Baker Bancorporation Inc. v. Dept
Opinion
No. 82-121
IN THE SUPREME COURT OF THE STATE OF MONTANA 1982
BAKER BANCORPORATION, INC., et al., Petitioner and Appellants, and Respondent,
DEPARTMENT OF REVENUE OF THE STATE OF MONTANA, Respondents and Respondents.
.1 from: District Court of the First Judicial District, In and for the Oounty of Lewis and Clark Honorable Robert M. Holter, Judge presiding.
Counsel of Record:
For Appellants:
Harrison, Loendorf & Poston, Helena, Montana James T. Harrison, Jr., argued, Helena, Montana J. Patrick Giblin argued, Billings, Montana For Respondents:
Michael J. Rieley argued, Helena, Montana
Submitted: November 16, 1982 Decided : December 29, 1982 Filed:
DEC 2 9 SSEe"
M r . J u s t i c e Gene B. D a l y d e l i v e r e d t h e O p i n i o n of t h e C o u r t .
A p p e l l a n t s , s i x h o l d i n g companies, a p p e a l t h e d e n i a l of t h e i r claim f o r d e d u c t i o n s o f d i v i d e n d s r e c e i v e d from s u b s i d i a r y cor-
porations i n which t h e y own 8 0 p e r c e n t or more of the voting stock.
The controversy here centers upon the interpretation of a
1973 amendment to Section 84-1504, Revised Codes of Montana (1947), (recodified in part i n s e c t i o n 15-31-113(2), MCA) and w h e t h e r case law i n t e r p r e t i n g t h a t s e c t i o n p r i o r t o i t s amendment
is still controlling. Old Revised Codes of Montana (R.C.M.)
c i t e s w i l l be u s e d s i n c e w e are c o n c e r n e d w i t h p r o v i s i o n s e n a c t e d p r i o r t o and d u r i n g 1 9 7 3 .
Section 84-1504, R.C.M., 1947, is part of Montana's C o r p o r a t i o n L i c e n s e Tax A c t and d e s c r i b e s how t h e l i c e n s e t a x is
computed.
P r i o r t o 1 9 7 3 , s e c t i o n 84-1504 p r o v i d e d t h e f o l l o w i n g d e f i n i -
t i o n o f g r o s s income and n e t income:
". . . The term g r o s s income means t h e income f r o m a l l s o u r c e s w i t h i n t h e s t a t e of Montana recognized in the determination of the c o r p o r a t i o n ' s f e d e r a l income t a x l i a b i l i t y ; b u t s h a l l i n c l u d e i n t e r e s t exempt from f e d e r a l income t a x . The t e r m -- -- ' n e t - c o m e ' -
in - - means -
- the
gross - ----- income o f t h e c o r p o r a t i o n less -- e - --- th a l l- a b l e d e d u c t y o n s . - -o w - 7-
~Ger, - --h e - - f i n i t i o n s t de
--
o f g r o s s Income - n e t -
---I
a n d - income - f o r t h -
- set i%
t h i s - E c---- n -- -
tlo s h a l l n o t be construed as allowing t h e d e d u c t i o n s s e t f r t h i G & Z t i o T
o
2 4 3 ----- e - ~ e d e r a l -
-- of t h internal ~ e v e -- u e - n - Code a s or as t h a t
now w r i t t e n . - - - s e c t i o n s h a l l -- i3& --
l- b e l e d --r ----- -- a o amended. .. " ( E m p h a s i s added.)
I n i n t e r p r e t i n g t h e above language, t h i s Court cons ist e n t l y held to the rule that t h e d e f i n i t i o n of gross income and net income is dependent upon and incorporates by reference the F e d e r a l I n t e r n a l R e v e n u e Code, e x c e p t where Montana l a w e x p r e s s l y provides otherwise. Lazy JD Cattle Co. v. State Board of
E q u a l i z a t i o n ( 1 9 7 2 ) , 1 6 1 Mont. 43 i 5 0 4 P.2d 287; F i r s t F e d e r a l S a v i n g s and Loan A s s o c i a t i o n v. S t a t e Tax A p p e a l Board (1975),
167 Mont, 33, , 5 3 5 P.2d 1 8 3 ( i n t e r p r e t i n g s e c t i o n 84-1504 f o r
the tax years prior to 1973). Any federal deduction was allowable in Montana, unless some section of the Montana Corporation License Tax Act expressly provided otherwise.
