Spain v. Montana Department of Revenue

No. 01-556

IN THE SUPREME COURT OF THE STATE OF MONTANA

2002 MT 146

STEVEN W. SPAIN, et al.,

Petitioners and Appellants,

v.

MONTANA DEPARTMENT OF REVENUE,

Respondent and Respondent.

APPEAL FROM: District Court of the Eighteenth Judicial District,
In and For the County of Gallatin,
Honorable Mike Salvagni, Judge Presiding

COUNSEL OF RECORD:

For Appellants:

Michael J. San Souci, Attorney at Law, Bozeman, Montana

For Respondent:

Charlena Toro, Special Assistant Attorney General and Tax Counsel,
Helena, Montana

Submitted on Briefs: February 14, 2002

Decided: June 27, 2002

Filed:

__________________________________________
Clerk
Justice W. William Leaphart delivered the Opinion of the Court.
¶1 Steven W. Spain, individually and doing business as Northwest

Rocky Mountain Construction, Inc. (collectively Northwest), and

Kenneth D. Ehret, individually and doing business as KDE
Construction (Ehret), appeal from the Eighteenth Judicial District

Court’s order affirming the State Tax Appeal Board’s determination

that certain Northwest workers, including Ehret, were employees

rather than independent contractors for purposes of state income

tax withholding. We affirm.
¶2 We re-state the issues on appeal as follows:

¶3 (1) Did the District Court err in upholding the State Tax

Appeal Board’s determination that the Northwest workers in question
were employees rather than independent contractors?

¶4 (2) Did the District Court err in holding that the Department

of Revenue did not exceed its statutory authority in classifying
Ehret as an employee?

¶5 (3) Did the District Court err in holding that § 15-30-203(1),

MCA, and Rule 42.17.120, ARM, do not constitute a form of
unconstitutional dual taxation?
FACTUAL AND PROCEDURAL BACKGROUND
Comment [COMMENT1]: Dor fof
¶6 Northwest is a Wyoming Subchapter S Corporation engaged in 1

Comment [COMMENT2]: Dor fof
general contracting. It commenced operations in Montana in 1987. 1

Steven W. Spain (Spain) is the president and sole shareholder of

Northwest, and his wife, Kimberly Spain, is secretary-treasurer.
Comment [COMMENT3]: Dor fof
¶7 Ehret performed construction services for Northwest. On 2

appeal, the parties dispute whether he performed the services as a

2
Northwest employee or as an independent contractor. However, it is

undisputed that, in 1988, Ehret applied for and received

unemployment benefits. Subsequently, the Montana Department of
Labor and Industry sought to have Northwest establish an

unemployment insurance account, but Northwest refused. Ultimately,

the Board of Labor Appeals determined that Ehret was a Northwest
Comment [COMMENT4]: Dor fof
employee. Northwest appealed this determination, and on October 3

11, 1989, the District Court affirmed the Board of Labor Appeals’

decision. It declared that Ehret and others “similarly situated”

were not independent contractors for purposes of their employment
with Northwest.
Comment [COMMENT5]: Dor fof
¶8 In December 1990, the Department of Revenue (DOR) conducted a 4
Comment [COMMENT6]: Dor fof
5
computer cross match indicating that Northwest had reported wages

to the Unemployment Insurance Division of the Department of Labor
and Industry. However, no corresponding account could be found for

Montana withholding tax purposes.
Comment [COMMENT7]: Dor fof
¶9 As a result, DOR agent Jeff Lapham (Lapham) conducted a field 6

Comment [COMMENT8]: Dor fof
audit of Northwest covering tax years 1987-1991. He examined 6

Northwest’s corporate check register to obtain Northwest’s earnings

information and the specific dates and amounts of compensation paid
to workers and compared this information with various workers’

individual income tax returns. He also considered this one-

paragraph Work Contract that Northwest workers were required to

sign:
I, [Name of Worker], working as a Contract Laborer for
Northwest Rocky Mountain Construction, am responsible for
all insurance on myself and for all injuries occurring on
the job. I will file my own Social Security and

3
 Withholding Taxes. I will not hold Northwest Rocky
Mountain Construc-tion or Steve Spain liable for any
injuries or accidents that may occur. [Emphasis in
original.]
While the workers signed the Work Contracts, Spain at times

did not sign them.

