MONT DEPT OF REVENUE v ASARCO

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No. 13249 IN THE SUPREME COURT OF THE STATE OF MONTANA 1977 MONTANA DEPARTMENT OF REVENUE, STATE OF MONTANA, Petitioner and Appellant, THE AMERICAN SMELTING AND REFINING COMPANY, Defendant and Respondent. Appeal from: District Court of the First Judicial District, Honorable Peter Meloy, Judge presiding. Counsel of Record: For Appellant: Terry B. Cosgrove argued, Helena, Montana Theodore W. $.e~ooze argued, Salem, Oregon For Respondent: Hughes, Bennett and Cain, Helena, Montana George T. Bennett argued, Helena, Montana Charles Smith, Helena, Montana For Amicus Curiae: William D. Dexter appeared, Olympia, Washington Submitted: Decided : Filed JUL 1 9 1972. January 27, 1977 'mL - 1977 11 M r . Chief J u s t i c e Paul G. H a t f i e l d d e l i v e r e d the Opinion o f t h e Court. This i s an appeal by t h e Montana Department o f Revenue (DOR) from a judgment entered i n t h e d i s t r i c t c o u r t , Lewis and Clark County, a f f i r m ing a f i n a l d e c i s i o n o f t h e S t a t e Tax Appeal Board (STAB). The STAB d e c i s i o n ordered a recomputation o f t h e d e f i c i e n c y assessment l e v i e d by DOR a g a i n s t American Smel t i n g and R e f i n i n g Company (ASARCO) . I n 1972 t h e a u d i t o r s o f t h e Mu1t i s t a t e Tax Commission conducted an a u d i t o f ASARCO's records f o r t h e t a x years 1967-1970. Subsequent t o t h i s a u d i t , 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 taxes were assessed a g a i n s t ASARCO by DOR. The amount o f t h i s d e f i c i e n c y assessment i s t h e u n d e r l y i n g i s s u e upon appeal . ASARCO i s a New Jersey c o r p o r a t i o n engaged i n n a t i o n a l and i n t e r n a t i o n a l operations i n t h e business o f mining, smelting, r e f i n i n g , manuf a c t u r i n g , buying and s e l l i n g nonferrous metals and minerals. ASARCO b a s i c a l l y engages i n two separate, b u t r e l a t e d areas o f operation. The f i r s t i s a primary metal o p e r a t i o n c o n s i s t i n g o f t h e mining, m i l l i n g , smelti n g and r e f i n i n g o f nonferrous metals. The second i s a nonferrous a1 l o y o p e r a t i o n c o n s i s t i n g o f t h e manufacture and s a l e o f a l l o y products. For t h e t a x years i n question ASARCO owned mines i n Colorado, Washington, Arizona, New Mexico and Idaho i n a d d i t i o n t o mines i n Canada and o t h e r f o r e i g n c o u n t r i e s . It operated smelters and r e f i n e r i e s i n Texas, Maryland, Colorado, Montana, Missouri, Arizona, Nebraska, New Jersey, Washi n g t o n and C a l i f o r n i a f o r t h e years i n question. A l l o y manufacturing p l a n t s were l o c a t e d i n Texas, New Jersey, C a l i f o r n i a , Oklahoma and Indiana. ASARCO sales o f f i c e s were l o c a t e d i n New York, Baltimore, Boston, C i n c i n n a t i , Cleveland, D e t r o i t , Milwaukee, P h i l a d e l p h i a , Rochester and S t . Louis. ASARCO owns and operates a smelter i n East Helena which i s i t s p r i n - c i p a l o p e r a t i o n i n Montana. This smelter r e c e i v e s l e a d ores and concentrates from company mines as w e l l as u n r e l a t e d s u p p l i e r s . The smelted, b u t un- r e f i n e d l e a d product i s then shipped t o o t h e r u n i t s o f ASARCO f o r f u r t h e r treatment and eventual sale. Anaconda Company purchased various by-products of the East Helena smelter f o r the years in question. In addition t o the East Helena smelter ASARCO owns c e r t a i n active and inactive mining properties i n Montana. Prior t o 1962 A A C reported i t s income from i t s Montana properties SRO by separate accounting, pursuant t o section 84-1503, R.C.M. 1947. Under t h a t method ASARCO determined the gross r e c e i p t s