DA 07-0271

IN THE SUPREME COURT OF THE STATE OF MONTANA

2008 MT 125

U.S. WEST, INC.,

 

 Petitioner and Appellant,

 v.

DEPARTMENT OF REVENUE, 

STATE OF MONTANA,

 Respondent and Appellee.

APPEAL FROM: District Court of the First Judicial District,

In and For the County of Lewis and Clark, Cause No. CDV 06-810,

Honorable Thomas C. Honzel, Presiding Judge

COUNSEL OF RECORD:

For Appellant:

Jock O. Anderson and Dennis R. Lopach, Gough, Shanahan,

Johnson & Waterman, Helena, Montana

For Appellee:

Brendan R. Beatty, Special Assistant Attorney General, 

Department of Revenue, Helena, Montana 

Submitted on Briefs: January 4, 2008

 Decided: April 18, 2008

Filed:

__________________________________________

Clerk

April 18 2008
2

Justice W. William Leaphart delivered the Opinion of the Court.

¶1 Following an unfavorable ruling from the State Tax Appeal Board (“STAB”), U.S. 

West, Inc., filed a petition for judicial review with the District Court. The District Court 

issued a memorandum and order upholding STAB’s ruling; U.S. West now appeals this 

order.

¶2 We restate the issues as follows:

¶3 1. Did the District Court err in finding that, pursuant to § 15-31-510(2), MCA

(1997), U.S. West was liable for the additional interest assessed by the Department of 

Revenue for the tax year 1999?

¶4 2. Did the District Court err in finding that, pursuant to § 15-31-531(2), MCA

(1997), U.S. West was not entitled to interest on the refund it received on June 7, 2001?

BACKGROUND

¶5 U.S. West made $1,361,802 in quarterly tax payments for the 1999 tax year. 

Instead of filing its tax return on May 15, 2000, the company took advantage of an 

automatic statutory filing extension. On October 13, 2000, U.S. West filed its 1999 tax 

return, and claimed a total tax liability of $538,190. The quarterly payments made by 

U.S. West during 1999 exceeded this amount by $824,112. The company simultaneously 

filed a request for a refund of this overpayment.

¶6 On December 27, 2000, the Department of Revenue (“DOR”) asked U.S. West for 

more information concerning the refund request. U.S. West did not respond to this 

request until March 21, 2001—eighty-four days later. DOR contacted U.S. West with a 

second information request on April 12, 2001. U.S. West did not respond to this second 
3

request until May 10, 2001. Finally, the DOR issued a refund of $824,112 to U.S. West 

on June 7, 2001.

¶7 On December 16, 2002, U.S. West filed an amended 1999 tax return. On the 

amended return, U.S. West reported additional income which resulted in an additional tax 

liability of $368,654. U.S. West enclosed a payment of $435,012 with the amended 

return. The payment covered the additional $368,654 of tax liability, as well as $66,358 

in interest. U.S. West figured that it owed interest on the additional tax for the period

beginning June 7, 2001 (the date DOR issued the refund check for the May 15, 2000,

overpayment), and ending on December 16, 2002 (the amended filing date).

¶8 The DOR disagreed with U.S. West’s interest calculation, and issued an 

assessment claiming that U.S. West owed an additional $51,610 in interest. The DOR 

arrived at this figure by using May 15, 2000 (the original return due date), as the date 

from which the interest started to accrue.

¶9 U.S. West asked the DOR to review its decision to assess additional interest; after 

performing a review, the DOR issued a final determination affirming the assessment. 

U.S. West then appealed the DOR’s final determination to STAB. After a hearing on the 

matter, STAB upheld the DOR’s decision. U.S. West then filed a petition for judicial 

review of STAB’s order with the Montana First Judicial District Court. The District 

Court issued an order affirming STAB’s decision, from which U.S. West now appeals.

STANDARD OF REVIEW

¶10 We review a District Court’s order affirming or reversing an administrative 

decision of STAB to determine whether the agency’s findings are clearly erroneous, and 
4

whether the agency correctly interpreted the law. State Dept. of Revenue v. PPL 

Montana, LLC, 2007 MT 310, ¶ 19, 340 Mont. 124, ¶ 19, 172 P.3d 1241, ¶ 19. We 

review a District Court’s conclusions of law for correctness. PPL Montana, ¶ 19.