4
¶10 Based on his investigation, Lapham concluded that some of

Northwest’s workers were employees and some were independent
contractors. With regard to those workers deemed employees,
Comment [COMMENT9]: Dor fof
Lapham determined that Northwest had failed to report their 7-8

income to the DOR for state withholding tax purposes and
Comment [COMMENT10]: Dor tr
failed to pay withholding taxes for these workers from 1987- 15

1989 since, on June 25, 1990, Northwest registered with the

DOR for purposes of state withholding tax payments.
Consequently, Lapham submitted a notice of assessment to

Northwest for tax and interest due in the amount of

$15,132.58.
¶11 Lapham also issued a notice of assessment to Ehret

because, although he was deemed an employee for unemployment

insurance purposes for the years 1987-1989 pursuant to the
Comment [COMMENT11]: Dor tr
previous District Court determination discussed above, he 32

nevertheless filed income tax returns as an independent

contractor for those years. Concluding that Ehret was an
employee and, in any event, failed to produce adequate

business records substantiating his claimed business expense
Comment [COMMENT12]: Dor tr
deductions, Lapham disallowed the deductions and assessed 33

Ehret in the amount of $2,207.63, including interest due.

¶12 Following receipt of the DOR assessment, Northwest

submitted eighteen sworn Declarations to Lapham from workers
describing the services they performed for Northwest. The

Declarations also contained statements similar to the

following:

5
 During these periods I considered my relationship with
Northwest to be that of builder/independent contractor,
since I furnished my own tools at the jobsite, retained
control and discretion over the manner and details of my
work, without direct supervision from Mr. Spain or anyone
under his control, and I also performed similar work for
various other builders and general contractors during the
years in question. Apart from the above project(s), I
did no further work for Northwest during the years in
question.
Comment [COMMENT13]: Declar
¶13 Additionally, the Declarations contained language to theations, dor fof 9

effect that the workers conducted business under their own trade

names, maintained their own medical and disability insurance and

paid the appropriate taxes on any and all amounts received from
Northwest during the period in question.
Comment [COMMENT14]: Dor
¶14 Following receipt of the Declarations, Lapham comparedfof 10

them with the workers’ Montana income tax returns. In some cases,
Lapham determined that some of the workers that he had previously

deemed employees in the audit were indeed independent contractors.

In other cases, Lapham determined that the workers’ statements
were inconsistent with the manner in which they filed their Montana

tax returns.
Comment [COMMENT15]: Dor
¶15 To obtain more information, Lapham sent Workerfof 10

Relationship Questionnaires to five individuals and established

appointments to review them with the individuals. Spain, Ehret and

a worker we will refer to as “Worker A” returned the
Questionnaires. Only Worker A attended the review appointment with
Comment [COMMENT16]: Dor
Lapham. From Ehret’s Questionnaire and Worker A’s Questionnairefof 11-13

and interview, Lapham determined that they, and similarly-situated
workers, were employees of Northwest.

6
¶16 Lapham submitted a revised assessment to Spain deleting

the workers that Lapham determined to be independent contractors
upon further review. The assessment remained the same for those

workers who Lapham continued to deem as Northwest employees and for

Ehret.

7
¶17 In May 1993, Northwest and Ehret filed an administrative

appeal with the DOR, and the DOR held a hearing in which Lapham was

the primary witness.
¶18 After the hearing, the hearing officer issued extensive

findings of fact and conclusions of law. He determined that the

workers in question were employees rather than independent
contractors and upheld the DOR’s assessments against Northwest and

Ehret. Northwest and Ehret appealed the hearing officer’s decision
Comment [COMMENT17]: Bd fof
to the State Tax Appeal Board (STAB) on the DOR record. Thus, as 27
Comment [COMMENT18]: Stab
fof 27
agreed to by the parties, the Board’s hearing was limited to oral

argument. The Board affirmed the hearing officer’s decision.

¶19 Northwest and Ehret petitioned for judicial review in the

Eighteenth Judicial District Court, Gallatin County. The District
Court reviewed the record and affirmed the STAB’s findings and

conclusions of law determining that the workers at issue were
employees of Northwest and addressed Northwest’s constitutional

claims. Northwest and Ehret now appeal the District Court’s

decision.
STANDARD OF REVIEW

¶20 Where, as here, both facts and legal conclusions are disputed,

two standards of review are appropriate. We review an
administrative agency’s findings of fact to determine whether the

findings are clearly erroneous in view of the reliable, probative

and substantial evidence on the whole record. Section 2-4-
704(2)(a)(v), MCA; State Personnel Division v. Child Support

Investigators, 2002 MT 46, ¶ 18, 308 Mont. 365, ¶ 18, 43 P.3d 305,

8
¶ 18. Our standard of review of a question of law is whether the

conclusion is correct. Phoenix Physical Therapy v. Unemployment

Insurance Div. (1997), 284 Mont. 95, 100, 943 P.2d 523, 526.
DISCUSSION

¶21 (1) Did the District Court err in upholding the State Tax

Appeal Board’s determination that the Northwest workers in question

were employees rather than independent contractors?

