as to leave no room for doubt or 

speculation. " (Em.phasis added.. ) 

In Montana Bankers Association v. Department of Revenue 

(1978), 177 Mont. 11.2, 580 P.2d 909, this Court construed the 

Montana bank shares tax act, a property tax, as valid only if 

it be interpreted to authorize a deduction for the value of 

federal. obligations in computing the hank shares tax basis. 

This Court relied on the 1959 amendmen.t to 31 U.S.C. S 742 

(1976), of which more later. This holding is still effective 

in Montana. 

The Montana corporation license tax is not to be 

considered. a property tax. OIConnell v. State Board of 

Equalization (1933), 95 Mont. 91, 25 ~.2d 114. 

It is quite clear from our holdings prior to First 

Federa.1 that the Montana corporation license tax was 

determined by this Court to be a franchise tax and a 

nonproperty tax. Therefore, our decision in First Federal 

needs to be reexamined in the light of the language of 31 

U.S.C. S 3124 (the successor to 31 U.S.C. S 742 (1976)): 

"(a) Stocks and obligations of the United States 

Government are exempt from taxation by a State or 

political subdivision of a State. The exemption 

applies to each form of taxation that would require 

the obligation, the interest on the obligation, or 

both, to be considered in computing a tax, except-- 

" (1) a nondiscriminatory franchise tax or another 

nonproperty tax instead of a franchise tax, imposed 

on a corporation; and 

"(2) an estate or inheritance tax." 

(The language found in subdivision (1) and (2) of 31 

U.S.C. 5 3124 (a) is i.n essence the language found. in. a 1959 

amendment by the Congress to 31 U.S.C. S 742 (1976).) 
It was the intention of Congress in S 3124 t.o clarify 

the states' right to tax federal obligations or interest 

income in the narrow circumstances described i.n 5 3124. We 

determine that a nondiscriminatory franchise tax or other 

nonproperty tax instead of a franchise tax is permissible; 

and we determine that the Montana corporation license tax is 

valid as a nondiscriminatory franchise tax. 

In American Bank and Trust Company v. Dallas County 

(1983), No. 81-1717, Slip Op., - U.S. - , 103 S.Ct. 3369, 

77 L.Rd.2d 1072, the United States Supreme Court had before 

it the validity of the Texas tax on bank shares, a property 

tax. The court considered the Texas tax in the light of the 

1959 federal amendment which is now a part of 3124. 

Because the 1959 amendment provided for specific exemptions 

for franchise and estate and. inheritance taxes, and 

conspicuously omitted shares taxes from that group, the Court 

concluded that Congress meant to bar bank shares taxes to the 

extent that they consider federal obligations in the 

computation of a property tax. 103 S.Ct. at 3375. 

The first part of 5 3124(a) bars any form of taxation 

that would require federal obligations or the interest 

therefrom to be considered in computing the tax. The 

language of 3124 (a) , however, does not preclud-e the 

consideration of federal obligations or their interest income 

in computing a nondiscriminatory franchise tax. In American 

-- Bank and Trust Company, supra, the Supreme Court said j.n 

looking at the 1959 amendment: 

"Prior to the 1959 amendment, franchise and estate 

and inheritance taxes measured by the value of 

federal obligations, like bank shares taxes, were 

upheld on the theory that the tax was levied on the 

franchise or the transfer of the property rather 

than on the ownership interest in the federal 

securities themselves. By expressly exempting 
franchise and estate and inheritance taxes from the 

amended S 3701, Congress manifested its awareness 

that the new languase would broaden significantly 

the prohibition as it had been construed by the 

courts. Congress -- must have believed that franchise 

and estate and inheritance taxes required federal 

obligations - to 'be considered, direct1 - or 

indirectly, in tE computation of - the 'tax': - 

otherwise, thespecif ic exemptions frr these taxes 

would have been superfluous . . . " (Emphasis 

added.) 103 S.Ct. at 3375, 77 L.Ed.2d at 1079. 

Thus, a nondiscriminatory franchise tax levied by a 

state on a corporation for the privilege of doing business in 

the state is valid even though, in computing the tax, 

interest income from federal obligations is included. 

The rea-soning of the United States Supreme Court in 

American Rank makes it clear that a state may use, directly 

or indirectly, the interest income on federal. ohl-igations to 

determine corporate nondiscrimina-tory franchise taxes levied 

by the state. 

