BAKER BANCORPORATION INC v DEPT

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No. 82-121 IN THE SUPREME COURT OF THE STATE OF MONTANA 1982 BAKER BANCORPORATION, INC., et al., Petitioner and Appellants, and Respondent, DEPARTMENT OF REVENUE OF THE STATE OF MONTANA, Respondents and Respondents. .1 from: District Court of the First Judicial District, In and for the Oounty of Lewis and Clark Honorable Robert M. Holter, Judge presiding. Counsel of Record: For Appellants: Harrison, Loendorf & Poston, Helena, Montana James T. Harrison, Jr., argued, Helena, Montana J. Patrick Giblin argued, Billings, Montana For Respondents: Michael J. Rieley argued, Helena, Montana Submitted: Decided : Filed: DEC 2 9 SSEe" November 16, 1982 December 29, 1982 M r . J u s t i c e Gene B. D a l y d e l i v e r e d t h e O p i n i o n of t h e C o u r t . A p p e l l a n t s , s i x h o l d i n g companies, a p p e a l t h e d e n i a l of t h e i r claim f o r d e d u c t i o n s o f d i v i d e n d s r e c e i v e d from s u b s i d i a r y corporations t h e y own 8 0 p e r c e n t or more of i n which the voting stock. The 1973 controversy here amendment (1947), to centers Section (recodified upon 84-1504, in part the interpretation Revised Codes of a of Montana i n s e c t i o n 15-31-113(2), MCA) and w h e t h e r case law i n t e r p r e t i n g t h a t s e c t i o n p r i o r t o i t s amendment is controlling. still Old Revised Codes of Montana (R.C.M.) c i t e s w i l l be u s e d s i n c e w e are c o n c e r n e d w i t h p r o v i s i o n s e n a c t e d p r i o r t o and d u r i n g 1 9 7 3 . Section 84-1504, 1947, R.C.M., is part of Montana's C o r p o r a t i o n L i c e n s e Tax A c t and d e s c r i b e s how t h e l i c e n s e t a x is computed. P r i o r t o 1 9 7 3 , s e c t i o n 84-1504 p r o v i d e d t h e f o l l o w i n g d e f i n i t i o n o f g r o s s income and n e t income: ". . . The term g r o s s income means t h e income f r o m a l l s o u r c e s w i t h i n t h e s t a t e of Montana recognized in the determination of the c o r p o r a t i o n ' s f e d e r a l income t a x l i a b i l i t y ; b u t s h a l l i n c l u d e i n t e r e s t exempt from f e d e r a l in means the income t a x . The t e r m -- -- ' n e t - c o m e ' gross income o f t h e c o r p o r a t i o n less -- e th ------a l l- a b l e d e d u c t y o n s . -o w t de - --h e - - f i n i t i o n s -o f g r o s s Income - n e t a n d - income - f o r t h i% - set t h i s - E c---- n tlo s h a l l n o t be construed as -allowing t h e d e d u c t i o n s s e t f r t h i G & Z t i o T o 2 4 3 ----- e - ~ e d e r a l of t h internal ~ e v e -- u e n Code a s -now w r i t t e n . - - - s e c t i o n s h a l l -or as t h a t i3& -l- b e l e d --r ----a o amended. " ( E m p h a s i s added.) -- ~Ger, 7 - I .. I n i n t e r p r e t i n g t h e above language, held to income the is rule that dependent t h i s Court cons ist e n t l y t h e d e f i n i t i o n of upon and gross incorporates by income and net reference the F e d e r a l I n t e r n a l R e v e n u e Code, e x c e p t where Montana l a w e x p r e s s l y provides otherwise. Lazy JD E q u a l i z a t i o n ( 1 9 7 2 ) , 1 6 1 Mont. Cattle 43 i S a v i n g s and Loan A s s o c i a t i o n v. 167 the Mont, tax 33, years , 5 3 5 P.2d prior to Co. v. State Board of 5 0 4 P.2d 287; F i r s t F e d e r a l S t a t e Tax A p p e a l Board (1975), 1 8 3 ( i n t e r p r e t i n g s e c t i o n 84-1504 f o r 1973). Any federal deduction was allowable in Corporation Montana, License some unless Tax section expressly Act of the provided Montana otherwise. I n 1 9 7 3 , t h e Montana L e g i s l a t u r e amended s e c t i o n 84-1504 to r e a d as f o l l o w s : ". . . The term g r o s s income means a l l income recognized