DISCUSSION

¶11 1. Did the District Court err in finding that, pursuant to § 15-31-510(2), 

MCA (1997), U.S. West was liable for the additional interest assessed by the 

Department of Revenue for the tax year 1999?

¶12 The first issue, stated simply, requires us to determine how much interest U.S. 

West should have paid on the additional income reported on its amended return. At the 

heart of the issue lies a question of statutory interpretation. The parties offer competing 

interpretations of § 15-31-510(2), MCA, which provides: “If any tax due under this 

chapter is not paid when due as provided in 15-31-545, by reason of extension or 

otherwise, interest is added to the tax due at the rate of 12% a year from the due date until 

paid.” Section 15-31-510(2), MCA (1997). 

¶13 The DOR claims that § 15-31-510(2), MCA (1997), requires U.S. West to pay 

interest on the additional income from the date it was originally due—in this case, May 

15, 2000. The DOR argues that U.S. West’s additional tax liability of $368,654 (based 

on the additional income reported on the amended return) was “not paid when due.” 

Section 15-31-510(2), MCA (1997). Thus, under § 15-31-510(2), MCA, interest must be 

“added to the tax due at the rate of 12% a year from the due date until paid.” Section 15-

31-510(2), MCA (1997) (emphasis added). The DOR maintains that the due date was 
5

May 15, 2000, and so interest on the additional tax liability must be assessed from May 

15, 2000, until December 16, 2002.

¶14 U.S. West argues that under the facts of this case, no tax was “due” under the 

statute until June 7, 2001. Including the additional income reported on the amended 

return, U.S. West’s total tax liability for the 1999 year was $906,844. As of May 15, 

2000, U.S. West had paid $1,361,802 in taxes (through quarterly installment payments, as 

required by statute) for 1999. Thus, U.S. West disputes the DOR’s argument that its total 

tax liability was “not paid when due.” In other words, U.S. West did not owe any debt to 

the DOR, even in light of the additional tax liability later discovered, because it had 

overpaid its taxes by such a significant amount. The company further argues that interest, 

by definition, can only accrue where a debt was owed.

¶15 However, U.S. West concedes that once the DOR issued the refund for the 

purported overpayment of $824,112, a deficit was created (though the deficit was not 

discovered until the amended return was filed). After the refund, U.S. West’s total taxes 

paid for 1999 amounted to $538,190. Thus, as of June 7, 2001 (the date the refund was 

issued), U.S. West had an outstanding balance of $368,654. Thus, U.S. West argues, the 

date its outstanding tax payment became “due” for purposes of § 15-31-510(2), MCA

(1997), is June 7, 2001. Consequently, U.S. West calculated and paid interest on the 

outstanding taxes from June 7, 2001, through December 16, 2002.

¶16 Each party’s proffered interpretation of § 15-31-510(2), MCA (1997), is plausible. 

The time-honored principles of statutory construction lead us to consider several 

questions as we weigh these two competing interpretations:
6

(1) Is the interpretation consistent with the statute as a whole? (2) Does the 

interpretation reflect the intent of the legislature considering the plain 

language of the statute? (3) Is the interpretation reasonable so as to avoid 

absurd results? and (4) Has an agency charged with the administration of 

the statute placed a construction on the statute? 

Montana Power Co. v. Cremer, 182 Mont. 277, 280, 596 P.2d 483, 485 (1979).

¶17 Under ordinary circumstances, where a corporation has underpaid its taxes, the 

“due date” for § 15-31-510(2), MCA (1997), purposes will be the date the original return 

was due. In this sense, we agree with the DOR’s reading of the “plain meaning” of the 

statute. However, as applied to the facts of the instant case, this reading results in an 

inequitable result: it would require a corporation which has overpaid its taxes to pay an 

interest penalty for underpayment.

¶18 Both parties concede that U.S. West’s tax liability for 1999 totaled $906,844, and 

that the entirety of the sum was due on May 15, 2000. It is undisputed that as of May 15, 

2000, U.S. West had paid $1,361,802 in taxes for 1999. As of June 7, 2001, after the 

refund was issued, U.S. West had paid $538,190 in taxes for 1999, resulting in a deficit 

of $368,654. As soon as U.S. West discovered this deficit, it submitted an amended 

return, along with payment of the outstanding $368,654. U.S. West also paid interest on 

the outstanding sum from June 7, 2001, to December 16, 2002, when the amended return 

was submitted and the outstanding taxes were paid.