from i t s Montana properties and deducted a l l expenses incurred by or a t t r i b u t a b l e t o such properties t o a r r i v e a t Montana income. Where overhead expenses such a s the c o s t of trans- portation were a t t r i b u t a b l e t o more than one s t a t e , they were apportioned t o determine the Montana portion. In 1962 ASARCO recognized t h a t i t s business was unitary in nature and i t could no longer use separate accounting f o r i t s income. Pursuant t o section 84-1503 i t requested permission from DOR t o change from separate accounting t o the unitary method of accounting. Permission was granted by DOR and a "hybrid" system of reporting income was i n s t i t u t e d . Under t h i s hybrid system, a l l b u t a negligible amount of t o t a l company income from r e n t s , r o y a l t i e s , dividends, i n t e r e s t and s a l e s of tangible and intangible properties was allocated t o sources outside Montana. After deductions f o r the allocated income, ASARCO's operating net income was apportioned t o Montana sources by the use of a three f a c t o r formula. An in-depth examination of ASARCO's hybrid system indicates the fol lowing procedure was used t o compute tax 1 i a b i l i t y f o r the years i n question. ASARCO c l a s s i f i e d the income l i s t e d below as nonbusiness income under D O R I S 1967 regulations, deducted i t from i t s apportionable income, and allocated i t a s indicated: ( a ) Income from mine royal t i e s paid by the lessees of ASARCO's Keystone Mine previously operated by A A C and located in the S t a t e of ColoSRO rado was allocated t o the S t a t e of Colorado; (b) Income from patents and copyrights on items developed by ASARCO's research department and used i n ASARCO's operations and licensed t o others, was a1 located t o commercial domici 1e ; (c) Income from r e n t a l o f housing u n i t s on mining p r o p e r t i e s and r e n t e d t o employes was a l l o c a t e d t o t h e s t a t e where such r e n t a l u n i t s a r e 1ocated : ( d ) I n t e r e s t income from United States o b l i g a t i o n s , customers notes and bonds, notes on t h e s a l e o f a p l a n t and General Cable stock, from s t a t e and municipal bonds, time c e r t i f i c a t e s , bankers acceptances, and commercial paper was a l l o c a t e d t o t h e s t a t e o f commercial domicile; (e) Gains from t h e sales o f t a n g i b l e p r o p e r t i e s were a l l o c a t e d t o t h e s t a t e o f sale; (f) Dividends p a i d on stocks were a l l o c a t e d t o s t a t e o f commercial (g) Gains from t h e s a l e o f stock were a l l o c a t e d t o t h e s t a t e o f domicile; commercial domicile; and (h) Income from s e c u r i t i e s deposited w i t h Montana s t a t e agencies and from money deposited i n Montana was a l l o c a t e d t o Montana. The percentage o f apportionable income o r l o s s a t t r i b u t a b l e t o Montana sources was c a l c u l a t e d by t h e use o f t h i s formula: Montana p r o p e r t y T o t a l ASARCO Property + Montana P a y r o l l T o t a l ASARCO Payroll + Montana Sales T o t a l ASARCO Sales - % Averaged by d i v i d i n g by 3 The percentage obtained was then m u l t i p l i e d by ASARCO's t o t a l apportionable income t o determine t h e Montana c o n t r i b u t i o n . DOR contends t h e h y b r i d system used by ASARCO t o c a l c u l a t e i t s Montana income i n c o r r e c t l y i n t e r p r e t e d s e c t i o n 84-1503, R.C.M. 1947. s e c t i o n a t t h e time i n question, stated: " I f t h e income o f any c o r p o r a t i o n from sources w i t h i n t h e s t a t e cannot be p r o p e r l y segregated from income w i t h o u t t h e s t a t e , then, i n t h a t event, t h e amount o f t h e n e t i n come r e t u r n e d s h a l l be t h a t p r o p o r t i o n o f t h e