Russell Stover Candies Inc. v. Dept

Montana Supreme Court

Russell Stover Candies Inc. v. Dept

DecidedDecember 21, 1981

Docket80-375

StatusPublished

This text of Russell Stover Candies Inc. v. Dept (Russell Stover Candies Inc. v. Dept) is published on Counsel Stack Legal Research, covering Montana Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook

Russell Stover Candies Inc. v. Dept, (Mo. 1981).

Pincite

Opinion

No. 8 0 - 3 7 5 IN THE SUPREPIIE COURT OF THE STATE OF MONTANA

WARD PAPER BOX COMPANY, a Missouri corp. , Respondent and Appellant,

DEPARTMENT OF REVENUE OF THE STATE OF MONTANA, Appellant and Respondent.

Appeal from: District Court of the First Judicial District, In and for the County of Lewis & Clark, The Honorable Peter Meloy, Judge presiding.

Counsel of Record: For Appellant:

Terry B. Cosgrove, Helena, Montana (Special Asst. Atty. General), Argued

For Respondent : Ward A. Shanahan; argued, Helena, Montana G~ugh, Shanahan, Johnson & Waterman, Helena, Montana

Submitted: September 21, 1981 Decided : 2i

Filed: QEC 2 ."L 4981

Clerk Mr. C h i e f J u s t i c e F r a n k I . H a s w e l l d e l i v e r e d t h e O p i n i o n of t h e Court.

T h i s is an a p p e a l by t h e D e p a r t m e n t of Revenue ( D O R ) from a judgment o f t h e D i s t r i c t C o u r t o f L e w i s and C l a r k County v a c a t i n g an a s s e s s m e n t of a d d i t i o n a l c o r p o r a t i o n l i c e n s e t a x e s

a g a i n s t t h e Ward P a p e r Box Company ( W a r d ) f o r t h e y e a r s 1 9 7 1

t h r o u g h 1975. W reverse. e Ward f i l e d Montana c o r p o r a t i o n l i c e n s e t a x r e t u r n s f o r t h e y e a r s i n q u e s t i o n b a s e d on t h e s e g r e g a t e d income from i t s Montana operations alone. DOR a u d i t e d Ward s r e c o r d s , d e t e r m i n e d t h a t

Ward was a u n i t a r y b u s i n e s s n o t e n t i t l e d t o s e p a r a t e a c c o u n t i n g

o f i t s Montana o p e r a t i o n s and income, and a s s e s s e d a d d i t i o n a l

c o r p o r a t i o n l i c e n s e t a x e s a g a i n s t Ward by use of a t h r e e f a c t o r

f o r m u l a which a p p o r t i o n e d to Montana a p a r t of Ward I s total income.

Ward p r o t e s t e d t h i s a s s e s s m e n t t o t h e S t a t e Tax Appeal Board ( STAB) . STAB a f f irmed t h e a s s e s s m e n t by DOR. Ward f i l e d a

p e t i t i o n f o r r e v i e w i n t h e ~ i s t r i c tC o u r t of L e w i s and C l a r k

County. On A u g u s t 4 , 1 9 8 0 , t h e D i s t r i c t C o u r t r e v e r s e d t h e STAB

decision. DOR now a p p e a l s from t h e judgment of the District Court. Ward i s a M i s s o u r i c o r p o r a t i o n q u a l i f i e d and d o i n g b u s i - n e s s i n Montana, m a i n t a i n i n g i t s p r i n c i p a l p l a c e of b u s i n e s s i n

Kansas C i t y , Kansas. A l l of i t s common s t o c k is owned by M r .

L o u i s Ward. Ward's a c t i v i t i e s c o n s i s t of seven d i v i s i o n s ; t h e

d i v i s i o n s l o c a t e d o u t s i d e of Montana a r e i n v o l v e d in

m a n u f a c t u r e , s a l e and d i s t r i b u t i o n of p a p e r b o x e s and p a p e r box p r o d u c t s i n t h e s t a t e s of K a n s a s , M i s s o u r i , C o l o r a d o , S o u t h

C a r o l i n a and V i r g i n i a . The Montana d i v i s i o n s c o n s i s t of two c a t t l e r a n c h e s , o n e i n Meagher County and o n e i n P o w e l l County.