¶19 We have long recognized the “rule of statutory construction [which provides] that 

a literal application of a statute which would lead to absurd results should be avoided

whenever any reasonable explanation can be given consistent with the legislative purpose 

of the statute.” State v. Trimmer, 214 Mont. 427, 432-33, 694 P.2d 490, 493 (1985)
7

(citations omitted). In the instant case, the DOR’s literal application of the statute leads 

to an absurd result, and thus, should be avoided. Ordinarily, we give deference to the 

statutory interpretation advanced by the agency charged with administering the statute. 

See e.g. State ex rel. Holt v. District Court, 2000 MT 142, ¶ 10, 300 Mont. 35, ¶ 10, 3 

P.3d 608, ¶ 10. However, here the DOR’s interpretation does not comport with the 

above-stated principles of statutory construction, and so we decline to adopt it. 

¶20 We conclude that U.S. West’s reading of the statute is more consistent with the 

statutory scheme as a whole, and better reflects the intent of the legislature. The clear 

legislative intent behind § 15-31-510(2), MCA (1997), is to require delinquent corporate 

taxpayers to pay the DOR an interest penalty on outstanding taxes. At no point between 

May 15, 2000, and June 7, 2001, did U.S. West “owe” any taxes to the DOR. We decline 

to interpret the statute to require U.S. West to pay interest on a debt that it did not owe. 

Under the unique facts and circumstances of this case, U.S. West did not have an 

outstanding tax payment until June 7, 2001. Thus, interest on the outstanding taxes 

should be calculated from June 7, 2001, forward.

¶21 2. Did the District Court err in finding that, pursuant to § 15-31-531(2), MCA

(1997), U.S. West was not entitled to interest on the refund it received on June 7, 

2001?

¶22 As of May 15, 2000, the date U.S. West’s original return was due, the company 

had paid $1,361,802 in taxes for 1999. As discussed above, the company’s total tax 

liability for 1999 was $906,844. Thus, U.S. West had overpaid its taxes by $454,958. 

U.S. West argues that it is entitled to interest on that overpayment pursuant to § 15-31-
8

531(2), MCA (1997). In response, the DOR claims that U.S. West is not eligible to 

receive this statutory interest.

¶23 Section 15-31-531(2), MCA, provides in relevant part:

[I]nterest shall be allowed on overpayments at the same rate as is charged 

on delinquent taxes due from the due date of the return or from the date of 

overpayment (whichever date is later) to the date the department approves 

refunding or crediting of the overpayment. Interest shall not accrue during 

any period the processing of a claim for refund is delayed more than 30 

days by reason of failure of the taxpayer to furnish information requested 

by the department for the purpose of verifying the amount of the 

overpayment. No interest shall be allowed: (a) if the overpayment is 

refunded within 6 months from the date the return is due or from the date 

the return is filed, whichever is later[.]

Section 15-31-531(2), MCA (1997). STAB concluded that U.S. West was not entitled to 

interest on the overpayment, and the District Court affirmed. 

¶24 The DOR argues that U.S. West is not entitled to interest because the refund was 

issued within the six-month “safe harbor” established by § 15-31-531(2)(a), MCA 

(1997). The statute states that “[n]o interest shall be allowed . . . if the overpayment is 

refunded within 6 months from the date the return is due or from the date the return is 

filed, whichever is later[.]” Section 15-31-531(2)(a), MCA (1997). U.S. West filed the 

return on October 13, 2000. If the DOR issued the refund to U.S. West by April 13, 

2001, then U.S. West would not have been entitled to any interest on the overpayment. 

However, the DOR did not issue the refund until June 7, 2001. The DOR argues that

since U.S. West delayed the processing of the return by eighty-four days, we should 

interpret the statute to allow the DOR a safe harbor of six months and eighty-four days. 
9

¶25 In response, U.S. West argues that the plain language of the statute clearly 

provides that the six-month safe harbor is calculated “from the date the return is due or 

from the date the return is filed, whichever is later.” Section 15-31-531(2)(a), MCA 

(1997). U.S. West claims that nothing on the face of the statute sanctions an extension of 

this safe harbor.

