source: Caselaw Access Project

author: JUSTICE McDONOUGH JUSTICE HUNT,

license: Public Domain

text:
    In the Matter of the ESTATE OF MARY ELEANOR WINSTON DUCEY, Deceased.
    No. 89-309.
    Submitted on Briefs Dec. 14, 1989.
    Decided Feb. 6, 1990.
    Rehearing Denied March 27, 1990.
    787 P.2d 749.

      C. Kathleen McBride, Johnson, Skakles & Kebe, Butte, James W. Erbeck, Jones, Jones, Close & Brown, Las Vegas, Nev., for appellant.
    Joseph Nappi, Jr. and Carl Oreskovich, Hemovich, Nappi, Oreskovich and Butler, Spokane, Wash., for respondent.
   JUSTICE McDONOUGH

delivered the Opinion of the Court.

This appeal involves a petition to transfer the assets of a Nevada trust to an estate being probated in the Montana Second Judicial District, County of Butte-Silver Bow. First Interstate Bank of Nevada, N.A. (FIBN), respondent below, appeals Order of the District Court ordering FIBN to transfer and deliver all assets of the “Trust of Mary Eleanor Winston Ducey” to the petitioner, Michael F. Keyes, as Personal Representative of the Estate of Mary Eleanor Winston Ducey (the Estate), to be distributed in accordance with the will of the decedent. We reverse the District Court’s Order and order the petition dismissed for lack of jurisdiction.

FIBN raises the following issue on appeal:

(1) Did the District Court have jurisdiction to order the transfer of assets from a foreign trust located in Nevada to the probate estate in Montana?

FIBN raised other issues but the above issue disposes of this appeal.

In October of 1969 the trustors Mary E. Ducey and Winfield S. Ducey, husband and wife, created an inter vivos trust in Las Vegas, Nevada, where they resided. The original trustee was the First National Bank of Nevada Reno, Nevada. Two amendments to the trust were executed, the first a few days after the trust was created and the second by Mary Ducey after the death of her husband Winfield.

The Trust provided that during the lifetime of the trustors or a surviving trustor, the income from the trust would be paid to the trustors or the surviving trustor. Upon the death of the surviving trustor, the Trust provided for disposition of the assets of the trust estate.

Mary Ducey executed her last will and testament April 13, 1987. The will provided for the distribution of the estate, and included devises to various parties different from the distributions to other parties listed in the trust agreement. The will also included a revocation of any and all prior wills made by the testatrix, but nowhere in the will is there any mention of the Nevada trust.

Shortly after her husband’s death in 1970, Mary Ducey moved to Butte, Montana where she resided until her death on August 2, 1987. In March of 1988, FIBN filed a Petition for Confirmation of Appointment of Trustee and Request for instructions before the Nevada Probate Court to effect disposition of the trust, consisting of approximately $100,000.00 in liquid assets, pursuant to the terms of the trust. The Estate of Mary Ducey through its personal representative Michael Keyes, opposed the petition. On February 24, 1989 the Nevada Probate Commissioner dismissed the petition allegedly on the grounds that the Petition attempted to determine title to the trust assets and ordered FIBN to file a complaint in Nevada District Court. On March 29, 1989, the Estate of Mary Ducey filed a Petition for Transfer of Trust Assets of Estate in the Montana Second Judicial District Court, County of Butte-Silver Bow. FIBN alleges that on April 6, 1989, it filed its complaint for declaratory relief in the Eighth Judicial District Court, Clark County, Nevada to determine the validity of the trust. FIBN alleges that said complaint is still pending in Nevada District Court.

On April 24, 1989 FIBN filed its “Request for Special Appearance and Motion to Quash Petition to Transfer Assets of Foreign Trust.” The matter was heard before the Montana Second Judicial District Court on April 26, 1989. FIBN made a “special appearance” solely to oppose the Estate’s petition on jurisdictional grounds. After a hearing on the matter, where FIBN participated only with respect to the jurisdiction issue, the Court declared that its jurisdiction of the probate of the decedent’s will included jurisdiction over the trust assets and subsequently ordered FIBN to deliver the trust assets over to the estate. FIBN now appeals this order and raises the issue listed above.

I

“Jurisdiction as applied to courts is the power or capacity given by law to a court to entertain, hear and determine the particular case or matter.” State ex rel Johnson v. District Court (1966), 147 Mont. 263, 267, 410 P.2d 933, 935. Jurisdiction can affect either persons (jurisdiction in personam), or interests in property (jurisdiction in rem or quasi in rem).

I. In Rem Jurisdiction

The basis of in rem jurisdiction is the presence of the subject property within the territorial jurisdiction of the forum state. Overby v. Gordon (1900), 177 U.S. 214, 222, 20 S.Ct. 603, 606, 44 L.Ed. 741, 745. This principle is also codified in the Uniform Probate Code, sec. 72-1-201, MCA, which provides that the Code applies to “the property of nonresidents located in this state or property coming into the control of a fiduciary who is subject to the laws of this state . . .” Section 72-1-201(2), MCA.

Here, the property in question is not located within the forum state. In this regard, the case at bar is nearly identical to Hanson v. Denckla (1958), 357 U.S. 235, 78 S.Ct. 1228, 2 L.Ed.2d 1283, where the United States Supreme Court reversed a Florida Supreme Court decision which held that authority over the probate and construction of its domiciliary’s will, under which the assets in question might pass, was sufficient to confer the requisite jurisdiction over assets in a foreign trust. The Court stated:

“. . . jurisdiction cannot be predicated upon the contingent role of this Florida will. Whatever the efficacy of a so-called ‘in rem’ jurisdiction over assets admittedly passing under a local will, a State acquires no in rem jurisdiction to adjudicate the validity of inter vivos dispositions simply because its decision might augment an estate passing under a will probated in its courts . . . The fact that the owner is or was domiciled within the forum State is not a sufficient affiliation with the property upon which to base jurisdiction in rem.
“. . . so far as it purports to rest upon jurisdiction over the trust assets, the judgment of the Florida Court cannot be sustained.”

Hanson, 357 U.S. at 248-250, 78 S.Ct. at 1237-1238, 2 L.Ed.2d at 1294-1296.

At the conclusion of the hearing on the petition to transfer the trust assets, the District Court judge ruled:

“Well, this court has the jurisdiction of the probate of her will and the distribution of her property.
“And counsel is instructed to prepare an Order directing the Bank in Nevada to deliver up the assets to the estate.
“We will execute the will here.”

Under the rule of Hanson, the District Court would not have in rem jurisdiction over the trust assets in Nevada by virtue of the will being probated in Montana, thus the District Court’s above ruling is in error.

II. In Personam Jurisdiction

The determination of in personam jurisdiction is a two step process. Nelson v. San Joaquin Helicopters (1987), 228 Mont. 267, 270, 742 P.2d 447, 449. First, it must be determined whether the party comes within the general jurisdiction or long arm jurisdiction of the court. Nelson, 742 P.2d at 449. The second step, should the court have jurisdiction, is to ask whether the exercise of jurisdiction would be commensurate with the party’s due process rights. See Simmons v. State of Oregon (1983), 206 Mont. 264, 670 P.2d 1372; Jackson v. Kroll (1986), 223 Mont. 161, 724 P.2d 717.