taxpayer's t o t a l n e t income which t h e t a x p a y e r ' s gross business done i n t h e s t a t e o f Montana bears t o t h e t o t a l gross business o f the taxpayer, and apportionment s h a l l be made under t h e r u l e s and r e g u l a t i o n s p r e s c r i b e d by t h e s t a t e board o f equal i z a t i o n , g i v i n g c o n s i d e r a t i o n t o sales, p r o p e r t y and p a y r o l l and such o t h e r f a c t o r s as may be deemed a p p l i cable; provided, however, t h a t t h e s t a t e board o f equali z a t i o n s h a l l , upon t h e p r e s e n t a t i o n o f s a t i s f a c t o r y That evidence, determine t h a t t h e income from sources w i t h i n t h e s t a t e o f Montana may be p r o p e r l y segregated from income from sources w i t h o u t t h e s t a t e o f Montana and s h a l l a l l o w separate accounting. The board s h a l l publ i s h n o t l e s s than once a year, a l l r u l e s and r e g u l a t i o n s p e r t a i n i n g t o t h i s s e c t i o n . A l l d e c i s i o n s by t h e board under t h i s s e c t i o n s h a l l be s u b j e c t t o j u d i c i a l review i n an a c t i o n prosecuted by t h e c o r p o r a t i o n i n t h e d i s t r i c t c o u r t o f Lewis and C l a r k county. The taxpayer cannot change from one method o f accounting t o another method o f accounting w i t h o u t f i r s t o b t a i n i n g permission from t h e board. " DOR i n t e r p r e t s t h e above s t a t u t e as c r e a t i n g o n l y two methods o f determining income from sources w i t h i n Montana--separate accounting o r apportionment o f t o t a l n e t income. Separate accounting i s a v a i l a b l e o n l y i f income from sources w i t h i n t h e s t a t e may be segregated from sources without the state. I n t h e absence o f t h e above c o n d i t i o n s , t o t a l business n e t income must be apportioned. D R determined t h a t t h e income c l a s s i f i e d by ASARCO as nonbusiness O income was, i n f a c t , business income as defined by DOR's 1967 r e g u l a t i o n s . DOR t h e r e f o r e r e s t o r e d t h i s income b a p p o r t i o n a b l e n e t income. I n addition, DOR i n c l u d e d i n apportionable n e t income t h e n e t income o f s i x o f ASARCO's w h o l l y owned s u b s i d i a r i e s . DOR contends t h a t ASARCO and t h e s i x s u b s i d i a r y c o r p o r a t i o n s were engaged i n a u n i t a r y business and t h e r e f o r e t h e combinat i o n was merely an extension o f t h e apportionment method o f t a x a t i o n d i c t a t e d by s e c t i o n 84-1503. Pursuant t o DOR's c a l c u l a t i o n s o f ASARCO's Montana income a d d i t i o n a l corporate l i c e n s e taxes were assessed. P r o t e s t was made by ASARCO and a heari n g was h e l d b e f o r e t h e d i r e c t o r o f DOR. t h e d e f i c i e n c y assessment. The d i r e c t o r ' s d e c i s i o n a f f i r m e d T h e r e a f t e r ASARCO appealed t o STAB which r e - versed t h e d i r e c t o r ' s decision. D R then p e t i t i o n e d t h e d i s t r i c t c o u r t , O Lewis and C l a r k County, requesting a review o f t h e STAB order. On December 17, 1975, t h e d i s t r i c t c o u r t entered judgment a f f i r m i n g t h e d e c i s i o n o f STAB. DOR appeals t h e d i s t r i c t c o u r t judgment. Three issues a r e before t h e Court upon appeal: 1) Whether DOR had t h e a u t h o r i t y , pursuant t o sections 84-1503 and 84-1508, R.C.M. 1947, t o adopt i t s Regulations 1001-1020 (Chapter 10) concerning rules for the apportionment of corporate net income? 2) Whether ASARCO was correct in its deduction of a1 leged nonbusiness income from apportionable net income prior to apportionment? 