I n 1 9 7 3 , t h e Montana L e g i s l a t u r e amended s e c t i o n 84-1504 to
r e a d as f o l l o w s :
". . . The term g r o s s income means a l l income recognized i n determining the corporation's g r o s s income f o r f e d e r a l i n c o m e t a x p u r p o s e s ; b u t s h a l l i n c l u d e i n t e r e s t exempt f r o m f e d e r a l i n c o m e t a x . N o c o r p o r a t i o n is exempt from t h e corporation license tax unless specifically p r o v i d e d f o r u n d e r s e c t i o n 84-1501. Any corp o r a t i o n n o t s u b j e c t t o or l i a b l e forfedgr-aT . r- - Income t a x b u t n o t exempt f r o m t h e c o r p o r a t i o n l i c e n s e t a x under s e c t i o n 84-1501 - a l l -sh- corn- -- p u t e - r o s s income -- o r c o r p o r a t i o n l i c e n s e -
g f P
p u r p o s e s i n --e same manner a s a c o r p o r a t i o n th
tax
--- F - -
t o or
t h a t i s ----e c t- - l i a 6 i e - f E r - f x-f 6 i subj
income t a x a c c o r d i n g t o - - i s i o n s f o r ---- -7
the prov
determininu --- 4
Gross i n c o m e i n t h e f e d e r a l ihter-
4
-- -
n a l r e v e n u e c o d e - e - £ f < c t t f o ~ ~- t - a-l e in - ee- ax b -
- ear. y -- term - income' means t h e G r o s s The P
'net
-----c o m e . f t h e c o r p o --t -o n ~ < k deduc?i%-6~ in o
- r a i- - s ~ s e t f o r t h --n s e c t i o n 84-1502."
- - i - - - A - -
(~rnp~a~s-a-fle~.
The d e d u c t i o n s c l a i m e d b y a p p e l l a n t s a r e p r o v i d e d f o r i n sect i o n 243 o f t h e F e d e r a l I n t e r n a l Revenue Code. These d e d u c t i o n s
were expressly disallowed in the pre-1973 version of section
84-1504. T h a t d i s a l l o w a n c e was d e l e t e d i n 1 9 7 3 .
The a p p e l l a n t s h e r e are s i x one-bank holding companies, each o f which owns 80 p e r c e n t or more of t h e v o t i n g s t o c k o f a commer-
c i a l bank. The f o l l o w i n g is a l i s t o f t h e h o l d i n g c o m p a n i e s and
t h e i r r e s p e c t i v e bank s u b s i d i a r i e s : P a r e n t H o l d i n g Company Bank -- - Subsidiaries
Baker Bancorporat i o n , I n c . Montana Montana
Rank Bank
of B a k e r , N.A.
Bozeman B a n c o r p o r a t i o n , I n c . of Bozeman, N.A. B u t t e I n s u r a n c e Agency, I n c . Montana Bank of B u t t e , N.A. Mineral County Bancorporation, Montana Bank of Mineral County Inc.
Red Lodge B a n c o r p o r a t i o n , I n c Roundup I n s u r a n c e Agency, I n c .
. Montana Bank o f Red L o d g e , N.A.
Montana Bank o f Roundup, N.A.
From 1973 t o 1979, the appellants consolidated their tax returns with their respective subsidiaries. The D e p a r t m e n t o f
R e v e n u e , upon e x a m i n i n g t h e r e t u r n s , d e n i e d a p p e l l a n t s p e r m i s s i o n to consolidate them. In recalculating the returns, the Department did not allow appellants deduct ions for dividends
r e c e i v e d from t h e i r s u b s i d i a r i e s .
The appellants appealed the Department's decision to the
S t a t e Tax A p p e a l Board (STAB) . STAB o v e r t u r n e d t h e D e p a r t m e n t ' s d e c i s i o n , and a l l o w e d t h e d e d u c t i o n s . STAB f o l l o w e d t h e case l a w
w h i c h s t a t e d t h a t t h e C o r p o r a t i o n L i c e n s e Tax A c t i n c o r p o r a t e s by r e f e r e n c e t h e F e d e r a l I n t e r n a l Revenue Code. STAB r e a s o n e d t h a t s i n c e S e c t i o n 243 o f t h e F e d e r a l I n t e r n a l Revenue Code allows t h e d e d u c t i o n s , and s i n c e no p r o v i s i o n i n t h e C o r p o r a t i o n L i c e n s e Tax
Act e x p r e s s l y p r o h i b i t s the deductions, a p p e l l a n t s could deduct t h e d i v i d e n d s r e c e i v e d from t h e i r s u b s i d i a r i e s .
The D e p a r t m e n t a p p e a l e d STAB's d e c i s i o n t o t h e D i s t r i c t C o u r t of the First Judicial District, Lewis & Clark County. The District Court reversed STAB's decision, stating that STAB i n c o r r e c t l y a p p l i e d pre-1973 s t a t u t o r y and case l a w i n c o m p u t i n g
t a x r e t u r n s f o r t h e y e a r s 1973 t h r o u g h 1979. The D i s t r i c t C o u r t
c o n c l u d e d t h a t s e c t i o n 84-1504 a s amended i n 1 9 7 3 , i n i t s p l a i n
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