F o r t h e y e a r s 1 9 7 1 t h r o u g h 1 9 7 5 , Ward used t h e s e p a r a t e

a c c o u n t i n g method f o r f i l i n g i t s Montana t a x r e t u r n s and i n e a c h y e a r p a i d t h e minimum c o r p o r a t i o n l i c e n s e t a x o f $50. During

t h o s e y e a r s t h e o p e r a t i n g costs and d e p r e c i a t i o n e x p e n s e s of t h e Montana d i v i s i o n s e x c e e d e d t h e income e a r n e d by t h o s e d i v i s i o n s . D u r i n g t h e same t i m e p e r i o d , Ward f i l e d t a x r e t u r n s u n d e r

t h e u n i t a r y a p p o r t i o n m e n t method i n t h e o t h e r s t a t e s i n which it was o p e r a t i n g and t h e Montana r a n c h d i v i s i o n s w e r e i n c l u d e d as p a r t of its total u n i t a r y b u s i n e s s . I n t h o s e s t a t e s t h e losses

s u s t a i n e d b y t h e r a n c h d i v i s i o n s were used to o f £ s e t income e a r n e d b y t h e p a p e r box d i v i s i o n s .

The f a c t s r e g a r d i n g Ward I s operations during the years i n

q u e s t i o n a r e f o r t h e most p a r t u n c o n t e s t e d . The home o f f i c e i n Kansas C i t y provided a d m i n i s t r a t i v e s e r v i c e s f o r a l l d i v i s i o n s of Ward s o p e r a t i o n which i n c l u d e d p r e p a r i n g f e d e r a l and s t a t e r e p o r t s , h i r i n g t h e a c c o u n t a n t s to p r e p a r e t a x r e t u r n s , k e e p i n g

t h e b o o k s , p r e p a r i n g f i n a n c i a l s t a t e m e n t s and b a l a n c i n g c h e c k

books. Each o f t h e d i v i s i o n s was c h a r g e d a n a r b i t r a r y f i g u r e o f

$ 6 0 p e r month f o r t h e home o f f i c e s e r v i c e s . T h i s f i g u r e was n o t b a s e d on t h e amount o f t i m e a c t u a l l y s p e n t o n e a c h d i v i s i o n by t h e home o f f ice p e r s o n n e l . W a r d ' s d i v i s i o n s d i d n o t e x c h a n g e e q u i p m e n t or p e r s o n n e l and d i d n o t purchase p r o d u c t s j o i n t l y . T h e r e w a s no j o i n t a d v e r -

t i s i n g p r o g r a m among t h e v a r i o u s d i v i s i o n s and n o common

salesmen. T h e r e were t w o a c c o u n t s m a i n t a i n e d f o r e a c h d i v i s i o n , a n e x p e n s e b a n k a c c o u n t and a p a y r o l l a c c o u n t .

Each d i v i s i o n ' s e x p e n s e bank a c c o u n t w a s m a i n t a i n e d i n a bank i n Kansas C i t y . Any m o n i e s g e n e r a t e d b y a d i v i s i o n were

d e p o s i t e d i n t h a t d i v i s i o n ' s s e p a r a t e expense account. I f the

d i v i s i o n d i d n o t i m m e d i a t e l y need t h e f u n d s , t h e y would be t r a n s - f e r r e d from t h e s e p a r a t e d i v i s i o n e x p e n s e a c c o u n t i n t o a g e n e r a l a c c o u n t and would be u t i l i z e d w h e r e v e r n e e d e d b y a n y o f t h e separate divisions. The p r e s i d e n t o f t h e company would make t h e d e c i s i o n as t o t h e t r a n s f e r . E x c e s s f u n d s would be i n v e s t e d , i f n o t needed by any o f t h e d i v i s i o n s . A p o r t i o n of the short-term

i n v e s t m e n t income was a t t r i b u t a b l e to f u n d s g e n e r a t e d i n Montana,

y e t t h e p o r t i o n a t t r i b u t a b l e to f u n d s e a r n e d i n Montana c o u l d n o t

b e s p e c i f i c a l l y i d e n t i f i e d or s e g r e g a t e d . I f e i t h e r o f t h e Montana r a n c h d i v i s i o n s d i d n o t g e n e r a t e

- 3 - e n o u g h income t o meet e x p e n s e s , a d d i t i o n a l f u n d s would be t r a n s -

f e r r e d from Ward's g e n e r a l a c c o u n t to t h e ranch d i v i s i o n ' s

expense bank a c c o u n t . The p a y r o l l a c c o u n t f o r e a c h r a n c h d i v i s i o n w a s m a i n t a i n e d

i n a Montana b a n k and c h e c k s c o u l d be w r i t t e n o n t h e a c c o u n t by t h e ranch manager. However t h e home o f f i c e p e r s o n n e l m a i n t a i n e d t h e r e c o r d s , b a l a n c e d t h e b o o k s , and made t h e d e p o s i t s .

T h e r e w a s some c e n t r a l management o f t h e c o r p o r a t i o n . From t h e e v i d e n c e p r e s e n t e d a t t h e h e a r i n g , STAB found t h a t t h e home o f f i c e made a l l o f t h e d e c i s i o n s r e g a r d i n g t h e f i n a n -

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