3) Whether the income from six of ASARCO's wholly owned subsiaries was properly included in apportionable net income? On December 30, 1966, DOR adopted its Regulations 1001-1020 (Chapter 10). These regulations were effective with respect to tax years beginning on and after January 1 , 1967. Included within these regulations are specific rules for allocation and apportionment of corporate income derived from sources both within and without Montana. In addition key terms are specifically defined as to their application to the regulations. The regulations provide for two methods of accounting for income; apportionment according to a three-factor formula and separate accounting. Separate accounting is allowed only in situations where income can be specifically segregated as to source.Apportionment of income must be used in all other cases. The apportionment system adopts what may be categorized as a "business vs. nonbusiness" test in regard to determining what income is apportioned and what income may be allocated to source. Under this system all business income is apportioned by use of the three-factor formula while only nonbusiness income may be allocated to source. Business income is defined as all income arising from transactions and activity in the regular course of the taxpayer's trade or business and includes income from tangible and intangible property if the acquisition, management and disposition of the property constitute integral parts of the taxpayer's regular trade or business operations. Nonbusiness income is defined as all income other than business income. ASARCO urges these regulations were ineffective as applied to i t for the tax years 1967-1970 for two reasons: 1. DOR by virtue of section 84-1503 had the authority to adopt rules and regulations only as to the apportionment of such income as could not be segregated as to source. 2. The regulations adopt a "business vs. nonbusiness" income test -6- r a t h e r than t h e "source" o f income t e s t found i n s e c t i o n 84-1503 and a r e therefore f a t a l l y inconsistent. Any c o n t e n t i o n t h a t DOR l a c k s t h e a u t h o r i t y t o adopt r u l e s and regulations interpreting taxation statutes i s without merit. I n regard t o t h e s t a t u t e i n question, t h e power t o adopt r u l e s and r e g u l a t i o n s i s c l e a r l y and unambiguously s t a t e d w i t h i n t h e t e x t o f t h e s t a t u t e . s e c t i o n 84-1508, R.C.M. Furthermore 1947, g i v e s DOR power t o p r o v i d e "such o t h e r regu- l a t i o n s as may from t i m e t o t i m e be found necessary." W affirmed t h i s e p r i n c i p l e i n S t a t e ex r e l . F u l t o n v. D i s t r i c t Court, 139 Mont. 573, 366 P.2d 435. The c r u x o f t h i s e n t i r e case i s t h e i n t e r p r e t a t i o n o f s e c t i o n 84-1503 and DOR Regulations 1001-1020. There i s no m e r i t i n ASARCO's con- t e n t i o n t h a t DOR has o n l y a u t h o r i t y t o adopt r u l e s and r e g u l a t i o n s f o r t h e apportionment o f income incapable o f segregation as t o source. The f u n c t i o n o f t h e Supreme Court when c o n s t r u i n g a s t a t u t e i s simply t o a s c e r t a i n and d e c l a r e what i s i n substance s t a t e d t h e r e i n , and n o t t o i n s e r t what has been o m i t t e d o r t o o m i t what has been i n s e r t e d . v. Anaconda Co., Dunphy 151 Mont. 76, 438 P.2d 660; I n r e T r a n s p o r t a t i o n o f School Children, 117 Mont. 618, 161 P.2d 901 ; S e c t i o n 93-401-15, R.C.M. 1947. The fundamental r u l e o f s t a t u t o r y c o n s t r u c t i o n i s t h a t t h e i n t e n t o f t h e l e g i s lature controls. M a t t e r o f Senate B i l l No. 23, Chapter 491, Montana Session Laws o f 1973, 168 Mont. 102, 540 P.2d 975, 32 St.Rep. 954; Hammill v. Young, 168 Mont. 81, 540 P.2d 971, 32 St.Rep. 935; Dunphy v. Anaconda Co., S e c t i o n 93-401-16, R.C.M. 1947. supra; Where t h e i n t e n t o f t