Title: MONT NAT BK OF ROUNDUP v DEPT
Citation: N/A
Docket Number: 12908
State: Montana
Issuer: Montana Supreme Court
Date: August 7, 1975

No, 12908 I N T H E S U P R E M E C O U R T O F T H E STATE O F M O N T A N A 1975 M O N T A N A N A T I O N A L BANK O F R O U N D U P , P l a i n t i f f s and Respondents, T H E STATE O F M O N T A N A , D E P A R T M E N T O F REVENUE, Defendants and Appellants. Appeal from: D i s t r i c t Court of t h e F i r s t Judicial D i s t r i c t , Honorable Peter G, Meloy, Judge presiding. Counsel of Record : For Appellants : R. Bruce McGinnis argued, Helena, Montana For Respondents : Towe, Neely and Ball, Billings, Montana Neil D. Enright argued, Billings, Montana - - Submitted: June 18, 1975 Decided : ! % F I G 7 Filed : T i;,,;:~ ;.a it? p Fh. 5 ef-i.;~, , .". i [ar. J u s t i c e John Conway Harrison delivered the Opinion of the Court. This appeal i s from a judgment entered i n the d i s t r i c t court, Lewis and Clark County. Appellant i s the State Department of Revenue (hereinafter 11 referred t o as the ~epartment"). Respondent is the Montana National Bank of Roundup (hereinafter referred t o a s the "Bank") . O n March 13, 1973, the Bank f i l e d i t s statement f o r tax assessment with the Musselshell County assessor. Two specific computations and one omission regarding t h a t document a r e subjects of t h i s appeal. The f i r s t contested computation created a $100,000 reserve t o cover depreciation and possible losses within the Bank's bond account. The second resulted from an e r r o r i n the printed instructions i n the Statement f o r Assessment, which mistakenly allowed a deduction f o r "cash on hand". Rulings by the Montana State Tax Appeals Board and the d i s t r i c t court a l - lowed the Department t o correct t h i s mistake, and t h i s particu- l a r issue i s not submitted f o r appeal t o t h i s Court. The t h i r d item concerned a deduction f o r r e a l e s t a t e owned by the Bank as of the date of assessment. The Bank mistakenly omitted the item on i t s statement t o the tax a u t h o r i t i e s , and therefore was not allowed the deduction. The Bank appealed i t s 1973 assessment of bank shares t o the IYrusselshell County Tax Appeal Board and the Montana State Tax Appeal Board. Relief was denied a t both levels. The dis- t r i c t court, however, reversed the S t a t e Tax Appeal Board on the issue of the reserve f o r bond losses and the deduction f o r r e a l e s t a t e . The Department appeals and presents three issues. Before entering i n t o discussion on the merits, we note the method employed by the Department t o value the ~ a n k ' s property for purposes of taxation. Article V I I I , Section 3 , 1972 Montana I f Constitution imposes upon the s t a t e a duty t o appraise, assess, and equalize the valuation of a l l property which i s t o be taxed i n the manner provided by law. " Under section 84-708.1(3), R.C.M. 1947, the Department may exercise such authority and do a l l things necessary t o secure a f a i r , j u s t and equitable valua- t i o n of a l l taxable property. Taken together, these two provisions grant the Department a c e r t a i n degree of discretion i n determining what method of valuation w i l l be used f o r tax pur- poses. The Department's method of valuation is b e s t described a s a formalistic o r "book value" method. The undivided p r o f i t s , current earnings and surplus a r e added t o the i n t r a s t a t e c a p i t a l of the bank. From t h a t sum i s deducted t h e bank's l i a b i l i t i e s and other property assessed and taxed t o the bank. The r e s u l t i n g figure i s the book value of bank shares upon which t h e property tax assessment i s made. The Department f i r s t contends the ~ a n k ' s appeal t o the d i s t r i c t court was moot. Its contention is grounded on the f a c t t h e Bank paid the f i r s t installment of i t s taxes a s b i l l e d by the Musselshell County assessor f i f t e e n days p r i o r t o the time the p e t i t i o n f o r j u d i c i a l review was f i l e d . This Court has held t o t h e general e f f e c t t h a t when a judgment has been paid i t has passed beyond review; the s a t i s f a c t i o n i-s the end of the proceeding. In r e lack's Estate, 32 Mont. 51, 79 P. 554; Peck v. Bersanti, 101 Mont. 6 , 52 P.2d 168; Anno. 169 A L R 985, 988. The Department i n support of i t s argument of mootness r e l i e s on Blair v. Potter, 132 Mont. 176, 315 P.2d 177, and Gallatin Trust & Savings Bank v. Henke, 154 Mont. 170, 461 P.2d 448. These cases a r e c l e a r l y distinguishable, p a r t i c u l a r l y i n view of the f a c t the l e g i s l a t u r e amended section 84-709.1, R.C.M. 1947, which allows d i r e c t j u d i c i a l review of the S t a t e Tax Appeals ~ o a r d ' s decision by the d i s t r i c t court. In e f f e c t there has been provided by s t a t u t e an a l t e r n a t i v e method t o paying taxes under protest. This i s exactly what petitioner did and B l a i r and Gallatin Trust a r e not controlling. Further, we find t h i s r u l e t o be inappropriate i n the context of t h e i n s t a n t case. It i s equally well recognized t h a t payment of a money judgment by the judgment debtor does not, by i t s e l f , render the cause moot f o r purposes of appeal. S t a t e ex r e l . Hagerty v. Rafn, 130 Mont. 554, 304 P.2d 918, and cases c i t e d therein. A defeated party's compliance with the judgment renders h i s appeal moot only where the compliance makes the granting of e f f e c t i v e r e l i e f by the appellate court impossible. State ex r e l . Begeman v. Napton, 10 Mont. 369, 25 P. 1045; Anno. 39 ALR2d 153, 179. Such i s not t h e case here. The issues here a r e not moot because t h i s Court's decision regarding them w i l l