¶22 Northwest claims that the workers the STAB deemed as employees

were independent contractors. The two-part test to determine

whether an individual is an independent contractor is found at §
39-51-201(14), MCA (1987):

(1) “Independent contractor” means an individual who
renders service in the course of an occupation and:
(a) has been and will continue to be free from
control or direction over the performance of the
services, both under his contract and in fact; and
(b) is engaged in an independently established
trade, occupation, profession, or business.

¶23 Under this test, the crucial question is whether or not an

employer has a right of control over a worker. To determine this,
we have developed the following four-part control test: (1) direct

evidence of right or exercise of control; (2) method of payment;

(3) furnishing of equipment; and (4) right to fire. Walling v.
Hardy Construction (1991), 247 Mont. 441, 447, 807 P.2d 1335, 1338.

A finding that an individual is an independent contractor demands
“‘a convincing accumulation of these and other tests,’” while a

finding of employee status “‘can if necessary often be solidly

proved on the strength of one of the four items.’” Walling, 247

9
Mont. at 447, 807 P.2d at 1338-39 (citing Sharp v. Hoerner Waldorf

Corp. (1978), 178 Mont. 419, 425, 584 P.2d 1298, 1301-02).

¶24 In its Findings of Fact, the STAB recounted Lapham’s testimony
Comment [COMMENT19]: Dor tr
at the DOR hearing. Lapham testified that at the opening audit 18
Comment [COMMENT20]: Stab
fof 15
conference, Northwest representatives, including Spain, informed
Comment [COMMENT21]: Stab
fof 15
him that the company sometimes supplied its workers with air

compressors, air guns, lumber, materials, nails, saws and cords
Comment [COMMENT22]: Stab
while the workers only supplied their own small hand tools. Based fof 16
Comment [COMMENT23]: Stab
fof 17
on Lapham’s testimony, the STAB found that contracts were not

issued for any particular construction job, and there were no bid
Comment [COMMENT24]: Dor tr
sheet proposals submitted by workers performing services. 17

Comment [COMMENT25]: Stab
¶25 Furthermore, the STAB findings included Lapham’s explanation fof 18

of how he considered the workers’ tax returns in determining
Comment [COMMENT26]: Dor tr
whether they were employees or independent contractors. He stated 13-14

that workers who filed a Schedule C tax return reporting business

income and expenses greater than that earned at Northwest were
deemed independent contractors. On the other hand, if workers’

Schedule C reported income was equal to that earned at Northwest,
Comment [COMMENT27]: Dor tr
he viewed the workers as employees of Northwest. He also viewed 14

workers as employees if they reported their income from Northwest

as wages on their tax returns.
Comment [COMMENT28]: Stab
¶26 The STAB outlined how Lapham found many inconsistencies fof 19

between the Declarations Northwest submitted and the Worker

Relationship Questionnaires and tax returns. For instance, some
“independent contractor” incomes were reported as wages; workers

were paid by the hour but claimed they worked on a job-to-job

10
basis; and workers claimed they worked uninterruptedly only for

Northwest yet also claimed they worked for other builders. The

STAB found there were other conflicting statements as to the
presence of supervision and control, the length of employment, the

completion of records, the company’s right to discharge and the

workers’ freedom to quit their job, and the nature and amount of

communication between Northwest and its workers.
Comment [COMMENT29]: Stab p
¶27 The STAB held that Ehret and Northwest failed to rebut the 19
Comment [COMMENT30]: Stab
10
DOR’s evidence. Regarding Ehret, the STAB cited Rule 42.17.101(1),

ARM, for the proposition that a determination that an individual is

an employee for purposes of unemployment compensation establishes
that person as an employee unless facts can be shown to the
contrary. The STAB noted that in a previous 1988 determination, a

district court ruled that Ehret was an employee for purposes of

unemployment insurance. The STAB also considered Lapham’s

testimony with respect to Ehret’s tax returns and Worker
Relationship Questionnaire. Since Ehret did not appear at the DOR
hearing or the STAB proceedings, the STAB stated that he failed to

show that he should be reclassified as an independent contractor.