h e l e g i s l a t u r e can be determined from t h e p l a i n meaning o f t h e words used, t h e c o u r t s may n o t go f u r t h e r and apply any o t h e r means o f i n t e r p r e t a t i o n . S t a t e ex r e l . Huffman v. D i s t r i c t Court, 154 Mont. 201, 461 P.2d 847; Dunphy v. Anaconda Co., supra. Here, t h e p l a i n meaning o f t h e words used by t h e l e g i s l a t u r e unmistakably discloses i t s intent. DOR c l e a r l y has t h e a u t h o r i t y t o adopt r u l e s and reg- u l a t i o n s as t o t h e apportionment o f c o r p o r a t e income w i t h o u t r e g a r d t o source. There a l s o i s no m e r i t i n ASARCO's second c o n t e n t i o n . ASARCO argues that section 84-1503 contains a "source of income" test to be used in determining apportionable income vs. allocatable income. ASARCO concludes that this apparent conflict with the business vs. nonbusiness income test found in the regulations makes the regulations ineffective as applied to ASARCO. As support for its theory of inconsistency between the statute and the regulations, ASARCO points out that section 84-1503 was amended in 1974, and the amended statute conforms to the regulations. In the construction of an amendatory act it will be presumed that the legislature, in passing it, intended to make some change in the existing law, and therefore the Court should endeavor to give effect to the amendment. Pilgeram v. Hass et al., 118 Mont. 431, 167 P.2d 339; Nichols v. School District No. 3, 87 Mont. 181, 287 P.624. However this presumption of change is not conclusive. This Court stated in School District No. 12 v. Pondera County, 89 Mont. 342, 297 P. 498, that a change in a statute may be made merely to express more clearly the original intent of the legislature. Such is the case here. The unamended statute is not a model of clear draftmanship in regard to guide1 ines for the apportionment of corporate income. DOR therefore adopted Regulations 1001-1020 to provide clear guidelines for taxpayer compliance. The legislature thereafter saw fit to clarify the section by the 1974 amendment to section 841503. The unamended version of section 84-1503 is not in conflict with the regulations and therefore ASARCO must report its income in compliance with those regulations. Regarding ASARCO's second issue, we find the hybrid system of reporting income used by ASARCO to be invalid under section 84-1503. As above, the crux of this issue is the interpretation of section 84-1503 and Regulations 1001-1020. The intent of the legislature in regard to the determination of what income is apportionable income is clear and unambiguous. Section 841503 provides for two methods of accounting for income; separate accounting and apportionment. Section 84-1503 provides a test for the determination of the correct method of accounting to be used by a corporation in reporting i t s Montana corporation license tax. If income from a l l sources within Montana can "be properly segregated from income without the s t a t e " then and only then, may the separate accounting method be used. Furthermore i f the separate account- ing method i s applicable, total net income must be allocated t o source rather than the hybrid system used by ASARCO. A A C recognized i t s business was unitary in nature in 1962. SRO It requested and was granted permission by DOR to discontinue the separate accounting system then i n use. Hence both parties agree that A A C must SRO apportion i t s income and the question becomes what income i s included in apportionable net income. All business income i s appor- The regulations are clear and simple. tionable and nonbusiness income i s allocated to source. ASARCO argues t h a t certain items of income l i s t e d above are nonbusiness income and therefore properly deductible from apportionable net income. This contention i