No. 83-551
I N THE SUPREME COURT O F THE S T A T E O F MONTALJA
T E D SCHWINDEN, I n h i s O f f i c i a l C a p a c i t y
a s G o v e r n o r of t h e S t a t e of M o n t a n a ;
E L L E N FEAVER, I n h e r O f f i c i a l C a p a c i t y
as D i r e c t o r of R e v e n u e of t h e S t a t e of
M o n t a n a ; DEPARTMENT O F REVENUE of t h e
S t a t e of M o n t a n a ; MONTANA A S S O C I A T I O N
O F C O U N T I E S ; MONTANA LEAGUE O F C I T I E S
AND TOWNS; URBAN C O A L I T I O N ; and MONTANA
SCHOOL BOARDS A S S O C I A T I O N ,
P l a i n t i f f s,
-vs-
BURLINGTOL.? NORTHERN, INC. ,
Defendant.
O R I G I N A L PROCEEDING:
COUNSEL O F RECORD:
For P l a i n t i f f :
D a v i d W. Woodgerd a r g u e d , D e p t . of R e v e n u e , H e l e n a ,
Montana
G. S t e v e n B r o w n , M o n t . A s s o c . of C o u n t i e s , H e l e n a ,
Montana
R o b e r t M. M c C a r t h y , S i l v e r B o w C o u n t y A t t y . f o r L e a g u e
of C i t i e s & T o w n s , B u t t e , M o n t a n a
Mike McGrath, L & C County A t t o r n e y for Urban C o a l i t i o n ,
Helena, Montana
C h i p E r d m a n n , M o n t a n a School B o a r d s A s s o c . , H e l e n a
For D e f e n d a n t :
S t a n l e y T . K a l e c z y c argued, H e l e n a , M o n t a n a
F o r Amicus Curiae:
G e o r g e B e n n e t t argued f o r M o n t a n a B a n k e r s , H e l e n a ,
Montana
W i l l i a m D a v i d D e x t e r for M u l t i - T a x C ~ m m i s s i o n , Seattle,
Washington
Submitted: O c t o b e r 9, 1984
Decided: November 2 3 , 1 9 8 4
Filed: fdijv 2 5 1984
Clerk
Mr. Justice John C. Sheehy delivered the Opinion of the
Court.
This is an original proceedings in this Court brought by
Governor Ted Schwinden, Ellen Feaver, Director of the State
Department of Revenue, and interested associations for a
declaratory judgment determining the validity of section
15-31 -1 16, MCA. The defendant taxpayer is Burlington
Northern, Inc.
We deemed important the issue raised by the complaint
for declaratory judgment because it implicated the validjty
of state corporation license tax statutes which allocate
revenue between the state and counties. We therefore
accepted jurisdiction of the cause and remanded the case to
the District Court, First Judicial District, Lewis and Clark
County, to determine any factual controversies involved.
The District Court scheduled hearings, determined facts
under our remand, and returned its written findings of fact
to this Court on May 25, 1984. Thereafter we provided time
for the filing of objections by the parties, submission of
briefs by the parties and amici on the issues and find-ings,
and heard oral arguments on the cause. At the conclusion of
oral argument, we asked for additional briefs from the
parties on an issue raised by an amicus curiae. The cause
now deemed submitted for decision, we proceed to our
determination.
I.
HISTORY
Prior to 1978, Montana counties were empowered by state
law to impose a property tax on bank stock shares. Because
federal obligations were included in the calculation of hank
assets subject to that tax, the Montana hank shares tax was
held unconstitutional and a ~~iolation
of 31 U.S.C. S 742
11976), (now 31 U.S.C. S 3124), in Montana Bankers
Association v. Department of Revenue (1978), 177 Mont. 1 1 2
..,
580 P.2d 909.
The United States Supreme Court made a similar holding
with regard to a Texas bank shares tax law in American Bank
and Trust Company v. Dallas County (1983), No. 81-1717, Slip
OP- I ,
- U.S. - 103 S.Ct. 3369, 77 L.Ed.2d 1072.
The bank shares tax which was held unconstitutional in
Montana Bankers was clearlv a property tax. The governing
statutes were section 15-24-501 through -508, MCA 11978),
which were codified in the special property tax applications
chapter of the cocte. The property tax was measured as a
percentage of the property owned and the revenue generated by
the tax was collected and kept hy the counties.