i n determining the corporation's g r o s s income f o r f e d e r a l i n c o m e t a x p u r p o s e s ; b u t s h a l l i n c l u d e i n t e r e s t exempt f r o m f e d e r a l i n c o m e t a x . N o c o r p o r a t i o n is exempt from t h e corporation license tax unless specifically p r o v i d e d f o r u n d e r s e c t i o n 84-1501. Any corp o r a t i o n n o t s u b j e c t t o or l i a b l e forfedgr-aT . Income t a x b u t n o t exempt f r o m t h e c o r p o r a t i o n l i c e n s e t a x under s e c t i o n 84-1501 - a l l sh cornp u t e - r o s s income -- o r c o r p o r a t i o n l i c e n s e g f tax -p u r p o s e s i n --e same manner a s a c o r p o r a t i o n th --t h a t i s ----e c t- - l i a 6 i e - f E r - f x-f 6 i subj t o or income t a x a c c o r d i n g t o - - i s i o n s f o r the prov ---determininu Gross i n c o m e i n t h e f e d e r a l ihter--n a l r e v e n u e c o d e - e - £ f < c t t f o ~ ~- t - a-l e in ee- ax b y The 'net - ear. -- term - income' means t h e G r o s s in o r a i-----c o m e . f t h e c o r p o --t -o n ~ < k deduc?i%-6~ - s ~ s e t f o r t h --n s e c t i o n 84-1502." i (~rnp~a~s-a-fle~. r- P F 7 4 - 4 P - - A - - The d e d u c t i o n s c l a i m e d b y a p p e l l a n t s a r e p r o v i d e d f o r i n sect i o n 243 o f t h e F e d e r a l I n t e r n a l Revenue Code. were expressly disallowed in the pre-1973 These d e d u c t i o n s version of section T h a t d i s a l l o w a n c e was d e l e t e d i n 1 9 7 3 . 84-1504. The a p p e l l a n t s h e r e are s i x one-bank holding companies, each o f which owns 80 p e r c e n t or more of t h e v o t i n g s t o c k o f a commerc i a l bank. The f o l l o w i n g is a l i s t o f t h e h o l d i n g c o m p a n i e s and t h e i r r e s p e c t i v e bank s u b s i d i a r i e s : Bank -- P a r e n t H o l d i n g Company . Baker Bancorporat i o n , I n c Bozeman B a n c o r p o r a t i o n , I n c . B u t t e I n s u r a n c e Agency, I n c . Mineral County Bancorporation, Inc. Red Lodge B a n c o r p o r a t i o n , I n c Roundup I n s u r a n c e Agency, I n c . Montana Montana Montana Montana . From 1973 t o returns with 1979, their the respective Subsidiaries Rank Bank Bank Bank of of of of B a k e r , N.A. Bozeman, N.A. B u t t e , N.A. Mineral County Montana Bank o f Red L o d g e , N.A. Montana Bank o f Roundup, N.A. appellants consolidated subsidiaries. their tax The D e p a r t m e n t o f R e v e n u e , upon e x a m i n i n g t h e r e t u r n s , d e n i e d a p p e l l a n t s p e r m i s s i o n to consolidate Department did them. not allow In recalculating appellants the deduct ions returns, for the dividends r e c e i v e d from t h e i r s u b s i d i a r i e s . The appellants appealed the Department's decision to the . S t a t e Tax A p p e a l Board (STAB) STAB o v e r t u r n e d t h e D e p a r t m e n t ' s d e c i s i o n , and a l l o w e d t h e d e d u c t i o n s . STAB f o l l o w e d t h e case l a w w h i c h s t a t e d t h a t t h e C o r p o r a t i o n L i c e n s e Tax A c t i n c o r p o r a t e s by r e f e r e n c e t h e F e d e r a l I n t e r n a l Revenue Code. STAB r e a s o n e d t h a t s i n c e S e c t i o n 243 o f t h e F e d e r a l I n t e r n a l Revenue Code allows t h e d e d u c t i o n s , and s i n c e no p r o v i s i o n i n t h e C o r p o r a t i o n L i c e n s e Tax Act e x p r e s s l y p r o h i b i t s the deductions, a p p e l l a n t s could deduct t h e d i v i d e n d s r e c e i v e d from t h e i r s u b s i d i a r i e s . The D e p a r t m e n t a p p e a l e d STAB's d e c i s i o n t o t h e D i s t r i c t C o u r t of the First Judicial Court District District, reversed STAB's Lewis Clark & decision, stating The that STAB s t a t u t o r y and case l