In Garfield Trust Company v. Director, Division of 

Ta.xation, a. cause in the New Jersey tax court (NO. CB 

143A-80, decided June 19, 1984), the New Jersey court upheld 

the validity of a New Jersey franchise tax in light of 31 

U.S.C. S 3124 and the decision in American Bank. New 

Jersey's corporate franchise tax is determined by the 

addition of prescribed percentages of net worth and net 

income allocable to the State of ?Jew Jersey. The plaintiff 

included its holdings of federal obligations and its income 

from those sources in computing its corporate income tax, 

paid the tax, and then. sued for refund. The refund was 

denied by the New Jersey taxing auth0riti.e~ and the New 

Jersey tax court upheld the denial. 

The legal theory adopted by the New Jersey tax court in 

reaching its decision is the same 3-s we have expounded here. 

The decision was based on American Bank which makes it clear 
that Congress, in 31 U.S.C. S 3124, provided a distinction 

between ncndiscriminatory franchise taxes measured by tax 

exempt obligations on the one hand, a.nd property taxes 

otherwise levied directly or indirectly by states on such 

federal items on the other. 

We also determine that the Montana corporation license 

-tax is a nondiscriminatory franch.ise tax. The term 

"nondiscriminatory" was made c1ea.r by the United States 

Supreme Court in Memphis Bank and Trust Company v. Garner 

(I-g83), 459 U.S. 392, 103 S.Ct. 692, 74 Il.Ed.2d 562. The 

Court said: 

"A state tax that imposes a greater burden on 

holders of federal property than on holders of 

similar state property impermissibly discriminates 

against federal obligations. See, e.g., United 

States v. County of Fresno, supra, at 462, 50 

L.Ed.2d 683, 97 S.Ct. 699 ('a state tax on those 

who deal with the Federal Government' is 

unconstitutional if the tax 'is imposed [unlequally 

on . . . similarly situated constitutents of the 

State'). Our cases establish, however, that if the 

'tax remains the same whatever the character of the 

[property] may be, no claim can be sustained that 

this taxing statute discriminates against the 

federal obligations.' Werner Machine Company v. 

Director of Division of Taxation, supra, at 493-94, 

76 S.Ct. 534, 100 L.Ed. 634." 459 U.S. at 397, 74 

L.Ed.2d at 567. 

Montana's corporation license tax does not discriminate 

against holders of federal obligations. It taxes the 

interest earned by corporate holders of state obligations. 

Section 15-31-115, MCA, provides: 

"Notwithstanding the provisions of any other law, 

the income from bonds or other obligations issued 

by any state or pol.itica1 subdivision of a. state 

are included in gross and net income for purposes 

of the corporation license tax . . ." 

B. May the Court reverse First Federal, as the issue was 

raised by amicus curiae? 

Reversal of our First Federal decision was first 

suggested in this cause by Montana Ba-nkers Association, 
appearing amicus curiae. It is contended therefore that the 

rectitude of our holding in First Federal cannot be examined 

in this case, as the issue was first raised by one not a 

party to the action. 

We determine here not to fol-low the usual rule that 

issues raised by amici that are not part of the underlying 

action will not be considered by this Court. Compell-ing 

reasons not to follow that rule include (a) the binding 

effect of First Federal on state officials, (b) the validity 

of section 15-31-116, MCA, inherently involves the operation 

of the Montana corporation license tax, and (c) in oriqinal 

proceedi~gs our powers are at least those of a district court 

under Rule 54(c), M.R.Civ.P. 

First Federal, when decided by this Court, was binding 

on the state officials who were charged by law with the 

collection of the Montana corporation license tax. The state 

officials therefore were not in a position to relitigate the 

validity of the holding in First Federal. Their duty instead 

required them to uphold the provisions of section 15-31-116, 

MCA, if possible. The state officials were not in the 

position of the usual party who, though he is able to do so, 

does not raise in the district court an issue for that 

court's decision. When outside issues are raised in this 

Court by amici, we usually have in mind the fact that the 

district court was not given an opportunity to resolve the 

issues raised by amici nor is it usually consonant with sound 

justice to reverse the district court on issues not decided 

in that court. 