¶26 Again, both parties have advanced convincing, but contrasting, interpretations of 

the statute’s plain language. Consequently, we rely on the principles of statutory 

interpretation discussed above in Part I to guide our analysis.

¶27 We conclude that the DOR’s interpretation is more consistent with the statute as a 

whole, and more accurately reflects the intent of the legislature. By establishing the sixmonth harbor, the Legislature implicitly gave the DOR six months to process a refund 

claim. Under the DOR’s interpretation, it will have a full six months to process the 

claim, regardless of taxpayer delay. By contrast, under U.S. West’s reading of the 

statute, in extreme cases, a taxpayer’s delay could force the DOR to process these claims 

in less than a week. Take for example a taxpayer that files a claim for interest on its 

overpayment. The DOR immediately requests more information from this taxpayer, but 

the taxpayer does not respond to the DOR’s request for five months and three weeks. At 

this point, the DOR would have exactly one week in which to process the refund; 

otherwise the taxpayer would be entitled to interest on the overpayment. 

¶28 This time it is U.S. West’s interpretation of the statute which leads to an absurd 

result. True, interest will not accumulate during the five-month and three-week period in 

which the hypothetical taxpayer failed to respond. However, under U.S. West’s reading 
10

of the statute, this taxpayer would be entitled to collect interest each week from the time 

of its response until the time the DOR processed its refund. In other words, though the 

DOR actually took less than six months to process the refund (after subtracting the delay 

caused by the taxpayer), it must still pay interest on the overpayment to the taxpayer.

¶29 In sum, the DOR’s interpretation of § 15-31-531(2)(a), MCA (1997), comports 

with the above-stated principles of statutory construction, and as such, is entitled to 

deference because the DOR is charged with the administration of the tax code. See e.g. 

State ex rel. Holt, ¶ 10. We conclude that when a taxpayer fails to respond to the DOR’s 

request for more information within thirty days, this delay has two consequences under 

§ 15-31-531(2)(a), MCA (1997): first, interest will not accrue during the delay, and 

second, the running of the six-month safe harbor is tolled during the delay.

¶30 In the instant case, U.S. West filed its return on October 13, 2000. As discussed 

above, U.S. West took eighty-four days to respond to the DOR’s request for more 

information. Had U.S. West not delayed the processing of the claim, the safe harbor 

period would have expired on April 13, 2001. However, the six-month safe harbor 

period was tolled during the eighty-four days U.S. West caused the processing of the 

claim to be delayed. Thus, when the DOR issued the refund on June 7, 2001, the sixmonth safe harbor period had not yet expired. As such, U.S. West is not entitled to any 

interest on its overpayment.
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CONCLUSION

¶31 For the reasons stated above, we conclude that the District Court erred in 

upholding STAB’s ruling which ordered U.S. West to pay interest on the outstanding 

taxes from May 15, 2000, to December 16, 2002. We hold that, under the unique 

circumstances of this case, § 15-31-510(2), MCA, only permits interest to be assessed 

against U.S. West from June 7, 2001, to December 16, 2002. Finally, we conclude that 

the District Court did not err in interpreting § 15-31-531(2), MCA (1997). During the 

eighty-four-day period in which U.S. West delayed responding to the DOR’s request for 

information, the six-month safe harbor was tolled. Thus, when the DOR issued the 

refund on June 7, 2001, it was still within the six-month statutory safe harbor. 

Accordingly, we reverse in part, and affirm in part.

/S/ W. WILLIAM LEAPHART

We concur: 

/S/ JAMES C. NELSON

/S/ PATRICIA COTTER

/S/ JOHN WARNER

/S/ BRIAN MORRIS

Justice Jim Rice dissenting. 

¶32 I admire the simplicity of the Court’s conclusion in ¶ 17 that it would be 

“inequitable” to assess a taxpayer with interest for a period of time in which the taxpayer 
12

had actually overpaid its taxes. However, as the Court necessarily acknowledges, in ¶ 19,

the plain meaning of the statute does not support this conclusion, and I cannot decline to 

enforce the statute on “equity” grounds. Further, at the end of the analysis, I do not

believe the interest assessment here is inequitable. 