a w i n c o m p u t i n g i n c o r r e c t l y a p p l i e d pre-1973 The D i s t r i c t C o u r t t a x r e t u r n s f o r t h e y e a r s 1973 t h r o u g h 1979. c o n c l u d e d t h a t s e c t i o n 84-1504 deductions County. a s amended i n 1 9 7 3 , i n i t s p l a i n meaning, limits to 84-1502. S i n c e t h e d e d u c t i o n claimed by a p p e l l a n t s w a s n o t pro- v i d e d f o r i n s e c t i o n 84-1502, d e d u c t i o n , r e g a r d l e s s of o n l y t h- -o s e allowed in section the District Court disallowed the the provision i n the federal tax code. The s o l e i s s u e o n r e v i e w is w h e t h e r u n d e r s e c t i o n 84-1504, R.C.M., 1947, ( r e c o d i f i e d i n p a r t i n s e c t i o n 15-31-113(2), appellants sidiaries to deduct d i v i d e n d s received are allowed i n which they own 80 p e r c e n t o r more of MCA) from the , sub- voting stock. I n i n t e r p r e t i n g s e c t i o n 84-1504 p r i o r to i t s 1 9 7 3 amendment, t h i s Court acknowledged would b e u s e d allowable vided Savings otherwise. & the t o define "gross d e d u c t i o n s ,*I Equalization that unless Lazy JD ( 1 9 7 2 ) , 1 6 1 Mont. Loan v. F e d e r a l I n t e r n a l Revenue Code income," another provision Cattle 40, v. Co. 5 0 4 P.2d S t a t e Tax A p p e a l Board 5 3 5 P.2d 1 8 3 ( a p p l y i n g p r e - 1 9 7 3 " n e t income," statutes). and "all e x p r e s s l y proState 287; Board of F i r s t Federal ( 1 9 7 5 ) r 1 6 7 Mont. 33, In Lazy J D - a t t l e -CCo. - w e s t a t e d t h e r u l e as f o l l o w s : "Thus t h i s Court h a s c o n s i s t e n t l y h e l d t h a t t h e d e f i n i t i o n o f g r o s s income and n e t income f o r s t a t e c o r p o r a t i o n l i c e n s e t a x p u r p o s e s is d e p e n d e n t upon and i n c o r p o r a t e s by r e f e r e n c e t h e p r o v i s i o n s o f t h e F e d e r a l I n t e r n a l Revenue Code e x c e p t as e x p r e s s l y p r o v i d e d o t h e r w i s e , a s i n t h e case o f t h e exempt i n t e r e s t e x c l u s i o n and t h e d i v i d e n d d e d u c t i o n . " 504 P.2d a t 290. E q u a l i z a t i o n v. S e e a l s o Board o f F a r m e r ' s Union G r a i n T e r m i n a l A s s l n ( 1 9 6 2 ) , 1 4 0 Mont. 5 2 3 , 374 P.2d A s s l n of Helena v. 3 7 5 P.2d 312; 231; Home B u i l d i n g & Loan Board o f E q u a l i z a t i o n ( 1 9 6 2 ) , 1 4 1 Mont. 1 1 3 , and B a r t h v . S t a t e Board o f Equalization (1966), T h e s e cases h a v e n o t b e e n o v e r r u l e d 1 4 8 Mont. 2 5 9 , 419 P.2d 484. a n d are s t i l l good l a w i n Montana. STAB b a s e d Court did its decision not. We cases; on the above the agree with the STAB r e a s o n i n g District and hereby r e i n s t a t e its o r d e r . The to 1 9 7 3 amendment interrelationship Revenue Code and that s e c t i o n 84-1504 exists be t w e e n the did not alter Federal the Internal t h e Montana C o r p o r a t i o n L i c e n s e Tax A c t . The I n t e r n a l Revenue Code i n s e c t i o n 243 p e r m i t s c o r p o r a t i o n s t o t a k e a d e d u c t i o n f o r 1 0 0 p e r c e n t of the dividends received by them f r o m s u b s i d i a r y c o r p o r a t i o n s i n which t h e y own 8 0 p e r c e n t o r more of the voting stock. No provision i n t h e Montana C o r p o r a t i o n L i c e n s e Tax A c t e x p r e s s l y p r o h i b i t s t h e s e c t i o n 2 4 3 d e d u c t i o n . Appellants are therefore entitled to deduct all dividends r e c e i v e d b y them from s u b s i d i a r y c o r p o r a t i o n s i n which t h e y own 8 0 p e r c e n t or more of t h e s t o c k . The D i s t r i c t C o u r t ' s reinstated. Chief Ju'sticc judgment i a t e d and t h e STAB o r d e r

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