The applicable statute governing in personam jurisdiction is Rule 4B(1), M.R.Civ.P., which provides in part:

“Rule 4B. Jurisdiction of persons. (1) Subject to jurisdiction. All persons found within the state of Montana are subject to the jurisdiction of the courts of this state. In addition, any person is subject to the jurisdiction of the courts of this state as to any claim for relief arising from the doing personally, through an employee, or through an agent, of any of the following acts:
“(a) the transaction of any business within this state;”

General jurisdiction applies to cases where the cause of action is “distinct from” the defendant’s activity in the forum, see e.g. State of North Dakota v. Newberger (1980), 188 Mont. 323, 613 P.2d 1002. When general jurisdiction is asserted it is evaluated by the “minimum contacts” due process standard required by International Shoe Co. v. Washington (1945), 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95.

Here, the cause of action is not distinct from FIBN’s activity in the forum, rather it arises directly from the alleged activity within the forum of FIBN regarding the Mary Ducey trust. The record does not contain substantial evidence indicating that FIBN’s activities are so “substantial” or “systematic and continuous” to find that FIBN is “found within” the State of Montana for purposes of general jurisdiction. Rule 4B(1), M.R.Civ.P., International Shoe, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95.

We turn to the issue of whether FIBN as trustee falls under the longarm jurisdiction of the court. The applicable portion of the longarm statute is subsection (a), which subjects any person who transacts any business within this state to the jurisdiction of Montana courts. Rule 4B(1), M.R.Civ.P. The estate argues that FIBN transacted business in Montana based on the following: (1) Mary Ducey was a resident of Montana, (2) periodic trust payments were made to her throughout her Montana residency, (3) FIBN amended the trust document and presumably would do so again at her request while Mary Ducey was a Montana resident, (4) at her request, the Bank allegedly negotiated changes in the trust telephonically with Mary in Montana to allow the assets to go to certain beneficiaries she desired in Montana, (5) FIBN allegedly instructed her to draft a will and send a copy to FIBN to allow the trust assets to pass under the will, and (6) FIBN “apparently” received permission from Mary Ducey, a Montana resident, to act as a successor trustee for First National Bank of Nevada or its successor.

Hanson v. Denckla, supra, also controls the disposition of the in personam jurisdiction issue in this case. The estate attempts to distinguish Hanson as non-controlling on the basis of the Supreme Court’s decision in McGee v. International Life Ins. Co. (1957), 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223. In McGee, the defendant Texas insurance company agreed to assume the insurance obligations of the plaintiff’s original Arizona insurer. The nonresident defendant insurance company then solicited a re-insurance agreement with the plaintiff, a resident of California. The Supreme Court held that the California court had jurisdiction based on the solicitation of the re-insurance agreement. In Hanson the Court distinguished McGee from cases involving the validity of a trust, stating:

“The cause of action in this case is not one that arises out of an act done or transaction consummated in the forum state. In that respect, it differs from McGee . . . [T]his action involves the validity of an agreement that was entered without any connection with the forum State. The agreement was executed in Delaware by a trust company incorporated in that State and a settlor domiciled in Pennsylvania. The first relationship Florida had to the agreement was years later when the settlor became domiciled there, and the trustee remitted the trust income to her in that State. From Florida Mrs. Donner carried on several bits of trust administration that may be compared to the mailing of premiums in McGee. But the record discloses no instance in which the trustee performed any acts in Florida that bear the same relationship to the agreement as the solicitation in McGee . . .”

Hanson, 357 U.S. at 251-252, 78 S.Ct. at 1238-1239, 2 L.Ed.2d at 1296-1297. Like the trustee in Hanson, FIBN did not conduct any business in the forum state availing itself of the benefits and protections of Montana’s laws. FIBN made some payments of trust income to Mrs. Ducey in Montana. FIBN allegedly responded to requests made by Mrs. Ducey and allegedly participated in negotiations initiated by and at the request of Mrs. Ducey. From Montana, Mrs. Ducey carried on several bits of trust administration that may be compared to the mailing of premiums in McGee. However, the record does not indicate that FIBN as trustee performed any acts in Montana that bear the same relationship to the trust agreement as the solicitation of re-insurance in McGee. See Hanson, 357 U.S. at 252, 78 S.Ct. at 1239, 2 L.Ed.2d at 1297.

The estate argues that McGee is applicable because FIBN “apparently” received permission from Mary Ducey, a Montana resident, to act as successor trustee to First National Bank of Nevada, in Reno, Nevada. Hence, the estate argues that FIBN could only have assumed the role of trustee by seeking Mary Ducey’s permission or appointment while she was domiciled in Montana. The estate then maintains that the “sparsity” of the record with regard to how FIBN became successor trustee is due to the late hour at which FIBN objected to the petition to transfer the assets.

What the estate refers to as a “sparsity” in the record would be better described as a complete lack of any evidence or testimony in the record as to how FIBN became successor trustee. Likewise, this argument analogizing the solicitation in McGee to the “apparent” solicitation for appointment as successor trustee is also absent from the record below. There is simply no evidence to support this argument. The record contains no evidence that FIBN performed any acts equivalent to the transaction of business in Montana that bear the same relationship to the trust agreement as the solicitation in McGee. Hanson, 357 U.S. at 252, 78 S.Ct. at 1239, 2 L.Ed.2d at 1297. Thus the District Court lacked both in rem jurisdiction over the assets of the foreign trust and in personam jurisdiction over FIBN as trustee.

III.

Because the court lacked jurisdiction over FIBN and the trust, we need not dispose of the other issues raised on FIBN’s appeal. We do note that there is no longer any distinction between a general or special appearance in Montana. Foster Apiaries, Inc. v. Hubbard Apiaries, Inc. (Mont. 1981), [_Mont__,] 630 P.2d 1213, 1215, 38 St.Rep. 1025, 1027-1028. Rule 12 M.R.Civ.P. eliminates the need for the traditional classifications of general and special appearances.

The District Court having no jurisdiction to entertain, hear, and determine this matter, the Order of the District Court to transfer the assets of the Nevada trust is vacated.

REVERSED and the Petition is DISMISSED.

CHIEF JUSTICE TURNAGE and JUSTICES HARRISON, BARZ and WEBER concur.

JUSTICE HUNT,

dissenting:

I dissent. The dispute in this case concerns the validity of a trust administered by First Interstate Bank of Nevada, N.A. (FIBN), as trustee. FIBN, by accepting the appointment as trustee of a trust established by a Montana resident, transacted business in this state, thereby subjecting it to jurisdiction under the longarm statute, Rule 4B(l)(a), M.R.Civ.P.

The present case is not on all fours with Hanson v. Denckla (1958), 357 U.S. 235, 78 S.Ct. 1228, 2 L.Ed.2d 1283, as the majority would have us believe. In Hanson, a Pennsylvania resident executed a trust instrument in Delaware naming a Delaware trust company as trustee. The trustor then moved to Florida, where she died. The Supreme Court held that the Delaware trustee could not be subject to the jurisdiction of the Florida courts when jurisdiction would be based solely upon the unilateral actions of the trustor.

In the present case, Nevada residents executed a trust instrument in Nevada naming First National Bank of Reno, Nevada, as trustee. In 1970, one of the trustors died and the surviving trustor moved to Montana. In 1979, after the trustor had resided in Montana for nine years, FIBN accepted the appointment as successor trustee to the trust.