Until the Montana Bankers decision, Montana banking
institutions paid a bank shares tax but no corporation
license tax to the State. Although banks have been subject
to the corporation license or income tax statutes since 1971-,
(section 15-31 -101 ( 4 ) 1 , interest earned on federal
obligations was excluded from t~xable income under those
statutes. This applied to all corporations. No corporation
paid a corporation license or income tax if its expenses were
greater than its income after deducting excludable federal
interest income. This was true even though the corporation
was profitable when federal interest income was considered.
Because financial institutions held a substantial portion of
their assets in federal obligations, it was inevitable that,
after deducting federal interest income, they owed no
corporation license tax. After Montana Bankers the banks
paid neither the bank shares tax nor a corporation license
tax and the counties ,-ostan important source of revenue.
The legislature responded to the tax revenue loss
growing out of our decision in Montana Bankers by passing Ch.
634, Laws of Montana (1979). The passage of that act made
savings and loans i.nstitutions subject to the corporation
license tax, made interest income from Montana obliqations
includable in corporate taxable income hy repealing the
exemption for Montana interest, and allocated to the counties
a portion of the corporation license tax revenue.
Subjecting savings and loan associ-ations to the
corporation 1-icense tax brought about First Federal Savings
and Loan Association v. Department of Revenue (Mont. 19821,
654 P.2d 496, 39 St.Rep. 1802, cert. den. 103 S.Ct. 312.8
(1983). In First Federal, the savings and loan associations,
in computing their corporation license tax, deducted from
yross income the interest income earned from federal
obligations. The Department of Revenue, in examining their
tax returns for the year involved, disallowed the deduction
for interest income earned from federal obligations. One of
the issues coming before this Court in that case was whether
the inclusion of interest from federal obligations in income
subject to the corporation 3icense tax violated 31 [J.S.C. S
742 (1976), which stated that "Except as otherwise provided
by law, all . . . obligations of the United States, shall be
exempt from taxation by or under State or municipal or local
authority ... " In First Federal, this Court determined
that federal obligation interest income received by the
taxpayers was not includable i n income for the purpose of
calculating the Montana corporation license tax.
After the decision in First Federal, Montana banks and
savings and 1-oan associations paid no corporation license
tax, no corporation income tax, and no property taxes on
their Sa.nk shares. The legislature responded in 1983 by
passing section 3-5-31-11.6, MCA, which is the center of
controversy here.
Burlington Northern, Inc. is a corporation which
operates a railroad and other business interests in and out
of Montana. Montana imposes either a license tax or an
income tax on corporations. The license tax, section
?-5-31-101, MCA, is imposed on every corporation for the
privilege of doing business in Montana. The income tax,
section 1.5-31.-403, MCA, is a "back-up" statute to impose a
tax on mu1tj.-state corporations that derive income from
Montana but are not doing business here. Eecause of the
broad definition given to "doing business" in Montana., rost
corporations with business connections in the state are
subject to the corpora.tion ,icense tax. Both the corporation
income and the corporation license taxes are calculated in
the same manner, using the same statutes to determine the
amount of the tax.
We remind. the reader, though it is not an issue in this
case, that Montana follows the unitary principles of state
taxatior, where multistate corporations are involved. This
method of a taxation has been approved by this Court, Ward
.
Paper Box Co. v. Dept. of Rev. E t c . (1981), 1.96 Mont. 87, 638
P.2d 1053; and the United States Supreme Court in Mobi3.e Oil
Corporation v. Commissioner of Taxes of Vermont (1980), 445
U.S. 425, 436, 100 S.Ct. 1223, 1231, 63 L.Ed.2d 510, 520.
IS SECTION 15-31-116, MCA VALIJD?
As we have said, after cur decision in First Federal
interest income from federal. obligations was not includable
in the taxable income of corporations subject to the state
corporation license tax. Section 15-31-116, MCA, provides,
however, that when a corporate taxpayer computes allowable
deductions from gross income, those deductions a.re decreased
by i! ratio of the fed-era1 interest income to al-1 interest
income earned by the corporation. This section provides as
follows:
" (1) A corporation, taxable under this part, that
excludes interest from grcss income which would be
taxable except for federal law must adjust its
allowable deductions for all taxable periods for
which interest js excluded in the following manner:
" (a) the total amount of interest excluded from
gross income by federal law must be determined;
" (b) the tota J amount of all. interest i-ncome from
all sources must be determined;
" (c) the ratio of excluded interest income to all
interest income must be determined; and
" (d) the total deductions allowable under
15-31-11.4 must be reduced by an amount determined
by multiplying the amount of deduction otherwise
allowehle by the ratio of excluded interest to all
interest income; however, the product of this
calculation may not exceed the amount of excluded
interest income.