The STAB concluded that Ehret was a Northwest employee and that the

DOR properly disallowed his business expense deductions.
¶28 Regarding Northwest, the STAB concluded that it failed to meet

its burden of proof when it submitted nothing more than sworn
Comment [COMMENT31]: Stab
Declarations which were found to contain contradictory assertions. 13

The STAB’s discussion of the deficiency of Northwest’s proof

included the following statements:

11
It is not sufficient merely to question the credibility
of the testimony and evidence submitted by the
respondent; [Northwest] must provide its own materials
that will prove the validity of its position. That
positive case has not been made with respect to the
employment presumption, the independently established
trade status, or to the matter of control, real or
potential.

12
 . . . .

Reviewing [the Work Contract] . . . we find no mention of Comment [COMMENT32]: Stab
control, of supervision, of sources of orders, the need 13
for coordination or communication or work records, or the
duration of the agreement, or what has been negotiated
(equipment, work days, holiday schedules) or what bases
there might be for the separation of the parties if there
is disagreement.
. . . . Comment [COMMENT33]: Stab
15
Testimony and written evidence is [sic] lacking on the
matter of the right to quit or behavior that would cause
firing.
¶29 The STAB concluded that the weight of the evidence

required it to uphold the DOR’s employee classification for certain

Northwest workers.
¶30 The District Court upheld the STAB decision. It stated

that the Department of Labor, the previous district court decision

in 1988, Lapham, the DOR hearings examiner and the STAB all relied
on all or some of the following evidence to properly reach the

conclusion that the Northwest workers in question were employees:

(1) indefinite periods of hire; (2) lack of negotiated agreements;
(3) hourly rate paid eight hours a day; (4) employer furnished

materials and equipment; (5) employer retained right to fire; (6)

agreements did not contain default provisions; and (7) some
workers reported themselves as employees.
Comment [COMMENT34]: Dc or
¶31 The District Court also held that the DOR and the STAB8

properly applied the control test in this case, and it declined to
substitute its judgment for that of these agencies as to the weight
Comment [COMMENT35]: Dc 10
of the evidence on questions of fact under § 2-4-704(2), MCA.

13
¶32 On appeal, Northwest does not make any cogent argument with

respect to the independent contractor test found at § 39-51-201,

MCA, and the control test factors. Rather, Northwest takes issue
Comment [COMMENT36]: App
with the DOR’s characterization of “several” workers as employees brf 32

when, according to Northwest, only Ehret could conceivably be
Comment [COMMENT37]: App
considered as a Northwest employee. Also, Northwest questions the brf 5

methodology underlying Lapham’s audit since Lapham later revised

his audit based upon the Declarations Northwest submitted.
Comment [COMMENT38]: App
¶33 In addition, Northwest inconsistently argues that it met its brf 31
Comment [COMMENT39]: App
brf 34
burden of proof through the sworn Declarations it submitted to the

DOR and, on the other hand, that it could not meet its burden of

proof because the burden is contrary to fundamental concepts of
fairness, due process and the rules of evidence. Northwest insists

that the DOR effectively created an irrebuttable presumption that
“obviously cannot be overcome despite the overwhelming weight of

evidence to the contrary.” By “overwhelming evidence,” Northwest

refers to the Declarations it submitted, and it defends their
Comment [COMMENT40]: Reply
trustworthiness. Northwest contends that it was the DOR’s 5
Comment [COMMENT41]: App
reply 12
obligation to rebut the information contained in the Declarations

by providing confidential tax return information to Northwest. It
Comment [COMMENT42]: App
scoffs at the notion that it was required to call the workers in brf 32

question as witnesses at the DOR hearing or seek a protective order
Comment [COMMENT43]: App
to obtain the workers’ tax information. Finally, Northwest faults brf 32

the DOR’s failure to produce witnesses other than Lapham.
Comment [COMMENT44]: Dor
¶34 The DOR maintains that the burden of proof was on Northwest to brf 15-16

rebut the presumption of employee status and that Northwest failed

14
to show that the presumption was unconstitutional beyond a
Comment [COMMENT45]: Dor
reasonable doubt. The DOR states that although it did not bear brf 17

the burden to show whether the Northwest workers were employees or

independent contractors, it nevertheless attempted to discover the

facts necessary to establish the workers’ status and demonstrated
that Northwest had the right to control its workers, paid hourly

wages, furnished equipment and retained the ability to fire its

workers. Regarding the discovery of confidential tax returns, the

DOR contends that although they are statutorily protected as

confidential under § 15-30-303, MCA, Northwest could have obtained

them through a protective order or from the workers themselves.
¶35 We hold that the District Court properly upheld the STAB’s

determination that the Northwest workers in question were employees
rather than independent contractors as defined at § 39-51-201(14),