Unlike Hanson, jurisdiction in the present case is not based solely upon the unilateral actions of the trustor. Rather, the actions of the trustee in this case are akin to the actions of the insurance company in McGee v. International Life Ins. Co. (1957), 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223. Both the trustee in this case and the insurance company in McGee purposefully interjected themselves into the forum state, availing themselves of the benefits and protections of the forum’s laws. FIBN purposefully interjected itself into this state in 1979 when it accepted the appointment as trustee to the Ducey trust.

Apparently, FIBN became the successor trustee through a merger with First National in 1979. Although the trust agreement contained a provision regarding the right of the trustee to resign, it made no provision regarding the automatic transfer of trusteeship upon the merger of the trustee bank with another. The resignation clause merely provided as follows:

“The right is reserved by and granted to the Trustee, upon notice in writing to the Trustors during their lifetime or to the surviving Trustor during his or her lifetime, to surrender this trust, and upon such election by the Trustee, the Trustors shall accept the resignation of the Trustee and shall appoint a new Trustee, and in the event of the failure, refusal or inability of the Trustors so to do, the Trustee, at the cost and expense of the trust estate, may secure the appointment of a new Trustee in the manner provided by law.”

From this clause, we can surmise one of two facts, both pointing toward jurisdiction. Either FIBN solicited the trustee appointment from the trustor in Montana or First National appointed FIBN to act as trustee in its stead. In either case, FIBN accepted the appointment knowing that the trustor was a Montana resident.

FIBN should have reasonably anticipated being haled into court in Montana. It accepted the appointment as trustee for a Montana resident’s trust, which named Montana residents as beneficiaries. It forwarded periodic trust payments to the trustor in Montana. It negotiated over the phone with the trustor in Montana, allegedly instructing her to draft a will and send it a copy to allow the trust assets to pass under the will — the very subject of these discussions form the basis of the present controversy.

Montana has an interest in assuring that the wishes of individuals who die while residents of this state are carried out. Furthermore, as the state where the will is probated, this state is the most efficient forum for the resolution of the present controversy.

I would affirm the District Court on this issue.

JUSTICE SHEEHY, concurs in the foregoing dissent.

I agree with the dissent of Justice William E. Hunt, Sr.


author: JUSTICE HARRISON

text:
    RAMONA LARSON, Plaintiff and Appellant, v. K-MART CORPORATION, Defendant and Respondent.
    No. 89-490.
    Submitted on Briefs Jan. 25, 1990.
    Decided Feb. 20, 1990.
    787 P.2d 361.

      Lon J. Dale and Brian J. Smith, Milodragovich, Dale & Dye, Missoula, for plaintiff and appellant.
    Molly R. Shepherd, Worden, Thane & Haines, Missoula, for defendant and respondent.
   JUSTICE HARRISON

delivered the Opinion of the Court.

Larson appeals the denial of motions for judgment notwithstanding the verdict and for a new trial entered by the District Court of the Fourth Judicial District, Missoula County, Montana. We affirm.

Appellant raises the following issues:

1. Did the District Court err in denying plaintiff’s motion for new trial pursuant to Rule 59(a), M.R.Civ.P., and sec. 25-11-102(1), MCA, based upon the following grounds:

A. The District Court erroneously allowed evidence of the number of customers who had gone through K-Mart check stands for the first hour of operation on July 15, 1987.

B. The District Court erred in submitting jury instructions modified to include the word “accident” in lieu of “injury.”

C. The District Court erred in giving mere accident instructions where a res ipsa factual circumstance existed.

D. The District Court erred in failing to instruct the jury pursuant to the applicable rules of law from Pimental v. Roundup Co. (1982), 32 Wash.App. 647, 649 P.2d 135.

2. Did the District Court err in denying plaintiff’s motion for judgment notwithstanding the verdict, when, in applying the court’s instruction No. 27, the only viable conclusion is that the defendant was negligent as a matter of law.

The Missoula K-Mart store opened for business at 9:00 a.m. on July 15, 1987. Appellant arrived at K-Mart approximately five minutes after it opened. On that day, K-Mart was conducting one of its biggest half-price sales of the year. Appellant had gone to K-Mart in response to the outdoor furniture sale advertisement she had read in the morning paper. After entering K-Mart, appellant proceeded directly to the outdoor furniture display. At approximately 9:10 to 9:15 a.m., while walking down an aisle near the outdoor furniture display, appellant slipped on a small amount of dark liquid on the floor and fell.

Appellant alleged that K-Mart’s negligence resulted in the dark liquid’s presence on the floor when she slipped and fell. Because appellant’s injuries had not stabilized, the parties agreed to bifurcate the case and submit only the liability question to the jury, reserving the damage issue.

At trial, much of the testimony related to who was more likely to have caused the spill, a customer or a K-Mart employee. Appellant contended that a K-Mart employee caused the spill. K-Mart contended that a customer caused the spill and that K-Mart could not have reasonably been expected to be aware of the spill.

As well, K-Mart presented evidence regarding the measures it employs to prevent accidents such as appellant’s. In rebuttal, appellant presented evidence of instances prior to appellant’s accident where K-Mart employees had not followed the prescribed policies. The jury returned a verdict in K-Mart’s favor.

I.

Appellant alleges four points of error in the District Court’s denial of appellant’s motion for a new trial. The decision “to grant or deny a new trial is within the sound discretion of the trial court, (citation omitted), and will not be overturned absent a showing of manifest abuse of discretion (citation omitted).” Walter v. Evans Products Co. (1983), 207 Mont. 26, 30-31, 672 P.2d 613, 616. We hold that the District Court did not abuse its discretion in denying appellant’s motion for a new trial.

First, appellant contends that the District Court erred in allowing respondent to present testimony that 131 customers went through the check-out stands between 9:00 and 10:00 a.m. on July 15, 1987. K-Mart regularly keeps an hourly breakdown of customers through the check-out stands for staffing purposes. Appellant objected to this testimony as prejudicial and misleading because it included customers in the store after appellant’s fall. However, the record discloses K-Mart did not offer the evidence to establish that 131 customers were in K-Mart at 9:10 — 9:15 a.m. Also, the record discloses that K-Mart does not retain similar records for any shorter time periods.

The number of customers in the store was clearly relevant to the issue of who likely caused the spill. Appellant’s counsel had ample opportunity during cross-examination and closing argument to put the 131-customer evidence in context. The District Court did not err in admitting the evidence.

Second, appellant argues that the District Court erred by submitting jury instructions that included the word “accident” in lieu of “injury” in five of the instructions. Apparently the substitution occurred as a result of the parties’ agreement not to mention appellant’s injuries or damages. Appellant contends that the substitution of the word “accident” for “injury” conveyed to the jury the connotation of no liability. Even if the word “accident” tainted those instructions, the other instructions and verdict form corrected any misapprehension. No reversible error occurred in substituting the word “accident” for the word “injury.”

Third, appellant asserts that the District Court erred in giving mere accident instructions where a res ipsa factual circumstance existed. Appellant did not plead the res ipsa doctrine and did not offer a res ipsa instruction. We reject this contention.

Fourth, according to appellant, the District Court erred in refusing to give three jury instructions that she offered which were taken from the Washington Appellate Court’s decision in Pimental v. Roundup Co. (1982), 32 Wash.App. 647, 649 P.2d 135. The District Court did give, over defendant’s objection, an instruction based on the Washington Supreme Court’s decision in Pimental v, Roundup Co. (1983), 100 Wash.2d 39, 666 P.2d 888. The given instruction provided that a plaintiff need not prove that a proprietor had either actual or constructive notice of an unsafe condition when the proprietor’s method of operation renders the unsafe condition reasonably foreseeable. The defense objected to this instruction as an impermissible extension of Montana’s premises liability law which requires that a plaintiff must establish that the proprietor had notice (actual or constructive) of the unsafe condition. However, as respondent prevailed at trial, the viability of this legal theory in Montana is not an issue before us.

