Nice v. State

No. 12359

I N THE SUPREPE C U T O THE STATE O MONTANA
OR F F

1973

ROBERT A. NICE,

P l a i n t i f f and Respondent,

THE STATE O M N A A STATE BOARD O
F OTN; F
EQUALIZATION, a n agency of t h e S t a t e
of Montana ; J. MORLEY COOPER, Chairman of
t h e Board, e t a l . ,

Defendants and Appellants.

Appeal from: District Court of t h e F i r s t J u d i c i a l D i s t r i c t ,
Honorable P e t e r Meloy, Judge presiding.

Counsel of Record :

For Appellants :

Michael E. Cooper argued, Helena, Montana

For Respondent :

Bolkovatz, Romine and B e l l , Helena, Montana
John F. B e l l argued, Helena, Montana

Submitted : January 25, 1973

Decided : MAfh 9 1973
F i l e d : MAR 9 1973
Mr. J u s t i c e Frank I . Haswell delivered the Opinion of the Court.

T h i s is an appeal by the S t a t e Board of Equalization from an
adverse judgment i n an income tax case i n the d i s t r i c t court of Lewis
and Clark County, the Honorable Peter G . Meloy, d i s t r i c t judge, s i t t i n g
without a jury. The case involves s t a t e income tax l i a b i l i t y on federal
retirement income received by r e t i r e d m i l i t a r y personnel living i n Montana.
The d i s t r i c t court held t h a t the f i r s t $3,600 of federal re-
tirement income received by a r e t i r e d United S t a t e s Air Force o f f i c e r r e -
siding in Montana i s exempt from s t a t e income tax. W affirm.
e
The f a c t s of the case a r e not i n dispute a s the case was sub-
mitted t o the d i s t r i c t court f o r decision on the basis of an agreed s t a t e -
ment of f a c t . P l a i n t i f f Robert A. Nice i s a legal resident of Montana and
receives retirement pay from the federal government a s a r e t i r e d United
S t a t e s Air Force o f f i c e r pursuant t o the provisions of 10 U.S.C.A. g 8911,
e t seq. The Montana l e g i s l a t u r e enacted i n t o law a provision, now codified
a s section 84-4905(2) ( c ) , R.C . M . 1947, exempting from Montana income tax "A1 1
benefits received under -
the ftxteral enployees retirement ~ c not in excess
t
of t h i r t y - s i x hundred do1 l a r s ($3,600) . I 1 (Emphasis added .) In f a c t t h e r e
has never been an a c t e n t i t l e d "the federal employees retirement a c t " .
Some f i v e years l a t e r on December 31, 1968, the S t a t e Board of
Equalization promulgated an administrative regulation i n t e r p r e t i n g "the
faderal employees r 2 t i rement a c t " t o mean "Civi 1 Service Retirement Act".
This i n t e r p r e t a t i o n i s contained in Board Regulation 501 (b) ( 3 ) permitting
an exclusion from adjusted gross income f o r Montana income tax purposes
a s follows:
"Civil Service Retirement Act benefits t o the extent
the amount subject t o the federal income tax f o r the
taxabl e year does not exceed $3,600. "
The 1971 Montana l e g i s l a t u r e subsequently k i l l e d HB 84 which,
among other t h i n g s , would have exempted from adjusted gross income "Amounts
received by a r e t i r e d person a s an annuity, pension o r endoment under a
formal private, municipal, s t a t e or federal retirement plan or system,
t o the extent t h e t o t a l of such amounts includable in federal adjusted
gross income does not exceed $3,600.00". The proposed 1971 l e g i s l a t i o n
would have, among other things, substituted the foregoing language f o r
the language of the 1963 l e g i s l a t i o n heretofore quoted.
In h i s 1969 s t a t e income tax return, p l a i n t i f f paid under
protest the additional sum of $205.79 plus i n t e r e s t of $9.26 which r e f l e c t e d
h i s disputed s t a t e income tax l i a b i l i t y on the f i r s t $3,600 of h i s federal
m i 1i t a r y retirement pay.

After exhausting h i s administrative remedies, p l a i n t i f f f i l e d
t h e i n s t a n t action in t h e d i s t r i c t court t o recover t h e foregoing sums paid
under protest. P l a i n t i f f prevailed in the d i s t r i c t court and now t h e S t a t e
Board of Equalization has appealed from t h a t judgment.
The sole issue upon appeal i s whether section 84-4905(2), R.C.M.
1947, exempts from s t a t e income tax l i a b i l i t y the f i r s t $3,600 of his mili-
t a r y retirement benefits.
The function of the Court i s t o i n t e r p r e t t h e intention of the
l e g i s l a t u r e , i f a t a l l possible, from the plain meaning of the words used,
and i f the meaning of the s t a t u t e can be determined from the language used,
the Court i s not a t l i b e r t y t o add or d e t r a c t language from t h e s t a t u t e i n
question. Sections 93-401 -1 5, 93-401 -16, R.C.M. 1947; Mont. Assn. of Tob.
Etc. v . Brd. of E q . , 156 Mont. 108, 476 P.2d 775; Dunphy v . Anaconda Co.,
151 Mont. 76, 438 P.2d 660.