" (2) Allowable deductions must he reduced with
respect to all corporations that exclude interest
income otherwise taxable upon returns filed for all
taxable periods for which such exclusion is claimed
and for all taxable periods for which a claim for
refund is made."
In i t s findings of fact, the District Court found th.a.t
an algebraic formula adopted by the state department of
revenue in 42.23.417 A.R.M. demonstrates how to compute the
deductions disallowed on the basis of federal interest
income. That formula follows:
Exempt Interest Jncome x Total Deductions = Deductions Disall-owed
Total Interest Income
For the year 1982 (th.eonly year which we are concerned
with) RN's total interest income from all sources constituted
1.74% of its gross income; the percentage of BN's total
interest income made up of federally exempt income was 20.4%.
Application of the section 15-31-116, MCA formula to EN'S
1982 interest and expense data produces the following result:
$18,328,000 x $4,677,639,000 = $952,765,750
$89,982,000
Because, however, section 15-31-11-6, MCA, limits the
amount of disallowed deductions to the amount of the federal
interest income received, the amount of deductions actual1 y
disallowed BN in tax year 1982 $18,328,000. The District
Court found that the effect of the statutory formula,
combined with the statutory limit, is to add back to RN's
taxable income 100% of BN's federal interest in tax year
1982.
The Department of Revenue argues that (1) deductions
allowable to compute state taxab1.e income are a matter of
legislative grace; (2) there is precedent for section
1-5-31-116, MCA, in the Internal Revenue Code, 26 U.S.C. 291;
and, (3) the except-ion enacted in 31 U.S.C. S 742 (1976),
(now 31 U.S.C. S 3124), shows that federal interest can be
taxed in some instances.
BN responds that 31 U.S.C. 5 31.24 forbids circuitous as
well as direct attempts to tax federal interest income,
citing American Bank and Trust Company v. Dallas County
(1983), No. 81-1717 Slip Op., ,
US - 103 S.Ct. 3369, 77
L.Ed.2dI 1072 to the effect that "Congress intended to sweep
away formal distinctions and to invalidate all taxes measured
directly or indirect-ly by the value of federal obligations,
except those specified in the amendment." 103 S.Ct. at
3377, 77 L.Ed.2d at 1082.
We determine that the net effect of section 15-31-11 6,
MCA, is to add back to taxable income interest income fro^
federal obligations for the purpose of determining state
corporation license tax. This, states are not permitted to
do. Under 31 U.S.C. S 3124 both federal obligations and
interest therefrom are exempt from taxation by states
directly or indirectly in the computation of tax, unless the
tax is specifically excepted in 3124(1) or (2).
Because our holding in First Federal was that the
corporation license tax was not a franchise tax, section
15-31-116, MCA, standing alone, is invalid. It directly
contravenes a federal law and as such violates the supremacy
clause of the federal Constitution (Art. VI, C1. 2).
111.
OUR DECISION IN FIRST FEDERAL
The issuance of our decision in First Federal created an
emergency of sorts for the counties because of the material
reduction in their tax revenue because of the decision. One
consequence was that the Department of Revenue petitioned the
United States Supreme Court for a writ of certiorari relative
to our decision, a petition which was joined in by 25 other
states. Certiorari was denied by the United States Supreme
Court (cert.den. 103 S.Ct. 3128 (1983)).
The legislature disagreed with our decision in First
Federal and said so in its preface to the adoption of Ch.
673, Laws of Montana (1983), which became section 15-31-116,
MCA. The legislature was also careful to state that the
passage of the new enactment was for the purpose of
maintaining current levels of revenue to the state and local
governments.
Thus, our decision today that section 15-31-11-6,MCA, is
invalid returns the State to the position it was in prior to
the enactment after First Federal. Banking institutions will
owe no corporation license tax. The question naturally
arises, were we correct in First Federal, the centerpiece of
the problem?
We have determined to reexamine First Federal, though
over the objection of BN that we should not consider an issue
raised by an amicus curiae, the Montana Rankers Association.