A review of both Pimental decisions reveals that the Washington Supreme Court’s decision modified the Washington Appellate Court’s decision. The three refused instructions embody the defects the Washington Supreme Court found in the appellate court’s decision. As reflected in two of the proposed instructions, the appellate court’s decision not only eliminated the notice requirement but shifted the burden of proof to the defendant to disprove negligence. This substantial departure from established premises liability principles requires the defendant to prove that the defendant kept the premises reasonably maintained under the circumstances. Traditionally, the plaintiff must prove that the defendant failed to reasonably maintain the premises. The Washington Supreme Court did not find such a departure from traditional premises liability principles warranted.

The third instruction refused by the District Court eliminated as a matter of law the notice requirement for self-service operations. Again, the Washington Supreme Court specifically rejected this legal theory and held that “the requirement of showing notice will be eliminated only if the particular self-service operation of the defendant is shown to be such that the existence of unsafe conditions is reasonably foreseeable.” Pimental, 666 P.2d at 893. The District Court did not err in refusing to give three instructions based on a theory of law rejected by the Washington Supreme Court.

All three instructions refused by the District Court refer to self-service operations. Appellant argues that the District Court erred in its opinion denying appellant’s new trial motion, when it found that the record did not establish that K-Mart was a self-service store. However, the Washington Supreme Court’s Pimental decision involved a self-service operation and, therefore, the instruction based on the Pimental decision includes self-service operations. No reversible error occurred.

II.

Appellant argues that the District Court erred in denying her motion for judgment NOV. A motion for judgment NOV may be granted only if it appears that the non-moving party cannot recover upon any view of the evidence, including legitimate inferences to be drawn from it. Wilkerson v. School Dist. No. 15, Glacier Cty. (1985), 216 Mont. 203, 211, 700 P.2d 617, 622.

Appellant bases her motion on Jury Instruction No. 27 which reads as follows:

“When an unsafe condition exists which has been created by the owner of the property himself or by an employee of that owner within the scope of his employment, a shopper need not prove the owner’s notice or knowledge of the dangerous condition, such knowledge is imputed to the owner.”

Contrary to appellant’s argument that the evidence allows only the conclusion that K-Mart’s agents were responsible for the spill, the record contains substantial credible evidence upon which the jury could have found otherwise. The District Court properly denied appellant’s motion for judgment NOV.

Affirmed.

JUSTICES HUNT, McDONOUGH, BARZ and WEBER concur.


author: JUSTICE HUNT JUSTICE BARZ,

text:
    In the MATTER OF J.F., a Youth.
    No. 89-338.
    Submitted on Briefs Jan. 11, 1990.
    Decided Feb. 22, 1990.
    787 P.2d 364.
    Douglas Anderson, Missoula, for appellant.
    Marc Racicot, Atty. Gen., George Schunk, Asst. Atty. Gen., Helena, M. Shaun Donovan, Mineral County Atty., Superior, for respondent.
    David Lambert and Teresa Demchak, Nat. Center for Youth Law, San Francisco, Cal., for amicus curiae.
   JUSTICE HUNT

delivered the Opinion of the Court.

J.F., a youth appellant, appeals from an Order of Commitment entered by the District Court of the Fourth Judicial District, Mineral County. We reverse and remand for a determination of a lesser restrictive alternative for disposition of the youth consistent with this Opinion.

This Court summarizes the issues on appeal as being whether the District Court erred in rejecting the dispositional recommendation of the Youth Placement Committee by placing the youth in a secure facility when lesser restrictive measures were available.

J.F.’s first brush with the law occurred on March 11, 1987, when J.F. was 15 years old. On that date, he was charged with burglarizing a theater in Superior, Montana. J.F. did not steal anything nor cause any damage therein. For the offense, he was placed on a six-month informal probation. On August 5,1987, J.F. committed an act of criminal mischief. Specifically, J.F. and a friend took down and burned a Mineral County Fair street banner. Both had been drinking at the time. On September 2, 1987, he was placed on a one-year probation for the offense and ordered to pay restitution.

J.F. was apprehended while burglarizing a grocery store in Superior during the early morning hours of August 26, 1988, taking beer, chips and ice cream. J.F. is alleged to have been drinking before the incident. In response to the offense, the Mineral County Attorney filed a Petition for Adjudication of Delinquency, pursuant to sec. 41-5-103(13), MCA, on September 7, 1988.

On October 19, 1988, the Youth Court adjudged J.F. a delinquent youth and ordered him committed to the Department of Family Services for placement at Pine Hills School for Boys near Miles City, Montana. The commitment was suspended subject to nine conditions including the requirements that J.F. enter a chemical dependency program to commence on or before November 3, 1988; that he observe a curfew to be physically present at his home no later than 10:00 p.m. on Friday and Saturday nights and 8:00 p.m. on all other nights, subject to certain exceptions; and that he be subject to all standard rules and regulations of probation. J.F. entered the Northern Montana Chemical Dependency Program in Havre, Montana, on November 3, 1988, and completed the program.

On February 12, 1989, J.F. was seen at a convenience store in Superior at 3:00 a.m. and was in possession of a can of beer. Specifically, J.F. was suspected of stealing cookies and beer. As a result, on March 6, 1989, the county attorney filed a petition for revocation of the suspended order of commitment based on violations of conditions. On April 19, 1989, a hearing was held concerning the petition. During the hearing, J.F. admitted the curfew violation. The court admonished J.F. for the incident and continued probation.

That same evening, J.F. again violated curfew and was observed in possession of a can of beer. The county attorney filed a second petition for revocation of the suspended order of commitment on April 26, 1989, in response to the violations. A hearing was held on the matter on May 17, 1989.

On June 2,1989, the Youth Placement Committee submitted a recommendation to the court which stated that J.F. should not be placed at Pine Hills School because it does not provide an alcohol treatment program, of which J.F. is in need, and further recommended appropriate treatment whether it be in- or out-patient. On June 7, 1989, a hearing was held before the Youth Court. Witnesses at the hearing included J.F.’s present counselor, Donald Omdahl, and his probation officer, Mike McLean. Omdahl testified that J.F. has had three alcohol dependency counselors in six months and each time there was a new counselor “we basically go back to square one . . .” Omdahl also stated that because of J.F.’s age, his alcohol use and family problems contributed to his reluctance to follow the court rules. McLean testified that there had been “. . . some notable progress in his self confidence” and “improvement in his overall presentation.”

The Youth Court ordered that J.F. be committed to the Department of Family Services for placement at Pine Hills School. J.F. was remanded to the custody of his mother pending transportation arrangements. In its order of commitment the court found that:

“. . . the youth has willfully failed to abide by the rules of probation and the conditions upon which his commitment was previously suspended ... as a result of his unwillingness to conform to the requirements of probation as well as his underlying offenses of burglary and criminal mischief, physical confinement in an appropriate facility is necessary for the protection of the public and its property.” (Emphasis ours.)

From the order, J.F. appeals on the basis that the court erred rejecting the recommendation of the Youth Placement Committee and that the court erred in designating J.F. as a danger to the public and its property.