Here, however, the meaning of the s t a t u t e cannot be ascertained
from i t s language. The s t a t u t e i s ambiguous in t h a t i t i s susceptible of
two meanings: (1) t h a t the l e g i s l a t u r e referred t o one s p e c i f i c a c t , i .e.
the Civil Service Retirement Act, or (2) t h a t the l e g i s l a t u r e used the words
"the federal employees retirement act" in i t s broad generic sense, not
referring t o any one s p e c i f i c a c t b u t t o federal l e g i s l a t i o n i n general pro-
vidi ng retirement benefits f o r federal employees.
The Board contends t h a t the d e f i n i t e a r t i c l e "the" preceding the
phrase, "federal employees retirement act1',is commonly and ordinarily
used to particularize the subject spoken of and thus refers to the certain
object, "act". Therefore, the Board concludes that the legislature intended
to refer to one specific act only.
The Board goes on to argue that the only particular act generally
providing for federal employees retirement is the act with the popular name
"Civil Service Retirement Act", codified in 5 U.S.C.A. g 8331, et seq. The
Board would have us construe legislative intent as referring to this partic-
ular act. Under the Civil Service Retirement Act most federal employees
are covered, but not retirees of the military, Foreign Service Corps, judi-
ciary, temporary workers or employees subject to other retirement systems
provided by the federal government.
As the statute is ambiguous on its face, precise grammatical rules
standing alone are not controlling, but rather the statute must be interpreted
in a reasonable manner to give effect to the statute as a whole. Home Bldg.
& Loan v . Bd. of Equalization, 1 1 Mont. 113, 375 P.2d 312; Bresnahan v.
4
District Court, 127 Mont. 310, 263 P.2d 968. Interpreting the statute in its
entirety, it is logical to presume that the legislature intended to use the
term "the federal employees retirement act" in its broad generic sense to
include a1 1 federal legislation providing retirement benefits . Otherwise,
an irrational classification of federal employees for exemption purposes would
result with no discernible purpose.
Section 84-4905(1) , R . C.M. 1947, determines the taxpayers adjusted
gross income as defined in section 62 of the Internal Revenue Code. From
this plaintiff is permitted to exempt the $3,600 in question. This inter-
pretation would harmonize with federal taxation of retirement income, whereby
mi 1 i tary retirement comes under the general definition of "pub1ic
retirement system". Int. Rev. Code of 1954, g 37.
Construing section 84-4905, R.C.M. 1947, to include all federal
retirement systems in conformity with the federal tax code appears more con-
sistent with the purpose of the exemption than the interpretation urged by
the Board.
The Board contends that subsections (d), (e) and (f) of section
84-4905(2), enacted subsequent to subsection (c), allow benefits received
under certain retirement acts to be exempt from adjusted gross income. In
each of the above subsections a specific retirement act is referred to.
Under these acts -- the Montana Teachers Retirement Act, the Montana Public
Employees Act, and the Montana Highway Patrol Retirement Act -- the benefits
exempted were contributed by the employees to the retirement funds.
While it may be argued these distinctions exist, there is nothing
to indicate that these state retirement exemptions were relevant consider-
ations in determining legislative intent in enactment of federal retirement
act exemptions. It is just as logical to interpret the statute as referring
to federal retirement benefits generally rather than to one specific act.
Additionally, we note that in appropriating the pay for military
personnel, Congress took into consideration living quarters, subsistence
allowances and retirement benefits. In determining the level of military
compensation Congress has "imputed deduction for retired pay cost". 2 U.S.
Code Congressional and Administrative News 2748 (1 965).
The Board also contends that the definition of "federal employees"
should not include military personnel. We have no reason to believe that
the legislature intended to divide federal employees into separate classi -
fications, one for civil and another for military employees. Where a taxing
statute is susceptible of two constructions, any reasonable doubt as to
persons intended to be within the particular tax should be resolved against
the taxing authority. Cherry Lanes Farms v. Treasurer, Gall. Co., 153 Mont.
240, 456 P.2d 296.
The Board argues that the defeat of HB 84 by the Montana legislature
supports its position that the legislature did not intend to exempt the first
$3,600 of military retirement pay from state income tax liability. HB 84 would
have exempted from gross income the first $3,600 of amounts received by retired
 military employees. However, it would have exempted a similar amount from
all annuities, pensions and endowments under formal private retirement
plans as we1 1. Under such circumstances the vitality of such argument
disappears.
A final contention made by the Board is that when a statute is
unclear and ambiguous the Court should give great weight to the interpreta-
tion of the statute placed upon it by the Board's regulation because it has
been uniformly and consistently applied and acquiesced in for a number of
years. Bartels v. Miles City, 145 Mont. 116, 399 P.2d 768. It should be
noted, however, that the particular subsection at issue here became effective
July 1 , 1963, but the Board did not promulgate its regulation until five years
later in December 1968, immediately before the taxable year in question.
Under such circumstances the basis of the Board's contention does not exist.
For these reasons the district court was correct in interpreting
section 84-4905, R.C.M. 1947,to allow plaintiff to exempt the first $3,600
of his military retirement pay from state income tax liability.
The judgment of the district court is affirmed.

m a /
-
Associate Justice

I/ cause.
Mr. Justice John Conway Harrison did not participate in this