strongly a f f e c t t a x assessments by the Department i n future years. W e recognize and approve of the r u l e s t a t e d i n Massell v. Daley, 404 111.479, "The question has not become moot merely by the payment of the amounts ordered by the judgments, because t h e decrees purported t o perpetually re- s t r a i n the S t a t e o f f i c i a l s from collecting taxes * f : f i from these p l a i n t i f f s , therefore, a f f e c t i n g future t a x collections. I t The Department next urges t h e allowance by the d i s t r i c t court of a $100,000 reserve t o cover t h e possible depreciation of i t s bond account was error. The Court ruled on t h i s precise issue i n Miners National Bank of Butte v. County of Silver Bow, 116 Mont. 31, 148 P.2d 538. Thus our decision i n the i n s t a n t case must depend upon an interpretation of the holding i n Miners. Section 84-307, R.C.M. 1947, does not s p e c i f i c a l l y allow f o r a deduction on bond l o s s reserves. It i s c l e a r t h a t Miners rejected the claimed deduction f o r bond losses. Under the i n t e r - pretation adopted by the Bank and the d i s t r i c t court, the Miners r u l e disallows bond reserves i f based on conjecture o r specula- t i o n , but allows such reserves when based on a "well defined evaluation" of the e n t i r e account t o which the reserve applies. The Bank urges t h a t t h e required well defined basis e x i s t s i n t h i s case, and r e f e r s us t o an evaluation of the e n t i r e bond account made by the a s s i s t a n t vice president and bond expert of the F i r s t Nation. t. Paul, Minnesota. The evaluation shows t h a t , within 'Levant time period, a net depreciation i n market value of the t o t a l bond account existed i n the amount claimed. The Bank attempts t o further b o l s t e r i t s argument by pointing out chat reserves f o r bad debts a r e commonly allowed, although not s p e c i f i c a l l y authorized under section 84-307. It i s again suggested t h a t these reserves a r e allowed because they a r e based on factors nonspeculative i n nature. W e hold t h a t the ~ a n k ' s interpretation i s an inaccurate appraisal of t h e law as s e t out i n Miners, and t h a t the d i s t r i c t court erred i n adopting it. The propriety of the deduction for a reserve account f o r possible bond l o s s does not r e s t solely on the sufficiency o r insufficiency of the supporting data upon which i t i s based. Such deductions a r e disallowed by the'general principle t h a t a l i a b i l i t y does not accrue a s long a s it remains contingent. 2 Mertens, Law of Federal Income Taxation, Section 12.67, p. 274. This Court i n Miners reaffirmed t h i s important concept : I I A bank may not thus withhold from assessment a part of i t s undivided p r o f i t s by s e t t i n g same up a s a reserve t o make good possible o r anticipated losses on i t s bonds and stocks which losses may never occur. 11 116 Mont. 31,43. There i s nothing i n t h e record here t o show t h a t the Bank has suffered an actual l o s s i n i t s bond account, nor i s there a showing t h a t the Bank actively trades o r s e l l s i t s bonds. Therefore, the Bank acted improper1.y by creating a reserve f o r possible bond losses and by segregating t h i s amount from i t s undivided p r o f i t s . The determination of the Department's f i n a l issue necessi- t a t e s an interpretation of section 84-307, R.C.M. 1947, which provides : "The shares of a l l s t a t e banking corporations engaged i n the banking business i n Montana s h a l l be valued and assessed f o r the purpose of taxation a t the f u l l cash value thereof, l e s s the book value uf the r e a l e s t a t e , moneyed c a p i t a l and other property of any such bank assessed and taxed a s the property of said bank. " (Emphasis added). Based on the foliowing f a c t s the d i s t r i c t court allowed che 3ank a deduction f o r t h e r e a l e s t a t e d owned but by mistake drnitted from the ~ a h k ' s statement of assessment: 1. A s of the f i r s t Monday i n March 1973, t h e Bank was the d m e r of and l i a b l e f o r the taxes on c e r t a i n r e a l e s t a t e valued at $150,000. 2. This ownership was f i l e d and on record i n the court- house a t Musselshell County. 3 . The Musselshell County assessor knew o r should have known t h a t the property was purchased by t h e taxpayer through a s h e r i f f ' s s a l e . 4. The Bank mistakenly f a i l e d t o place t h i s property on its statement f o r assessment. Clearly the Bank was the owner of t h e property on t h e first 14onday i n March and i s l i a b l e f o r t h e taxes on the property, Under section 84-307 it i s e n t i t l e d t o deduct t h e property from the value of i t s shares f o r the purpose of determining t h e t a x on such shares. The t r i a l court found I!+< ; k ; k since the allowance of a deduction f o r cash on hand was due t o a mistake by t h e Department t h i s Court finds t h a t t h e Department i s t o be allowed t o correct t h a t mistake a t t h i s time and therefore d i s - allows p e t i t i o n e ? ~ claim f o r a deduction f o r cash on hand. I t 'L'hc same wisdom and common sense should apply t o c o r r e c t t h i s honest mistake by t h e Bank. The t r i a l court so found and we find no error i n i t s finding. Judgment is affirmed a s t o mootness, and f o r allowing deduction of t h e $150,000 r e a l property mistakenly l e f t off the statement of assessment. It i s reversed a s t o authorizing a bond reserve account. The cause i s remanded t o the t r i a l court. W e Concur: Chief Justice .................................. Justices. M r . Justice Frank I. Haswell, specially concurring: I concur i n the r e s u l t , but disagree with the discussion on mootness.