¶33 Neither can it be said that the plain meaning of the statute leads to an absurd 

result, when the whole tax collection picture is reviewed. Although the Court also adopts 

an “absurdity” analysis, it should be noted that U.S. West does not argue that the statute 

is absurd. Importantly, U.S. West presents a very narrow legal question for our 

consideration. It explains that “[t]his appeal is entirely a question of statutory 

construction” and offers that “the legal issue is the application of that statute to a specific 

set of facts.” We should answer the question presented and, after “applying the statutes 

to a specific set of facts,” should properly end our work. Instead, the Court conjures up 

new factual scenarios in order to chase perceived absurdities.

¶34 While it may be natural to view a taxpayer’s liability as a singular issue or amount, 

underpayments and overpayments are actually treated separately under the 1997 statutes. 

Underpayments, including the assessment of interest thereon, are governed by § 15-31-

510, MCA (1997), and overpayments, including interest to be paid on tardily processed 

refunds, are governed by § 15-31-531, MCA (1997). The processes and schedules for the 

treatment of these are completely different, and the statutes make no effort to coordinate 

with each other. And for good reason, as this case shows.

¶35 Had U.S. West promptly filed its original return in May 2000, it would have been 

entitled, pursuant to that return and DOR’s review, to a refund within six months without 
13

interest, or with interest thereafter. However, it did not file its original return until 

October 2000, and after further delays by U.S. West in responding to DOR requests, the 

refund was ultimately paid by DOR in June 2001. Then, U.S. West filed an amended 

return in December 2002, reflecting additional 1999 income and additional tax liability. 

The Court, combining these events together, concludes that “[a]t no point between May 

15, 2000, and June 7, 2001, did U.S. West ‘owe’ any taxes . . . .”

¶36 Turns out it actually did. By later amended return, the company declared 

additional 1999 income it had originally failed to declare and for which it owed 

additional taxes during this period. The Court excuses the payment of interest on this 

amount between May 15, 2000, and June 7, 2001, but fails to consider that this time 

period was manufactured, in large part, by U.S. West’s late filing and its failure to 

respond promptly to DOR’s inquiries. Considering the separate issues separately—

overpayment and underpayment—U.S. West is entitled to interest on its overpayment in 

accordance with the schedule set forth in § 15-31-531, MCA (1997). It gets no more. 

Then, considering the underpayment caused by the failure to declare all of its income, it 

must pay interest thereon in accordance with § 15-31-510, MCA (1997). This Court 

should not don teller visors and attempt an “equitable” offset of these separate 

obligations.

¶37 The Court does not explain what is “absurd” about the operation of these statutes. 

There should be nothing inherently absurd about the Legislature’s use of two separate 

statutes to make two different calculations and not require an offset against the other. If 
14

this accounting scheme has led to an “absurd result,” then we should fear for the validity 

of much of the tax code. I would affirm the District Court. 

¶38 The Court continues its journey outside of the codebook under Issue 2. 

Envisioning even more inequity which could result in the case of a “hypothetical 

taxpayer” who delays responding to the DOR for five months and three weeks, the Court 

decides to legislate its own solution to this “dreadful” potential.1 However, the plain 

language of the statute clearly provides that the six-month “safe harbor” is calculated 

“from the date the return is due or from the date the return is filed, whichever is later[.]” 

Section 15-31-531(2)(a), MCA (1997). Nothing in the statute permits this six-month 

period to be extended by reason of a taxpayer’s delay in responding to an information 

request from DOR—indeed, this is the incentive built into the statute in favor of 

taxpayers to receive a timely refund, which the Court ignores entirely. If one wants to 

employ hypotheticals, consider that the Court has now eliminated the payment of interest 

for the taxpayer who submits his return timely, then waits five months and three weeks 

for his refund, only to receive a last minute request from DOR for “additional 

information” before the safe harbor expires. Having gained the extension of the safe 

harbor which the Court legislates today, DOR can issue the refund to the taxpayer within 

the additional time and pay no interest. The Court thus changes the statute from one 

 

1

This “hypothetical taxpayer” has nothing to do with the facts of the taxpayer in this case. 

Further, I question the validity of the premise that taxpayers would delay the processing 

of their refunds for five months in the hope that some interest might be added to the 

refund they have delayed obtaining.
15

which provides an incentive in favor of the taxpayer to one which provides an incentive 

in favor of the government. Reversal is appropriate.

¶39 I would apply all of the statutes as written. 

/S/ JIM RICE

Chief Justice Karla M. Gray joins the dissent of Justice Rice. 

/S/ KARLA M. GRAY