A. First Federal was incorrect
In First Federal we held that under 31 U.S.C. 5 742
(1976) corporate taxpayers filing tax returns under the
Montana corporation license tax law could not be required to
inc1ud.e in their reported income, interest earned on federal
obligations during the taxable year. The operating paragraph
of First Federal follows:
"The Department argued that the Montana Corporation
License Tax is a franchise tax on the privilege of
doing business in Montana with the tax based upon
or measured by the net income of the taxpayer.
Hence, it was argued, that the tax is not on the
property (interest income), but is on the
privilege. This Court finds the argument to be
unpersuasive. It is a distinction without a
difference in our opinion. If the franchise tax is
on the privilege and the tax is based on the net.
income, this Court concludes that the tax is on the
privilege - the net income.
and If the net income
includes tax-exempt interest, the tax is on exempt
income which is prohibited by the specific federal
statutes creating the federal obligations and
granting the tax exemption . . . Jt also appears
to this Court that by the Department's including
the tax-exempt interest in net income, the
Department is seeking to tax indirectly what it
cannot tax directly, in violation of the general
rule set forth in 31 U.S.C. ?42 (1976) ..." 654
P.2d at 498.
It is apparent that this Court concluded that, because
the corporation license tax laws of this state provided a tax
that was measured by net income, the corporation license tax
violated. federal law in that regard. We now d-etermine that
we were erroneous in that conclusion and that the holding in
First Federal should be reversed.
We base our determination on these factors: (a) the
Montana corporation license tax was fashioned after the
federal corporation franchise tax statutes; (b) several of
our cases preceding First Federal had held the Montana
corporation license tax to be a franchise tax; (c) Congress
has amended 31 U.S.C. § 742 (1976) to clarify when states may
tax federal obligations and interest income; (d) the United
States Supreme Court has enunciated the clarifying effect of
the present federal statute, 31 U.S.C. S 3124; and (e) one
other court has held other acts similar to the Montana
corpora.tion license tax valid.
We want it understood that we do not reach our
determination reversing First Federal because of the tax
I-oss to the state and counties if we were to continue First
Federal in effect. If we were not convinced. of the error in
First Federal, we would reluctantly hut candid.1~ad.vise the
1-egislature to look to other sources of tax revenues.
By its terms, section 15-31-101, MCA, the corporation
license tax sta.tute, is a franchise tax. It provides in
pertinent part:
" ( 3 ) Every corporation . . .
engaged in business
in the state of Montana shall annually pay to the
state treasurer as a license fee for the privilege
of carrying on business in this state such
percentage or percentages of its total net income
+or the preceding taxable year at the rate
hereinafter set forth . . ."
The precursor of section 15-31-101, MCA, came before the
Montana Supreme Court in Equitable Life Insurance Company v.
Hart, et al. (1918), 55 Mont. 76, 173 P. 1062. Equitable
mainta.ined, among other arguments, that because it also paid
a special tax for the privilege of conducti.ng an insurance
business in the state, it should not be subjected to a
further corporation license tax. This Court determined that
Equitable was required to pay the Montana corporation license
tax even though it paid other insurance license taxes. The
Court reviewed the history leading to this statute and
pointed out that the Montana corporation license tax followed
verbatim the corporate franchise tax in the fed.era1 Tariff
Act of 1909. This Court then referred to the United States
Supreme Court case of Flint v. Stone Tracy Company (19101,
220 U.S. 107, 31 S.Ct. 342, 55 L.Ed 389.
". . .
In the present case the tax is not payable
unless there be a carrying on or doing of business
in the designated capacity, and this is made the
occasion for the tax, measured by the standard
prescribed . . . the tax is laid upon the
privileges which exist in conductinq business with
the advantages which inhere in the corporate
capacity of those taxed, and which are not enjoyed
by private firms or individuals .. .
Jt is this
distinctive privilege which is the subject of
taxation . . .
" 55 Mont. 76, 83, 173 P. 1062,
quoting Flint in part.
In State v. J. C. McGuire Construction Company (1942),
113 Mont. 324, 328, 125 P.2d 433, 434, this Court said:
"In all Later decisions of this court wherein this
tax has been under consideration or has been
referred to in any way it has been spoken of as a
Eranchise tax, or license tax, an excise upon the
privilege of doing business in the state in a
corporate capacity. Cottonwood Coal Company v.