The issue is governed by the Montana Youth Court Act. Section 41-5-102(2), MCA, sets forth the express legislative purpose of the Act as being that of supervision, care and rehabilitation of the youth — not punishment. The disposition imposed is to be made in accord with the best interests of the child. See In the Matter of the Application of Peterson (Mont. 1989), [235 Mont. 313,] 767 P.2d 319, 46 St.Rep. 13.

Section 41-5-523, MCA, sets forth the alternatives for disposition of a youth including:

“(1) If a youth is found to be delinquent. . . the youth court may enter its judgment making any of the following dispositions;
“(a) place the youth on probation;
“(b) commit the youth to the department if the court determines that the youth is in need of placement in other than the youth’s own home; provided, however, that:
“(ii) in the case of a delinquent youth who is determined by the court to be a serious juvenile offender, the judge may specify that the youth be placed in a youth correctional facility if the judge finds that such placement is necessary for the protection of the public,
“i) order such further care, treatment, evaluation, or relief that the court considers beneficial to the youth and the community . . .”

(Emphasis ours.)

In this case, the District Court ordered placement of J.F. in the Pine Hills School and noted without explanation in its order of commitment that such placement was “necessary for the protection of the public and its property.” The petition for revocation upon which the District Court ordered confinement, was based upon the curfew violation. However, the record reflects that J.F. is in need of alcohol dependency treatment. Pine Hills School provides no such treatment and, thus, is an inappropriate setting for the youth. The District Court should have considered a lesser restrictive alternative which, under sec. 41-5-523(1)(i), MCA, would provide J.F. with such further care and treatment for alcohol dependency as recommended by the Youth Placement Committee.

Reversed and remanded for a determination after consideration of a lesser restrictive alternative for disposition of the youth, who is now eighteen years old, consistent with this Opinion.

CHIEF JUSTICE TURNAGE and JUSTICES HARRISON, SHEEHY and WEBER concur.

JUSTICE BARZ,

dissenting:

The Youth Court did not err by ordering the youth committed to the Department of Family Services for placement at Pine Hills. In its June 7, 1989 order the court set out the following rationale:

“THE COURT HEREBY FINDS that the youth has been previously adjudicated as delinquent; that the youth has obtained inpatient chemical dependency treatment as well as outpatient counseling and that every effort has been made to address the needs and problems of this youth in a community based setting.
“THE COURT FURTHER FINDS that on at least three occasions the youth has willfully failed to abide by the rules of probation and the conditions upon which his commitment was previously suspended and that there is no credible evidence to believe that the youth will in the future be any more obedient to the Orders of this Court than he has been previously and that as a result of his unwillingness to conform to the requirements of probation as well as his underlying offenses of burglary and criminal mischief, physical confinement in an appropriate facility is necessary for the protection of the public and its property.”

J.F. was ordered placed in Pine Hills following adjudication as a delinquent youth. Montana does not have a statute requiring that the court consider and reject less restrictive alternatives prior to commitment to a more secure facility. While these are good policies, the Montana Legislature has not chosen to enact such considerations let alone provide sufficient financial resources for such alternative placements.

There is no question that the Youth Court could have ordered the commitment to Pine Hills implemented following the burglary in its October 19, 1988 order. The Youth Court suspended the execution of that order upon certain conditions which J.F. consistently failed to follow. The fact that J.F. received inpatient alcohol treatment and went through six different counselors on an outpatient basis should take care of any concern that less restrictive alternatives were not considered or attempted.

Section 41-5-523(l)(b), MCA (1989), is very clear that a court can specify that a delinquent youth be placed in a correctional facility if the youth is a serious juvenile offender and the judge finds placement necessary for the protection of the public. In the instant case the Youth Court should not be bound by the placement committee’s nonspecific recommendation that the youth be placed in a treatment facility.

Finally, since J.F. has reached majority and is not eligible for any youth programs or lesser restrictive alternatives to the Pine Hills School, this appeal should be dismissed as moot.

JUSTICE McDONOUGH joins in the foregoing dissent of JUSTICE BARZ.


author: JUSTICE SHEEHY

text:
    AMERICAN TELEPHONE & TELEGRAPH COMPANY, a corp., AT&T Technologies, Inc., a corp., and Mountain States Telephone & Telegraph Company, a corp., Plaintiffs and Appellants, v. STATE TAX APPEAL BOARD of the State of Montana; Robert S. Raundal, Mary E. Hempleman, Dale D. Dean, as members of and constitute the State Tax Appeal Board of the State of Montana; Department of Revenue of the State of Montana; and John D. Lafaver, in his capacity as Director of the Department of Revenue of the State of Montana, Defendants and Respondents.
    No. 88-521.
    Submitted Dec. 5, 1989.
    Decided Feb. 20, 1990.
    787 P.2d 754.

      Terry B. Cosgrove argued and Michael J. Rieley, Luxan & Murfitt, and Dennis Lopach, Mountain States Telephone & Telegraph, Helena, for plaintiffs and appellants.
    David Woodgerd argued, Dept, of Revenue, Helena, for defendants and respondents.
   JUSTICE SHEEHY

delivered the Opinion of the Court.

In this case we hold principally that where corporate taxpayers are engaged in a unitary business, sales by the corporations of temporary cash investments are not to be reported by them for Montana’s corporation license tax or income tax purposes as included in gross sales; and, except for the net gain from such sales, the total amounts of such sales should be excluded from the formula determining the unitary businesses’ income for Montana Corporation License Tax reporting.

The taxpayers here are American Telephone and Telegraph Company (AT&T), AT&T Technologies (Technologies), formerly known as Western Electric, and Mountain States Telephone and Telegraph Company (Mountain Bell). For the tax years involved, AT&T was the parent corporation of an affiliated group of corporations whose operations in Montana consisted of providing intrastate and interstate telecommunications and related activities. Technologies is a wholly owned subsidiary of AT&T whose operations in Montana included the sale of telecommunications equipment. Mountain Bell provided interstate and intrastate telecommunications services and related activities in Montana and neighboring states, participated in furnishing long distance interstate and international telecommunications, and, for the tax years involved was owned in excess of 50% by AT&T.

Under a past agreement with the Montana Department of Revenue, corporation license tax returns for the three companies were filed on a “separate company basis.” Each taxpayer filed its own separate return, separately reported its income and expenses and paid a corporation license tax based upon its separate activity. In 1984 the Montana Department of Revenue audited the taxpayers, by reviewing their records maintained in their respective corporate headquarter offices in New York, New Jersey, and Colorado. The Montana Department determined that AT&T and its subsidiaries were engaged in a unitary business. There is no dispute in this case that the corporations should be considered as a unitary business.

Montana Department of Revenue proposed a deficiency assessment on July 11, 1985. The Taxpayers protested the assessment and after an informal conference, supplied additional supporting information in a letter dated April 17, 1986. After a further conference on June 8, 1986 between representatives of the Department and the Taxpayers, the Department issued a final deficiency assessment on July 14, 1986. Taxpayers paid the tax under protest and litigation in the District Court, First Judicial District, Lewis and Clark County ensued.