s in- correct. The regulations s t a t e that business income includes income derived from tangible and intangible property i f the acquisition, management, and disposition of the property constitute integral parts of the taxpayer's regular trade or business operation. After an in-depth examination of the in- come in question, w find t h i s income i s derived from sources t h a t are e integral portions of i t s business. This finding i s i n d i r e c t conflict with the d i s t r i c t court's finding of f a c t which s t a t e t h i s income i s nonbusiness income. The t e s t of whether t h i s income i s i n r e a l i t y business or nonbusiness income i s a matter of statutory interpretation. finding of the d i s t r i c t court i s i n error. W feel therefore t h a t the e W a r e confronted herein w i t h a e conclusion of law, rather than a finding of f a c t . Listed below are examples of the relationship of t h i s alleged nonbusiness income to ASARCO. 1) Royalty Income--The royalty income arose from two sources, mine royalties and patent royalties. The mine royalties arose when A A C SRO leased i t s Keystone mine in Colorado t o an unrelated mining concern. had operated t h i s mine prior t o the leasing. AA C SRO The royalty was computed on the basis of mine production. The patent income arose from royalties paid for the use of devices developed by ASARCO1s research department. These devices were developed i n i t i a l l y f o r ASARCO1s use in i t s various plants and mines. The main item included herein was a vertical feed furnace. 2) Rental Income. The majority of t h i s income i s derived from homesites rented t o employees working near A A C mines and plants. SRO M. r Pecca, an A A C o f f i c i a l , t e s t i f i e d a t the DOR hearing: SRO "This i s the, i t ' s almost exclusively rents received from employees working a t the company mines which a r e located in remote areas and the company i s required to provide houses. " 3) Interest Income--The i n t e r e s t income arose from customers ' notes on bonds, U. S. government notes, notes taken on the s a l e of a plant and stock, s t a t e and municipal bonds, and time c e r t i f i c a t e s and other commercial paper. All were clearly 1iquid securities and were therefore readily avail- able f o r use in meeting company obligations and debts. 4) Gains on the Sale of Stock--ASARC0 bought and sold stock i n various corporations during the years in question. Included within the sales were stock of General Cable, Revere Copper, Kennicott Copper, and Hecla Mining Company. These corporations are a l l engaged i n the business of e i t h e r producing metal ore or manufacturing the refined product into goods. The stock was used by A A C f o r business purposes, such as gaining access t o SRO raw materials or access t o potential customers f o r i t s refined metals. Therefore a l l the above income was generated by the unitary business operation of ASARCO. The concept of including income from the sale of tangible and intangible property and income derived from rents, royalties and interest within apportionable net income i s not new nor unique. In Sperry and Hutch- inson Co. v. Department of Revenue, 270 Or. 329, 527 P.2d 729, 731, short term securities held t o s a t i s f y the need f o r liquid capital were held t o be apportionabl e. The Oregon court stated: 'IS & H argues that because t h i s income i s the return on an intangible i t must be allocated to legal s i t u s . Nothing i n our former law requires such an arbitrary r e s u l t and our current law expressly prohibits i t . " 527 P.2d 731. The current law referred t o by the Oregon court i s in pertinent part identical t o the DOR regulations here in question. A similar r e s u l t deal- ing w i t h short term intangibles was reached i n Montgomery Ward & Co., Inc. v . Comm. of