Junod, 73 Mont. 392, at page 398, 236 P. 1080; East
Helena State Bank v. Rogers, 73 Mont. 210, at page
213, 236 P. 1090; OIConnell v. State Board of
Equalization, 95 Mont. 91 at page 118, 25 P . 2 d 114.
It has been clearly distinguished from the license
fees exacted upon the grant of privilege and from
taxes imposed upon income or property. With the
history of jud.icia1 interpreFation of the act as we
have it thus harmorlized with other tax measures,
and the administration of the law in accord.a.nce
therewith, the question of the character of the tax
is so well settled as to leave no room for doubt or
speculation." (Em.phasisadded..)
In Montana Bankers Association v. Department of Revenue
(1978), 177 Mont. 11.2, 580 P.2d 909, this Court construed the
Montana bank shares tax act, a property tax, as valid only if
it be interpreted to authorize a deduction for the value of
federal. obligations in computing the hank shares tax basis.
This Court relied on the 1959 amendmen.t to 31 U.S.C. S 742
(1976), of which more later. This holding is still effective
in Montana.
The Montana corporation license tax is not to be
considered. a property tax. OIConnell v. State Board of
Equalization (1933), 95 Mont. 91, 25 ~ . 2 d
114.
It is quite clear from our holdings prior to First
Federa.1 that the Montana corporation license tax was
determined by this Court to be a franchise tax and a
nonproperty tax. Therefore, our decision in First Federal
needs to be reexamined in the light of the language of 31
U.S.C. S 3124 (the successor to 31 U.S.C. S 742 (1976)):
"(a) Stocks and obligations of the United States
Government are exempt from taxation by a State or
political subdivision of a State. The exemption
applies to each form of taxation that would require
the obligation, the interest on the obligation, or
both, to be considered in computing a tax, except--
" (1) a nondiscriminatory franchise tax or another
nonproperty tax instead of a franchise tax, imposed
on a corporation; and
"(2) an estate or inheritance tax."
(The language found in subdivision (1) and (2) of 31
U.S.C. 5 3124 (a) is i n essence the language found. in. a 1959
.
amendment by the Congress to 31 U.S.C. S 742 (1976).)
It was the intention of Congress in S 3124 t.o clarify
the states' right to tax federal obligations or interest
income in the narrow circumstances described i n 5 3124.
. We
determine that a nondiscriminatory franchise tax or other
nonproperty tax instead of a franchise tax is permissible;
and we determine that the Montana corporation license tax is
valid as a nondiscriminatory franchise tax.
In American Bank and Trust Company v. Dallas County
,
(1983), No. 81-1717, Slip Op., - U.S. - 103 S.Ct. 3369,
77 L.Rd.2d 1072, the United States Supreme Court had before
it the validity of the Texas tax on bank shares, a property
tax. The court considered the Texas tax in the light of the
1959 federal amendment which is now a part of 3124.
Because the 1959 amendment provided for specific exemptions
for franchise and estate and. inheritance taxes, and
conspicuously omitted shares taxes from that group, the Court
concluded that Congress meant to bar bank shares taxes to the
extent that they consider federal obligations in the
computation of a property tax. 103 S.Ct. at 3375.
The first part of 5 3124(a) bars any form of taxation
that would require federal obligations or the interest
therefrom to be considered in computing the tax. The
language of 3124 (a), however, does not preclud-e the
consideration of federal obligations or their interest income
in computing a nondiscriminatory franchise tax. In American
- - Trust Company, supra, the Supreme Court said j.n
Bank and
looking at the 1959 amendment:
"Prior to the 1959 amendment, franchise and estate
and inheritance taxes measured by the value of
federal obligations, like bank shares taxes, were
upheld on the theory that the tax was levied on the
franchise or the transfer of the property rather
than on the ownership interest in the federal
securities themselves. By expressly exempting
franchise and estate and inheritance taxes from the
amended S 3701, Congress manifested its awareness
that the new languase would broaden significantly
the prohibition as it had been construed by the
courts. Congress --believed that franchise
must have
and estate and inheritance taxes required federal
obligations - to 'be considered, direct1 or
-
indirectly, in t E computation of - ' a ' -
the t x :
otherwise, thespecif ic exemptions frr these taxes
would have been superfluous . . .
" (Emphasis
added.) 103 S.Ct. at 3375, 77 L.Ed.2d at 1079.