MCA (1987), and under the control test. First, upon careful review
of the whole record, we conclude that substantial evidence supports

the STAB’s findings of fact in this matter, and the District Court

did not err in so concluding. Furthermore, we agree with the

District Court that the STAB correctly considered the control test–
and Northwest’s lack of proof thereunder–in its determination that
the DOR properly classified the workers in question as employees.

¶36 We also agree with the District Court’s reasoning with regard

to the methodology underlying the DOR audit. It stated that the
DOR’s revision of its original assessment after reviewing further

information evidenced “an objective application of law to fact and

15
a prudent exercise of the DOR’s discretion.” Contrary to

Northwest’s position, the District Court’s stance regarding the

DOR’s audit methodology and its revision of the original audit was
based in logic and supported by the record.

¶37 We further hold that the District Court did not err in holding

that Northwest had the burden of proof in this case and that this

burden is constitutionally valid. The District Court cited several
legislative enactments placing the burden of proof on an individual

asserting independent contractor status. Section 39-51-203(4), MCA

(for purposes of unemployment insurance, service performed by an

individual for wages is considered to be employment until shown to

the satisfaction of the department that the individual is an
independent contractor); § 39-71-120(2), MCA (for purposes of
workers’ compensation, an individual performing services for

remuneration is considered to be an employee unless independent

contractor status is shown); and Rule 42.17.101(1), ARM (the

designation of an individual as an employee for purposes of
unemployment compensation establishes the individual as an employee
Comment [COMMENT46]: Dc
unless facts are shown to the contrary). Furthermore, the District order 3

Court, recognizing that a legislative enactment is presumed

constitutional unless proven unconstitutional beyond a reasonable
doubt, held that Northwest failed to demonstrate that the

application of the presumption implicated any fundamental liberty

or property interests.
¶38 With regard to Northwest’s criticism of the statutory

confidentiality of tax returns, the District Court held that

16
Northwest could have obtained the tax information either directly

from a cooperative worker or pursuant to a protective order as

provided by § 15-30-303, MCA.
¶39 The District Court correctly held that Northwest bore the

burden of proving that its workers were independent contractors and

that this burden was not unfair or unconstitutional. Requiring
Northwest to show independent contractor status as defined in § 39-

51-201, MCA, did not create an “irrebuttable presumption” in this

case. Rather, it placed the burden of proof on those individuals

who could most effectively demonstrate whether they were employees

or independent contractors–the workers themselves. Northwest has
not convinced the Court that the DOR unconstitutionally prohibited
it from proving its case. Northwest did not attempt to have its

workers testify and/or try to obtain their income tax information.

Simply stated, Northwest had the burden to show that “several” of

its workers were independent contractors, and it failed to do so.

¶40 We hold that the District Court properly upheld the STAB’s

determination of employee status. The STAB’s findings, and the
District Court’s summary of them, are supported by substantial

evidence in the record, and the District Court’s conclusions of law

were correct.
¶41 (2) Did the District Court err in holding that the Department

of Revenue did not exceed its statutory authority in classifying
Ehret as an employee?
Comment [COMMENT47]: App
¶42 Ehret argues that he has a fundamental right to choose brf 41

independent contractor status and that his reasonable belief as to

17
his employment status should be considered in determining whether

he was an independent contractor or an employee. He claims that

the DOR’s determination that he was an employee infringed upon his
freedom of contract.

¶43 The District Court, citing Phoenix Physical Therapy, 284 Mont.

at 104, 943 P.2d at 528-29, stated that the ability to contract is

not absolute and without its limits. It recognized that a party’s
intent does not control whether he is classified as an employee or

independent contractor. Rather, status must be proven as a matter

of fact. While the District Court agreed that Ehret had a

fundamental right to choose his employment status, he was at the

same time required to meet the statutory requirements underlying
independent contractor status and demonstrate that he met these
requirements as a matter of fact. The District Court held that the

DOR did not exceed its statutory authority in presuming Ehret’s

employee status and that there was no violation of Ehret’s right to

contract.