The validity of the Montana corporation license tax, 

with or without section 15-31-116, MCA, is inherently 

involved in this cause. The principal duty of this Court in 
this cause is to determine the effect that 31 U.S.C. § 3124 

has on the Montana corporation license tax. Our decision in 

First Federal was the primal urge out of which came section 

15-31-116, MCA. If section 15-31-116 is illegitimate, as we 

find it is, the bastard child has a father, First Federal. 

The responsibility of the paternity is intertwined here. 

Finally, it must be remembered that this cause is ar 

original proceeding in this Court and the legal issues that. 

arise belong and pertain to this Court. We remanded this 

cause to the First Judicial District Court for fact-finding 

procedures, hut reserved to ourselves the legal issues 

involved. In entering judgment, our powers in an original 

proceedings are not less than those giver! a district court 

under Rule 54 (c) , M.R.Civ.P. Under that rule, every final 

judgment shall grant the relief to which the party in whose 

favor it is rendered is entitled, even if the party has not 

demanded such relief in his pleadings. 

We are not barred in this case, therefore, from 

reversing First Federal by the rule that amici may not raise 

issues not raised by the parties. 

IV. 

APPLICATION 

We therefore hold and determine that section 15-31-116, 

MCA, is invalid for offending federal law and the supremacy 

clause of the federal. Constitution. This opinion shall be 

and constitute a declaratory judgment to that effect. We 

further hold and determine that our decision in First Federal 

Savings and Loan Association v. Department of Revenue (Mont. 

1982), 654 P.2d 496, 39 St. Rep. 1802, cert. den. 103 S.Ct. 

3128 (1983), be and the same is hereby reversed as to its 

holding that income from federal obligations may not be 
considered in computing corporate taxes due under the Montana 

corporation license tax; we further hold and determine that 

the Montana corporation license tax as now provided in our 

statutes is a nondiscriminatory franchise tax imposed upon 

corporations for the privilege of doing business as 

corporations in this state. We order that the tax 

obligations of Burlington Northern, Inc. for the taxable year 

1982 shal-1 be determined under the Montana corporation 

license tax as interpreted by this Court in this Opinion, as 

well as the corporation's future Montana corporation license 

tax returns while said tax remains in effect. As to all 

other corporate taxpayers, filing under the Montana 

corporation license tax provisions, their returns shall be 

filed with taxes computed according to this Opinion for 

texable years ending after the date of this Opinion and for 

any amendment of tax returns for earlier years. With respect 

to whether the Montana corporation license tax should be 

otherwise retroactive1 y or prospectively applied under this 

Opinion, we retain jurisdiction for application to us by the 

Department of Revenue, or by any corporate taxpayer after 

proceeding before the State Tax Appeal Board, for the purpose 

of obtaining such further relief as may be required. 

Each party shall pay its own costs. 

qdh- G ,2h4+ 

Justice 

We Concur: 

- 

Chief Justice 
Justices 

Mr. Justice Fred J. Weber does not participate in this case. 
Mr. Chief Justice Frank I. Haswell, dissenting: 

I respectfully dissent. 

In my view, section 1.5-31-116, MCA, is unconstitutional 

on its face as it discriminates against obligati.ons of the 

United. States Government and therefore violates the Supremacy 

Clause of the United States Constitution. This Court has 

previously held that Montana's corporation li-cense tax is an 

income tax (Security Rank & Trust Co. v. Connors et al. 

!1976), 170 Mont. 59, 55C P.2d 1313) and not a fravchise tax 

(First Federal Savings and Loan Association v. Department of 

Revenue (Mont. 1982), 654 P.2d 496, 39 St.Rep. 1802, cert. 

denied 103 S .Ct. 3128) . Accordingly, stocks and obligations 

of the United States Government are exempt from taxation 

under 31 U.S.C. section 3124. Under section 15-31.-116, MCA, 

the entire federal interest exemption is added back into the 

tax base. 

Furthermore, section 15-31-116, MCA, as applied. to 

Burlington Northern, Inc., violates the due process clause of 

both the United States and Montana Constitutions because the 

formula used thereunder in disallowing deductions is not 

rational-ly related to its 2 percent interest income from 

TJnited States Government obligations. 

Finally, I would not reexamine, much less overrule, our 

prior decision in First Federal, supra. This issue was not 

raised by any party to this action. It was raised by amicus 

curiae Montana Bankers Association and under well settled 

rules of law, amici are not permitted to raise additional 

issues not raised by the parties to the lewsuit. 

34&4\ a,'%$,&, 4 

CHief Justice'