Thus, a nondiscriminatory franchise tax levied by a
state on a corporation for the privilege of doing business in
the state is valid even though, in computing the tax,
interest income from federal obligations is included.
The rea-soning of the United States Supreme Court in
American Rank makes it clear that a state may use, directly
or indirectly, the interest income on federal. ohl-igations to
determine corporate nondiscrimina-tory franchise taxes levied
by the state.
In Garfield Trust Company v. Director, Division of
Ta.xation, a. cause in the New Jersey tax court (NO. CB
143A-80, decided June 19, 1984), the New Jersey court upheld
the validity of a New Jersey franchise tax in light of 31
U.S.C. S 3124 and the decision in American Bank. New
Jersey's corporate franchise tax is determined by the
addition of prescribed percentages of net worth and net
income allocable to the State of ?Jew Jersey. The plaintiff
included its holdings of federal obligations and its income
from those sources in computing its corporate income tax,
paid the tax, and then. sued for refund. The refund was
denied by the New Jersey taxing auth0riti.e~ and the New
Jersey tax court upheld the denial.
The legal theory adopted by the New Jersey tax court in
reaching its decision is the same 3-s we have expounded here.
The decision was based on American Bank which makes it clear
that Congress, in 31 U.S.C. S 3124, provided a distinction
between ncndiscriminatory franchise taxes measured by tax
exempt obligations on the one hand, a.nd property taxes
otherwise levied directly or indirectly by states on such
federal items on the other.
We also determine that the Montana corporation license
-tax is a nondiscriminatory franch.ise tax. The term
"nondiscriminatory" was made c1ea.r by the United States
Supreme Court in Memphis Bank and Trust Company v. Garner
(I-g83),459 U.S. 392, 103 S.Ct. 692, 74 Il.Ed.2d 562. The
Court said:
"A state tax that imposes a greater burden on
holders of federal property than on holders of
similar state property impermissibly discriminates
against federal obligations. See, e.g., United
States v. County of Fresno, supra, at 462, 50
L.Ed.2d 683, 97 S.Ct. 699 ( ' a state tax on those
who deal with the Federal Government' is
unconstitutional if the tax 'is imposed [unlequally
on . .
. similarly situated constitutents of the
State'). Our cases establish, however, that if the
'tax remains the same whatever the character of the
[property] may be, no claim can be sustained that
this taxing statute discriminates against the
federal obligations.' Werner Machine Company v.
Director of Division of Taxation, supra, at 493-94,
76 S.Ct. 534, 100 L.Ed. 634." 459 U.S. at 397, 74
L.Ed.2d at 567.
Montana's corporation license tax does not discriminate
against holders of federal obligations. It taxes the
interest earned by corporate holders of state obligations.
Section 15-31-115, MCA, provides:
"Notwithstanding the provisions of any other law,
the income from bonds or other obligations issued
by any state or pol.itica1 subdivision of a. state
are included in gross and net income for purposes
of the corporation license tax . . ."
B. May the Court reverse First Federal, as the issue was
raised by amicus curiae?
Reversal of our First Federal decision was first
suggested in this cause by Montana Ba-nkers Association,
appearing amicus curiae. It is contended therefore that the
rectitude of our holding in First Federal cannot be examined
in this case, as the issue was first raised by one not a
party to the action.
We determine here not to fol-low the usual rule that
issues raised by amici that are not part of the underlying
action will not be considered by this Court. Compell-ing
reasons not to follow that rule include (a) the binding
effect of First Federal on state officials, (b) the validity
of section 15-31-116, MCA, inherently involves the operation
of the Montana corporation license tax, and (c) in oriqinal
proceedi~gsour powers are at least those of a district court
under Rule 54(c), M.R.Civ.P.
First Federal, when decided by this Court, was binding
on the state officials who were charged by law with the
collection of the Montana corporation license tax. The state
officials therefore were not in a position to relitigate the
validity of the holding in First Federal. Their duty instead
required them to uphold the provisions of section 15-31-116,
MCA, if possible. The state officials were not in the
position of the usual party who, though he is able to do so,
does not raise in the district court an issue for that
court's decision. When outside issues are raised in this
Court by amici, we usually have in mind the fact that the
district court was not given an opportunity to resolve the
issues raised by amici nor is it usually consonant with sound
justice to reverse the district court on issues not decided
in that court.