Taxation, 276 Minn. 479, 151 N.W.2d 294. In Cleveland-Cliffs Iron Co. v. Michigan Corporation and S e c u r i t i e s Commission, 351 Mich. 652, 88 N.W.2d 564, 572, the issue was whether an investment portfolio containing c e r t a i n s t e e l stocks should be included in determining t h e book net worth of t h e corporation. The court held the stocks were closely related t o the company's business, quoting w i t h approval from F l i n t v. Stone Tracy Company, 220 U.S. 107, 31 S.Ct. 342, 55 L.Ed. 389: "Nor can i t be j u s t l y said t h a t investments have no real r e l a t i o n t o the business transacted by a corporation. The possession of large a s s e t s i s a business advantage of g r e a t value; i t may give c r e d i t which will r e s u l t i n more economical business methods; i t may give a standing which shall f a c i l i t a t e purchases; i t may enable the corporation t o enlarge the f i e l d of i t s act i v i t i e s and in many ways give i t business standing and prestige." 88 N.W.2d 572. See also: Great Lakes Pipe Line Co. v. Commissioner of Taxation, 272 Minn. 403, 138 N.W.2d 612. Concerning the f i n a l issue, DOR i s correct i n i t s contention t h a t net income and apportionment f a c t o r s of s i x of ASARCO's wholly owned subs i d i a r i e s must be included i n ASARCO's computation of apportionable net income. This i s merely an extension of the unitary method of taxation. Simply s t a t e d , the t r a d i t i o n a l concept of a combination of various u n i t s of a corporation f o r unitary method tax computation i s extended t o a combination of various related or a f f i l i a t e d corporations. In the i n s t a n t case, the s i x a f f i l i a t e d corporations a r e c l e a r l y separate and d i s t i n c t from ASARCO. However a l l a r e wholly owned by ASARCO and share common members of t h e i r respective boards of d i r e c t o r s w i t h ASARCO. A close relationship e x i s t s between ASARCO's business operation and the sub- s i d i a r i e s in t h a t the subsidiaries a l l provide ASARCO w i t h material, services, o r a market f o r i t s products. From the discussion of the individual c o r p o r a t i o n ' s operations l i s t e d below, i t i s c l e a r t h e c o r p o r a t i o n s a r e dependent upon each o t h e r and each i n t u r n c o n t r i b u t e s t o t h e o t h e r ' s business success. 1) Federated Metals of Canada--Federated Metals i s a Canadian c o r p o r a t i o n which b a s i c a l l y operates t h e same business i n Canada as ASARCO's American o p e r a t i o n . ASARCO provides Federated w i t h c e r t a i n c e n t r a l s e r v i c e s such as operations technology and accounting and f i n a n c i a l s e r v i c e s . I n a d d i t i o n , sales between t h e two c o r p o r a t i o n s a r e s i g n i f i c a n t . 2) ASARCO Mercanti 1e Company--ASARC0 Mercanti 1e i s engaged s o l e l y i n t h e purchase and s a l e o f machinery f o r ASARCO's s u b s i d i a r i e s . A l l central s e r v i c e s a r e provided by ASARCO. 3) Enthone, I n c . --Enthone i s a Connecticut c o r p o r a t i o n engaged i n t h e manufacture and s a l e o f metal f i n i s h i n g chemicals and s u p p l i e s used i n metal p l a t i n g . ASARCO. About 16% o f Enthone's raw m a t e r i a l s were purchased from Central s e r v i c e s were provided by ASARCO. 4) I n t e r n a t i o n a l Metal Company--This company i s ASARCO's e x c l u s i v e sales o u t l e t f o r m a t e r i a l s d e l i v e r e d t o f o r e i g n c o u n t r i e s . ASARCO provides a1 1 c e n t r a l services. 5) Lone S t a r Lead C o n s t r u c t i o n Co.--Lone S t a r i s a Texas corpor- a t i o n engaged i n l i n i n g tanks w i t h l e a d f o r p r o t e c t i o n a g a i n s t c o r r o s i v e contents. ASARCO The v a s t m a j o r i t y o f i t s l e a d requirements a r e purchased from . 