The issues before the District Court were the proper computation of the sales factor denominator (hereafter explained); a proper allowance for the depreciation deduction; proper allowances for Taxpayers’ contributions to its Employee Stock Ownership Plan (ESOP) and Federal Fuel Tax Payment deductions; a proper deduction for interest income on United States obligations; and the proper allocation of monies originally paid as interest owed on overdue taxes. The District Court affirmed the determinations of the Department in all respects except one. The District Court allowed the Taxpayers a deduction for contributions made to its ESOP and for federal fuel tax payments, and ordered a refund related to those items. The refund was paid and the Department did not cross-appeal from the District Court order on those issues. Taxpayers appealed to this Court from the judgment of the District Court on all of the issues except the decision on ESOP contributions and federal fuel tax payments.

We determine that the District Court was correct in its determinations and therefore affirm the same.

I.

A background explanation of Montana’s Corporation License Tax is necessary.

Every corporation engaged in business in the state of Montana must pay annually to the state treasurer as a license fee for the privilege of carrying on business in this state a percentage of its total net income for the preceding taxable year at the rates required under our statutes, In the case of corporations having income from business activity which is taxable both within and without this state, the license fee is measured by the net income derived from or attributable to Montana sources as determined under the Corporation License Tax Act. Section 15-31-101(3), MCA.

Montana, to overcome the difficulty, when a corporation engages in a unitary business in more than one state, of determining the corporation’s income and expenses generated from its activities in Montana, has adopted the Uniform Division of Income for Tax Purposes Act (UDITPA). Under the UDITPA method, business income is apportioned to each jurisdiction based on a three-factor apportionment formula. The factors are property, payroll, and sales. The property, payroll and sales factors are expressed as a percentage the Montana property, payroll and sales bear to the total property, payroll and sales of the business. The formula may be expressed as follows:

Montana Reports + Montana Payroll + Montana Sales
Total Property_Total Payroll_Total Sales = Montana
g Proportion of Income %

The business income of the corporation is multiplied by the fraction to determine the amount of income apportioned to Montana for corporation license tax purposes.

This formula may be applied to a single corporation operating a unitary business or to a group of separate corporations operating as a unitary business. When a unitary business operation is found to exist among a group of separate corporations, the factors include the total property, payroll and sales of all companies in the group. In this case the Taxpayers have stipulated that their operations for the years 1978 through 1982 constitute a unitary business and have agreed to the filing of a combined or unitary return as requested by the Department.

The statutory basis for the formula is § 15-31-305, MCA, which provides:

“Apportionment of business income. All business income shall be apportioned to this state by multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus the sales factor and the denominator of which is 3.”

We have interpreted the Montana Corporation License Tax and UDITPA in Montana Department of Revenue v. American Smelting and Refining Company (1977), 173 Mont. 316, 567 P.2d 901 appeal dismissed, 434 U.S. 1042, 98 S.Ct. 884, 54 L.Ed.2d 793 (1978); Ward Paper Box Company v. Department of Revenue (1981), 196 Mont. 87, 638 P.2d 1053, vacated and remanded, 459 U.S. 808, 103 S.Ct. 26, 74 L.Ed. 2d 41, (1982), aff’d on remand sub nom. Russell Stover Candies v. Department of Revenue (1983), 204 Mont. 122, 665 P.2d 198, appeal dismissed, 464 U.S. 988, 104 S.Ct. 475, 78 L.Ed.2d 675 (1983), reh’g denied, 465 U.S. 1014, 104 S.Ct. 1018, 79 L.Ed.2d 247 (1984); Northwest Airlines v. State Tax Appeal Board and Department of Revenue (1986), 221 Mont. 441, 720 P.2d 676.

II.

First Issue: Did the Department of Revenue lawfully exclude gross receipts from the sale of intangible assets under the sales apportionment factor of the Taxpayers’ combined unitary tax return?

This issue is narrowed to the denominator for total sales in the formula for apportionment of unitary business income.

The specific dispute over the computation of the sales factor relates to gross receipts from the Taxpayers’ sale of cash management investments, referred to as temporary cash investments (TCI). TCIs represent Taxpayers’ available cash which has been invested in various instruments, be they commercial paper issued by corporations, United States Treasury instruments, or other readily liquidated investments. Such instruments are bought and sold to accommodate the working capital needs of the Taxpayers.

Taxpayers contend that the total amount received by Taxpayers on the sale of a TCI should be included in the total sales receipts of the Taxpayers which serves as the denominator in the sales factor of the apportionment formula. The example posed by the Taxpayers is that if the Taxpayers pay $10,000 for an intangible asset such as a certificate of deposit and sell it for $11,000, the “gross receipts” from the sale is $11,000, which is includable in the sales factor. The position of the Department, on the other hand, is that with respect to the sales of intangibles, the “gross receipts” for purposes of the sales factor includes only the gain on the sale; that is, the, difference between the cost of the item and the sale price, or in the example, the gain of $1,000, Taxpayers claim that the Department’s position is inconsistent with usual treatment afforded to sales of tangible personal property and has no statutory support.

In examining the contentions of the parties on this issue, the District Court sided with the Taxpayers insofar as the statutory definitions are concerned. The District Court stated that business income is defined in § 15-31-302(1), MCA, as “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.” The District Court further noted that “sales” is defined in § 15-31-302(5), MCA, as “all gross receipts.” The District Court concluded that receipts from temporary cash investments come within the statutory definition of sales.

The District Court nevertheless concluded that the Department has statutory authority to exclude the gross figures derived from the sale of TCIs by the Taxpayers in the pertinent parts of § 15-31-312, MCA:

“If the allocation and apportionment provisions of this part do not fairly represent the extent of the taxpayer’s business activity in this state, the taxpayer may petition for or the tax administrator may require, in respect to all or any part of the taxpayer’s business activity, if reasonable:
“(2) The exclusion of any one or more of the factors;
“(3) The inclusion of one or more additional factors which will fairly represent the taxpayer’s business activities in this state; or
“(4) The employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer’s income.”

Terming the foregoing statutory provision as a “relief provision” and that the applicable rules are §§ 42.26.261 and 42.26.263, ARM, the District Court looked at Appeals of Pacific Telephone and Telegraph Company, CCH California Tax Reports, Part 205-858, 14,907-36 through 14,907-43, an administrative decision from the California State Board of Equalization in 1978. Addressing a similar problem, the California agency stated the issue as: “What we must decide, therefore, is whether § 25137 permits respondent to exclude the return of the capital element of the investment receipts.” The California Board held:

“In this case we think the answer to that question is clear. The inclusion of this enormous volume of investment receipts substantially overloads the sales factor in favor of New York, and thereby inadequately reflects the contributions made by all the other states, including California, which supply the markets for the communications services provided by Pacific and its affiliates. Moreover, we are unable to accept, even for a moment, the notion that more than 11 percent of the Bell System’s entire unitary business activities should be attributed to any single state solely because it is the center of working capital investment activities that are clearly only an incidental part of one of America’s largest, and most widespread businesses. We conclude, therefore, that UDITPA’s normal provisions ‘do not fairly represent the extent of the taxpayer’s business activity in this state,’ and that respondent is authorized, under § 25137 to require a deviation from the normal rules.”

Another case relied on by the District Court was American Telephone and Telegraph Company v. Director, Division of Taxation, 194 N.J.Super. 168, 476 A.2d 800 (1984).