The validity of the Montana corporation license tax,
with or without section 15-31-116, MCA, is inherently
involved in this cause. The principal duty of this Court in
this cause is to determine the effect that 31 U.S.C. § 3124
has on the Montana corporation license tax. Our decision in
First Federal was the primal urge out of which came section
15-31-116, MCA. If section 15-31-116 is illegitimate, as we
find it is, the bastard child has a father, First Federal.
The responsibility of the paternity is intertwined here.
Finally, it must be remembered that this cause is ar
original proceeding in this Court and the legal issues that.
arise belong and pertain to this Court. We remanded this
cause to the First Judicial District Court for fact-finding
procedures, hut reserved to ourselves the legal issues
involved. In entering judgment, our powers in an original
proceedings are not less than those giver! a district court
under Rule 54 (c), M.R.Civ.P. Under that rule, every final
judgment shall grant the relief to which the party in whose
favor it is rendered is entitled, even if the party has not
demanded such relief in his pleadings.
We are not barred in this case, therefore, from
reversing First Federal by the rule that amici may not raise
issues not raised by the parties.
IV.
APPLICATION
We therefore hold and determine that section 15-31-116,
MCA, is invalid for offending federal law and the supremacy
clause of the federal. Constitution. This opinion shall be
and constitute a declaratory judgment to that effect. We
further hold and determine that our decision in First Federal
Savings and Loan Association v. Department of Revenue (Mont.
1982), 654 P.2d 496, 39 St. Rep. 1802, cert. den. 103 S.Ct.
3128 (1983), be and the same is hereby reversed as to its
holding that income from federal obligations may not be
considered in computing corporate taxes due under the Montana
corporation license tax; we further hold and determine that
the Montana corporation license tax as now provided in our
statutes is a nondiscriminatory franchise tax imposed upon
corporations for the privilege of doing business as
corporations in this state. We order that the tax
obligations of Burlington Northern, Inc. for the taxable year
1982 shal-1 be determined under the Montana corporation
license tax as interpreted by this Court in this Opinion, as
well as the corporation's future Montana corporation license
tax returns while said tax remains in effect. As to all
other corporate taxpayers, filing under the Montana
corporation license tax provisions, their returns shall be
filed with taxes computed according to this Opinion for
texable years ending after the date of this Opinion and for
any amendment of tax returns for earlier years. With respect
to whether the Montana corporation license tax should be
otherwise retroactive1y or prospectively applied under this
Opinion, we retain jurisdiction for application to us by the
Department of Revenue, or by any corporate taxpayer after
proceeding before the State Tax Appeal Board, for the purpose
of obtaining such further relief as may be required.
Each party shall pay its own costs.
qdh-G ,2h4+
Justice
We Concur:
-
Chief Justice
Justices
Mr. J u s t i c e Fred J . Weber does n o t p a r t i c i p a t e i n t h i s case.
Mr. Chief Justice Frank I. Haswell, dissenting:
I respectfully dissent.
In my view, section 1.5-31-116,MCA, is unconstitutional
on its face as it discriminates against obligati.ons of the
United. States Government and therefore violates the Supremacy
Clause of the United States Constitution. This Court has
previously held that Montana's corporation li-cense tax is an
income tax (Security Rank & Trust Co. v. Connors et al.
!1976), 170 Mont. 59, 55C P.2d 1313) and not a fravchise tax
(First Federal Savings and Loan Association v. Department of
Revenue (Mont. 1982), 654 P.2d 496, 39 St.Rep. 1802, cert.
denied 103 S .Ct. 3128) . Accordingly, stocks and obligations
of the United States Government are exempt from taxation
under 31 U.S.C. section 3124. Under section 15-31.-116, MCA,
the entire federal interest exemption is added back into the
tax base.
Furthermore, section 15-31-116, MCA, as applied. to
Burlington Northern, Inc., violates the due process clause of
both the United States and Montana Constitutions because the
formula used thereunder in disallowing deductions is not
rational-ly related to its 2 percent interest income from
TJnited States Government obligations.
Finally, I would not reexamine, much less overrule, our
prior decision in First Federal, supra. This issue was not
raised by any party to this action. It was raised by amicus
curiae Montana Bankers Association and under well settled
rules of law, amici are not permitted to raise additional
issues not raised by the parties to the lewsuit.
34&4\ a,'%$,4
CHief Justice'
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