6) Northern Peru Mining Co. --A1 1 p r o d u c t i o n from Northern Peru's mines a r e s o l d t o ASARCO and r e f i n e d i n i t s p l a n t s . I n a d d i t i o n t o t h e foregoing, M r . Pecca t e s t i f i e d as t o o t h e r serv i c e s provided by ASARCO t o a l l i t s s u b s i d i a r i e s . These i n c l u d e : 1. ASARCO handles c e n t r a l insurance o f t h e s u b s i d i a r i e s . 2. Services provided by ASARCO a r e b i l l e d t o t h e s u b s i d i a r i e s , i n c l u d i n g t o p management. 3. A l l United States and s t a t e r e t u r n s a r e prepared by ASARCO for the subsidiaries. 4. Legal s e r v i c e s a r e provided by ASARCO f o r t h e s u b s i d i a r i e s whenever necessary. 5. E s s e n t i a l c a p i t a l i s provided f o r t h e s u b s i d i a r i e s , who do n o t go t o o u t s i d e sources w i t h o u t f i r s t going t o ASARCO. Coca Cola Company v. Department o f Revenue, 271 O r . 517, 533 P.2d 788, 790, 792, i s on a l l f o u r s w i t h t h e i n s t a n t case. There t h e Oregon c o u r t said: "The p r i n c i p a l i s s u e i n t h i s case i s whether t h e income from Coca Cola and i t s w h o l l y owned s u b s i d i a r i e s may be combined and t h e apportionment formula a p p l i e d t o t h e sum t o determine t h e income p r o p e r l y a t t r i b u t a b l e t o Oregon. " 533 P. 2d 790. The Oregon c o u r t f i r s t s t a t e d t h a t i n o r d e r t o p r o p e r l y combine t h e incomes of t h e p a r e n t and s u b s i d i a r y , t h e business o p e r a t i o n must be u n i t a r y . The u n i t a r y t e s t was d e f i n e d as whether t h e business u n i t s , o r i n t h i s case c o r p o r a t i o n s , a r e dependent upon each o t h e r and c o n t r i b u t e t o t h e o p e r a t i o n o f t h e o t h e r ' s business. P.2d 601. Zale-Salem, I n c . v. Tax Com., 237 O r . 261, 391 Unquestionably t h i s t e s t i s met i n t h e i n s t a n t case. The Oregon c o u r t i n Coca Cola Company then s t a t e d : "We must now decide whether t h e f a c t t h a t Coca Cola and i t s w h o l l y owned s u b s i d i a r i e s a r e organized as separate c o r p o r a t e e n t i t i e s precludes t h e Department o f Revenue from combining t h e i r incomes t o r e f l e c t t h e t r u e c h a r a c t e r o f t h e i r u n i t a r y business. W h o l d e t h a t i t does n o t . "The q u e s t i o n i s fundamentally one o f whether a b u s i ness should stand i n a b e t t e r p o s i t i o n f o r purposes o f determining income merely because i t chooses t o use a mu1t i p l e c o r p o r a t i o n o r g a n i z a t i o n a l scheme. W do e e n o t f e e l t h a t i t should. W agree w i t h t h e f o l l o w i n g statement o f t h e C a l i f o r n i a Supreme Court: " ' * * * [Alccepting, as we must, t h e a p p l i c a t i o n o f t h e law t o unincorporated w h o l l y c o n t r o l l e d branches o r businesses l o c a t e d i n o t h e r j u r i s d i c t i o n s as s e t f o r t h i n B u t l e r B r o t h e r s v. McColgan, 17 Cal.2d 664, 111 P.2d 334; Id., 315 U.S. 501, 62 S.Ct. 701, 86 L.Ed. 991, t h e conclusion i s i r r e s i s t i b l e t h a t t h e same r u l e should apply t o i n c o r p o r a t e d w h o l l y c o n t r o l l e d branches o r businesses so l o c a t e d . * * * ' Edison C a l i f o r n i a Stores v. McColgan, supra a t 473-74, 183 P.2d a t 17." The d e c i s i o n o f t h e d i s t r i c t c o u r t i s reversed. This case i s remanded t o t h e d i s t r i c t c o u r t w i t h i n s t r u c t i o n s t o e n t e r judgment i n f a v o r o f t h e 07 the original defi 5iency Chief Justice Montana Department of Revenue i n the amount /i assessment. Justices

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