But the Taxpayers object to the District Court’s reliance on the relief provision to exclude gross income from TCIs from the formula. Their argument is that the Department’s authority, from the testimony in the case, was based on a “practice” of the Department to exclude such sales figures as to all taxpayers. Originally, the Department official testified that the Department had a regulation to support the practice. However it appears that ARM § 42.26.263 is not by its terms applicable here, and that the Department cannot retroactively rely on its new regulation, ARM § 42.26.259(1)(a) which was promulgated by the Department after the problem in this case arose. Under ARM § 42.26.261(2), the relief section may be invoked only in specific cases of unusual fact situations which will be unique and nonrecurring. Taxpayers argue that if the Department is relying on a “practice” which is an unwritten internal policy that applies to all taxpayers in all situations, it is a statement of general applicability that implements or prescribes a law or policy and thereby is a “rule.” Section 2-4-102(10), MCA. Therefore Taxpayers contend that the Department should have promulgated beforehand a rule of general applicability, and since it did not, it may not rely on the “practice.” In support of this contention, Taxpayers rely on Patterson v. State Department of Revenue (1976), 171 Mont. 168, 557 P.2d 798; Northwest Airlines v. State Tax Appeal Board and Department of Revenue (1986), 221 Mont. 441, 720 P.2d 676, and CBS, Inc. v. Comptroller of the Treasury, Maryland Tax Rep. (CCH) Income Tax Number 2300 A & B, § 201-305, page 12009 (Dec. 2, 1988). These cases, Taxpayers contend, require a properly adopted rule as first necessary to exclude from gross sales the receipts from sales of TCIs.

Additionally, Taxpayers contend that before the Department may apply the relief provision statute, the Department, which had the burden of proof, must first establish that the standard three-factor formula does not accurately reflect the business activity of the Taxpayers within the state. Taxpayers argue that the Department showed nothing in the administrative proceedings before the District Court of an actual distortion of Montana income because of the TCIs, and instead relied on a blanket exclusion as to all taxpayers. The Department claimed it made no difference whether the distortion was 2 percent or 20 percent, all gross proceeds from TCIS must be excluded. The United States Supreme Court held in Container Corporation v. Franchise Tax Board (1983), 463 U.S. 159, 103 S.Ct. 2933, 77 L.Ed.2d 545, that under a due process challenge, a 14 percent change in taxable income was not sufficient to permit a change in the apportionment formula.

The District Court did not accept these arguments respecting the necessity of a rule before the apportionment formula could be modified. The District Court looked instead at the goals of UDITPA, and its effect on multistate taxpayers as applied by the Department in this type of case. UDITPA was drafted as a practical means of assuring that a multistate taxpayer is not taxed on more than its total net income. A basic purpose of the Uniform Act is uniformity among those states which have adopted it. Atlantic Richfield Company v. Department of Revenue (1986), 300 Or. 637, 717 P.2d 613. The Oregon Supreme Court stated in an earlier case that there are two basic goals in UDIPTA:

“(1) Fair apportionment of income among the taxing jurisdictions; and (2) uniformity of application of the statutes.”

Twentieth Century-Fox v. Department of Revenue (1985), 299 Or. 220, 700 P.2d 1035, 1039.

Two representatives of the Department testified that the universally accepted interpretation of tax administrators in UDITPA states is not to include gross receipts from sales of temporary cash investments in the sales factor. Otherwise, a substantial distortion of the Taxpayer’s business activity in the state would result.

Thus the District Court had testimonial support for its determination that the position of the Department was founded on statutory authority. Under § 15-31-312, MCA, if the allocation and apportionment provisions (the formula) do not fairly represent the extent of the taxpayer’s business activity in the state, the tax administrator is authorized to require, if reasonable, “the employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer’s income.” While the Department is authorized and directed to prescribe regulations to carry out the purposes of § 15-31-312, MCA, and other parts of the Act (see § 15-31-313, MCA), still the statutory goal that the tax administrator interpret the Act so as to achieve equitable apportionment of the taxpayer’s income generated in the state has been attained in this case. The Taxpayers here are not being treated differently from other taxpayers in similar situations. The repeated investment short term by the Taxpayers in New York of cash monies, which if not invested would be merely cash on hand or cash in till, skews the strict application of the formula, because the gross receipts must be allocated to New York. That interpretation would not truly reflect the income generated by the Taxpayers in doing business in Montana. Strict adherence to the UDITPA formula alone does not result in allocation to Montana a fair portion of the Taxpayers’ income generated by doing business in this state. Therefore the relief statute comes into play and was properly applied by the Department of Revenue. Accordingly, we uphold the District Court which in turn upheld the position of the Department of Revenue on this issue.

III.

Taxpayers state the next issue in this manner:

“Is the Taxpayer entitled to claim the amount of depreciation expense for Montana State Tax purposes that is statutorily allowable under the Internal Revenue Code or is it limited to the amount that was claimed on its federal tax return?”

It appears that for 1954 and subsequent years, at the urging of the Federal Communications Commission, AT&T and the Internal Revenue Service entered into a closing agreement under which intercompany profits were eliminated from the regulated telephone company’s consolidated accounts for federal income tax purposes. Under the provision of the closing agreement, AT&T did not claim on its federal returns the full amount of depreciation it could otherwise have claimed under the Internal Revenue Code.

In Montana, for the years from 1967 to 1978, Taxpayers were filing on a separate company basis, and each Taxpayer was reporting its full gain from the sale of an asset and deducting depreciation in the full allowable amount for the asset. As a result, Western Electric paid a tax to Montana on the actual profit it made from selling an asset to Mountain Bell and AT&T. Mountain Bell and AT&T took a deduction on separate Montana returns for the full amount paid for such assets in conformance with 167 of the Federal Internal Revenue Code, but different from the deduction taken on the AT&T consolidated federal return which was in compliance with the closing agreement. When the Montana Department required Mountain Bell and the other Taxpayers to make a combined state filing, the depreciation claimed by Taxpayers was not the same as if they had filed separate returns. Deductions in the federal consolidated tax return were computed in accordance with the closing agreement and not § 167 of the Federal Internal Revenue Code. Taxpayers contend that the Montana Department’s mandated requirement of a unitary business report denied the Taxpayers the ability to fully depreciate their assets as § 167 allowed.

The Montana Department took the position that Taxpayers were limited to the depreciation deduction reported on line 20 of their federal income tax return, and not such other deductions as § 167 of the Internal Revenue Code may permit. Taxpayers contend that § 15-31-114(2)(a), MCA, incorporates the Federal Internal Revenue Code § 167 into Montana law, and thereby allows a taxpayer to take all the deductions allowed pursuant to § 167.

Taxpayers further point out that the District Court placed great weight on the fact that the Taxpayers requested the federal closing agreement. They also contend that the District Court confused, or appeared to confuse, the closing agreement with an “election” authorized under various provisions of the Federal Internal Revenue Code and that a closing agreement is not such an election.

The Taxpayers also contend that the applicable regulation promulgated by the Montana Department in effect during the taxable years involved here was ARM § 42.23.212(1) which established the basis for determining gain or loss as the “basis prescribed by the Internal Revenue Code,” and that again, the Department, after this case was submitted, promulgated a proposal to amend § 42.23.404, ARM, to provide that depreciation shall be the same as “reported for federal income tax purposes.”

Additionally, Taxpayers rely on Baker Bancorportion v. Department of Revenue (1983), 202 Mont. 94, 657 P.2d 89. That case confirms that a taxpayer is allowed all federal deductions unless the Montana legislature provided otherwise.