¶44 We agree. Ehret claims that the intent of parties must be

given effect in resolving their employment status. However, in
Phoenix, we rejected this argument. Phoenix Physical Therapy, 284

Mont. at 104, 943 P.2d at 528-29. Ehret’s wishes are not
dispositive. Rather, Ehret was required to prove that he was an

independent contractor as a matter of fact. The STAB’s conclusion

that he failed to do so is supported by substantial evidence in the

record. We hold that the District Court correctly held that the

18
DOR did not exceed its statutory authority in classifying Ehret as

a Northwest employee.

¶45 (3) Did the District Court err in holding that § 15-30-203(1),

MCA, and Rule 42.17.120, ARM, do not constitute a form of

unconstitutional dual taxation?
¶46 Pursuant to § 15-30-203(1), MCA (1987), each employer is

liable for state withholding taxes. If the employer fails to

deduct and withhold the required amounts and the tax against which
the deducted and withheld amounts would have been credited is paid,

the amounts required to be deducted and withheld may not be

collected from the employer. Section 15-30-203(3), MCA (1987). In

other words, the DOR cannot collect the same withholding tax twice.

However, under Rule 42.17.120, ARM, the employer will not be
relieved from liability for the required withholding taxes unless
he can show that the income tax against which the required

withholdings may be credited has been paid.
Comment [COMMENT48]: App
¶47 Northwest contends that duplicative tax assessments have been brf 23

levied against it for the taxable years in question in violation of

its due process and equal protection rights. In essence, Northwest
claims that the DOR assessed its workers and it for the same

withholding taxes, thus resulting in an unconstitutional “dual
Comment [COMMENT49]: App
tax.” In support of its argument, Northwest refers to a Notice of brf 24-25

Levy issued by the DOR assessing withholding taxes to one of its

workers. Additionally, Northwest emphasizes that it reasonably
believed that its workers were independent contractors and complied

with applicable tax regulations by reporting workers’ wages on the

19
 Comment [COMMENT50]: Dc
requisite Form 1099. In sum, Northwest contends that the current order 4

statutory structure has the effect of making it the unconditional

guarantor of taxes due by independent contractors.
Comment [COMMENT51]: App
¶48 The DOR agrees with Northwest’s “dual tax” argument to the brf 27

extent that an employer should not be required to pay withholding

taxes if its workers paid those taxes. However, the DOR insists

that Northwest did not meet its burden of proving that the workers
paid the applicable withholding taxes pursuant to § 15-30-203, MCA,

and Rule 42.17.120, ARM.

¶49 With regard to the burden of proof issue, Northwest again

contends that the workers’ Declarations proved that they paid the
Comment [COMMENT52]: App
required withholding taxes. At the same time, Northwest claims brf 26

Comment [COMMENT53]: App
that it was precluded from establishing its dual tax claims since brf 26

Comment [COMMENT54]: Reply
the DOR was not required to rebut Northwest’s constitutional claims 12

by providing confidential tax returns.
Comment [COMMENT55]: Dc
¶50 The District Court concluded that while § 15-30-203, MCA, and order 4

Rule 42.17.120, ARM, placed the burden of proving that withholding

taxes have been paid on Northwest, this does not create a dual tax.
It stated that if Northwest was assessed state withholding taxes

it had but to show the worker at issue also paid that tax. Thus,
the court held that the statutory enactments are not

unconstitutional. With respect to the confidentiality of tax

returns issue, the District Court stated that availability of the

relevant tax records is separate from the issue of whether § 15-30-
203, MCA, and Rule 42.17.120, ARM, are constitutional.

20
¶51 We agree. The statutory enactments do not create a dual tax.

Rather, they impose a burden of proof on an employer to show that

withholding taxes were paid. If they were, the employer is
relieved from liability for the withholding tax and, in the end,

only one tax is assessed. Moreover, while Northwest continually

complains about how the confidentiality of tax returns set forth in

§ 15-30-303, MCA, made it impossible for it to prove its case, the

District Court correctly recognized that Northwest did not directly

challenge the constitutionality of § 15-30-303, MCA, and that this
provision does not bear upon the propriety of statutes requiring

the payment of withholding taxes. Accordingly, we hold that the

District Court correctly upheld the constitutionality of § 15-30-

203, MCA, and Rule 42.17.120, ARM.

/S/ W. WILLIAM LEAPHART
We concur:

/S/ JAMES C. NELSON
/S/ PATRICIA COTTER
/S/ TERRY N. TRIEWEILER
/S/ JIM RICE

21