The statute which is applicable is § 15-31-114(2)(a), MCA, which allows corporations the following deductions in computing net business income:

“(2)(a) All losses actually sustained and charged off within the year and not compensated by insurance or otherwise, including a reasonable allowance for the wear and tear and obsolescence of property used in the trade or business, such allowance to be determined according to the provisions of § 167 of the Internal Revenue Code in effect with respect to the taxable year. All elections for depreciation shall be the same as the elections made for federal income tax purposes. No deduction shall be allowed for any amount paid out for any buildings, permanent improvements, or betterments made to increase the value of any property or estate, and no deductions shall be made for any amount of expense of restoring property or making good the exhaustion thereof for which an allowance is or has been made.” (Emphasis supplied.)

The District Court determined that the underlined language in the above statute sets forth a clear legislative intent that a corporate taxpayer is required to report the same amount of depreciation on its state return as it did on its federal return.

The Department concedes that a closing agreement is not an “election” as that term is used in the Federal Revenue Codes. This is not conclusive of the issue, however. The clear intent of § 15- 31-114(2)(a), MCA, is that there should be uniformity in the depreciation amounts claimed for federal income tax purposes and for state corporation license tax purposes. We hold that the statute requires that the same figures be used for depreciation on the state corporation license tax returns as on the federal income tax returns and so uphold the District Court.

IV.

Should the Department limit interest expense to the extent that federal interest income is excluded in the state returns for 1979 thru 1982?

Prior to 1982, corporations filing Montana corporation license tax returns included in their net income, interest income from federal obligations.

In 1982, this Court in First Federal Savings and Loan Association v. Department of Revenue (1982), 200 Mont. 358, 654 P.2d 496, cert. den. 462 U.S. 1144, 103 S.Ct. 3128, 77 L.Ed.2d 1378 (1983), held that federal interest income received by corporate taxpayers was not includable in the net income for purposes of calculating the Montana tax. Taxpayers state that in conformance with the First Federal decision, the Taxpayers excluded federal interest income from their Montana corporation license tax returns.

The legislature responded to the First Federal decision by enacting § 15-31-116, MCA (1983), which provided an equal reduction of allowed interest expense for corporations which excluded federal interest income. To implement § 15-31-116, MCA, the Department promulgated two rules, §§ 42.23.416 and 42.23.417, ARM.

On November 23, 1984, this Court reversed the First Federal decision in Schwinden v. Burlington Northern (1984), 213 Mont. 382, 691 P.2d 1351. As part of that decision, this Court determined that § 15-31-116, MCA, was unconstitutional. The Court then went on to discuss the application of the Schwinden case regarding Montana corporation license tax filings before or after the issuance of that opinion:

“We order that the tax obligations of Burlington Northern, Inc. for the taxable year 1982 shall 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 taxable years ending after the date of this Opinion and for any amendment of tax returns for earlier years . . . .”

Schwinden, 691 P.2d at 1359.

After the Schwinden decision, the Department promulgated amendments to §§ 42.23.416 and 42.23.417, ARM and also adopted a new rule, § 42.23.111, ARM. This last rule required that corporate filings before the issuance of the Schwinden decision, which had excluded federal interest income pursuant to First Federal must still reflect reduced reductions for interest expense as provided in the statute declared unconstitutional, § 15-31-116, MCA.

In a later case, 224 Mont. 500, 730 P.2d 422 (1986), this Court in Cause No. 86-490, entitled Schwinden vs. Burlington Northern, Inc., at the behest of Daniels County, 224 Mont. 500, 730 P.2d 422 (1986) referred to the foregoing language in Schwinden with respect to the prospective or retroactive effect of that case as follows:

“As a matter of interpretation of our decision in Schwinden, the critical factor as to whether income from federal obligations should be taxed for corporate license tax purposes under our decision in Schwinden, or under our decision in First Federal is the date of filing the corporate tax return by the taxpayer. Returns or amended returns filed before November 23,1984 are entitled to compute their corporate license taxes in accordance with the decision of First Federal. Returns or amended returns filed after November 23, 1984, are to have corporate license taxes computed according to Schwinden.” 224 Mont. at 503, 730 P.2d 424.

Taxpayers now contend that with respect to their returns filed prior to the Schwinden decision, November 23, 1984, it is improper for the Department, under § 15-31-116, MCA, to offset the interest expense sustained during the taxable year by the Taxpayers to the amount of federal obligations income which is deducted from the Montana returns. They further contend that the application of the regulations in the ARM are now founded upon a statute, § 15-31-116, MCA, which has been held unconstitutional, and so should have no effect as to the computation of their corporate license taxes in those applicable years. [Section 15-31-116 has since been repealed. Sec. 1, Ch. 125, Laws of Montana (1989)].

There is possible merit in the contention of the Taxpayers that the Department is applying regulations founded on an unconstitutional statute which would be therefore improper. However, the language of Schwinden applies here and the computation of the corporate license taxes for the Taxpayers for the years prior to Schwinden is controlled by the language of the Schwinden case. The tax returns which the Taxpayers had filed before Schwinden were for the single entities here involved and not for the unitary or combined business. The result of the audit of the years here in question is that the Taxpayers should have filed a unitary return before Schwinden showing the combined results of the corporate entities. Thus, the computation of license taxes for the years involved is being modified substantially because the results are taken from a unified business now instead of from each of the separate corporations that made the initial returns. A complete amendment of the earlier filed returns has occurred, and that amendment has taken place after November 23, 1984. Therefore, under Schwinden, the taxes owing shall be computed as an “amendment of tax returns for the earlier years.” On this basis we again uphold the determination of the District Court.

V.

Does Montana allow the Department to reclassify interest payments as tax payments?

Because AT&T obtained extensions prior to filing its original tax returns for the years involved here, it was required to pay interest on overdue taxes pursuant to § 15-31-502, MCA. Under the statute, interest was added at the statutory rate from the date due until paid.

Under § 15-31-503(2), MCA, interest on a deficiency assessment is computed pursuant to § 15-31-502.

Taxpayers argue that all of the interest paid when filing the original returns must now be reclassified as taxes paid. The Taxpayers want the interest payment credited against the tax due under the Department’s deficiency assessment of additional corporate license taxes. The District Court concluded that the statutes relating to interest were clear and that the Taxpayers could not obtain a credit against the tax deficiency for the interest previously paid.

The interest which the Taxpayers originally paid for the single entity returns was computed on the amount of taxes then due but which were not paid within the statutory period. The Department is mandated under the provisions of § 15-31-502, and § 15-31-503, MCA, to collect interest on the deficiency assessment amounts at the statutory rate from the date due until paid. The Department is not empowered under the statutes to reclassify interest paid as tax paid nor is it authorized to apply the amount of interest paid as a credit against a deficiency assessment.

It is the contention of the Taxpayers that because the sections are unclear as to whether the Department has the power to reclassify such interest payments and consider them as credits against the taxes, that the statutes must be construed against the taxing authority and for the Taxpayers. The contention that the statutes are unclear is based upon the Taxpayers’ argument that the statutes do not prohibit the Department from classifying the initial payment of interest as tax.

We regard the statutes as affirmatively requiring the Department to collect interest on overdue taxes when paid, and also on deficiency assessments when determined.

The District Court reasoned that § 15-31-502 and § 15-31-503, MCA, required interest payments to be treated as the Department applied them and we uphold the decision of the District Court.

VI.

The judgment of the District Court on all issues upon which an appeal is taken in this case is affirmed.

CHIEF JUSTICE TURNAGE and JUSTICES HARRISON, HUNT, McDONOUGH, BARZ and WEBER concur. ■