                                                No.    89-170

                    I N THE SUPREME COURT O F THE S T A T E O F MONTANA

                                                      1989



BURLINGTON NORTHERN, I N C . and
BURLINGTON NORTHERN RAILROAD
COMPANY,
                      plaintiffs,
          -vs-
MONTANA DEPARTMENT O F REVENUE,

                      D e f e n d a n t and R e s p o n d e n t ,
          -vs-

BURLINGTON NORTHERN RAILROAD COMPANY
EMPLOYEES,
                      I n t e r v e n o r p l a i n t i f f s and
                      Appellants



A P P E A L FROM:     ~ i s t r i c t o u r t of t h e ~ i r s ~ u d i c i a l i s t r i c t ,
                                     C                               t           ~
                      I n and f o r t h e C o u n t y of L e w i s & C l a r k ,
                      T h e H o n o r a b l e T h o m a s C . H o n z e l , Judge p r e s i d i n g .

COUNSEL O F RECORD:

          For A p p e l l a n t :

                       arti in J o h n ~ l i s o n ,~ a r d i n ,M o n t a n a
                      ~ i l l i a m . Powell;
                                   J                   Powell & Morris,             Spokane, w a s h i n g t o n

          For R e s p o n d e n t :

                      R.    B r u c e M c ~ i n n i s , D e p t . of R e v e n u e , H e l e n a , M o n t a n a
                      S t a n l e y T . K a l e c z y c ; ~ r o w n i n g , K a l e c z y c , B e r r y and
                      Hoven,        Helena, Montana



                                                      S u b m i t t e d on ~ r i e f s : A u g .    3,   1989

                                                         Decided:       O c t o b e r 24,    1989

Filed:
Justice John C. Sheehy delivered the Opinion of the Court.


       Under 49 U.S.C.    S 11504(a) ( 2 ) , an interstate rail
carrier is required to withhold state income tax from the pay
of its employees only (1) if the employee earns from the
employer more than 50 percent of his pay in the particular
state or (2) if the employee is a resident of the particular
state, but does not earn more than 50 percent of his pay in
any one state.
       Under 49 U.S.C. S 11504(d), an interstate rail carrier
"shall file income tax information returns and other reports
only with" (1) the state of residence of the employee and
(2) the state in which the withholding of income tax is
required under S 11504(a) (2).
       We hold in this case that the Montana Department of
Revenue may obtain by administrative subpoena information
relating to Montana earnings from an interstate rail carrier
respecting its employees although the carrier is not obliged
to withhold Montana state income tax, and is not required to
file Montana state income tax information returns or other
reports under 49 U.S.C. S 11504.
       On August 25, 1988, the Department of Revenue issued an
administrative subpoena to the tax manager of Burlington
Northern Railroad Company, requesting Pay Report 830A for all
its employees who worked in Montana for the years 1986 and
1987.
       Burlington Northern refused to supply informational pay
reports for all such employees claiming exemption from
providing tax information under 49 U.S.C. § 11504.           On
September 29, 1988, Burlington Northern filed an action for
declaratory and injunctive relief in the District Court,
~ i r s t Judicial District, Lewis and Clark County.        The
Department of Revenue filed an answer to the complaint and
counterclaimed for an order from the District Court directing
Burlington   Northern    b ail road to   comply    with   the
administrative subpoena issued by the Department.
     On October 24, 1988, 62 ~urlington Northern employees
moved to intervene. The District Court allowed intervention
but limited the scope of the intervenor plaintiffs' action to
the issue of whether the administrative subpoena should be
quashed pursuant to 49 U.S.C. S 11504. On December 8, 1988,
the District Court granted a motion for joinder of 65
additional Burlington Northern employees as intervenors.
     On February 22, 1989, the District Court rendered
judgment, denying Burlington Northern's and the intervenors'
motion to quash the administrative subpoena duces tecum,
granting Department's motion for judicial enforcement of the
administrative subpoena, and dismissing the complaint for
declaratory and injunctive relief. From this judgment, the
intervenor plaintiffs only have appealed.
     From the agreed facts in the pleadings, it is shown that
Burlington Northern, Inc. is a corporation doing business in
Montana through one or more of its wholly owned subsidiaries.
Burlington Northern Railroad Company is a corporation doing a
rail carrier business in interstate commerce.   ~urlington
Northern employees, both trainmen and maintenance persons,
work both within and outside Montana.    These employees are
residents of various states.
     On August 25, 1988, the Department of Revenue issued an
administrative subpoena duces tecum to Burlington Northern,
directing it to produce "Pay Report 830A for 1986-1987." The
subpoena was returnable on September 30, 1988. In response,
Burlington Northern filed its complaint as above stated.
     The single issue presented for review is whether 49
U.S.C. S 11504 prohibits the state of Montana from requiring
~urlington Northern under an administrative subpoena duces
tecum to provide Pay Report 830A concerning the intervenor
plaintiffs, who are residents of washington, and who do not
work more than 50 percent of time or track miles in Montana.
~urlington Northern employees base their argument on the
Supremacy Clause, and the Commerce Clause of the united
States Constitution.
     The state of Montana levies a state income tax upon the
taxable income of its residents. Section 15-30-103, MCA. A
like tax is imposed upon every person not a resident of the
state on his or her net income from every business, trade,
profession or occupation carried on in the state.    section
15-30-105, MCA.     The Montana Department of Revenue is
authorized to make such rules and to require such facts and
information to be reported as it may deem necessary to
enforce the provisions of the state income tax laws. Section
15-30-305, MCA.
     On the other hand, 4 9 U.S.C. S 11504(a) ( 2 1 , provides:
       A rail     .    .
                   . carrier providing transportation
       subject to the jurisdiction of the Interstate
       Commerce Commission      ...
                                  shall withhold from the
       pay of an employee       ...
                                 only income tax required
       to be held by the laws of a state   .    .     .

       (A) in which the employee earns more than 50
       percent of the pay received by the employee from
       the carrier; or
       (B) that is the residence of the employee (as
       shown on the employment records of the carrier), if
       the employee did not earn in one state or
       subdivision more than 50 percent of the pay
       received by the employee from the carrier durlng
       the preceding calendar year.
With    respect   to   filing   reports,   49       U.S.C.   §   11504(d),
provides :
     A rail   ...  carrier withholding pay from an
     employee under [ $ 11504 (a)(2)1 shall file income
     tax information returns and other reports only
     with--
     (1) the state    ...     of residence of the employee;
     and
     (2) the state    ...     in which withholding of pay is
     required under   [$   11504(a) (2)l.
     Burlington Northern employees contend that state laws or
regulations permitting the issuance of an administrative
subpoena to obtain state earnings information for nonresident
employees are in direct conflict with the provisions of S
11504 and therefore under the Supremacy Clause of the United
States Constitution, the administrative subpoena has no
validity.
     The Supremacy Clause of the United States ~onstitution,
Art. VI, Clause 2, reads:
      his Constitution, and the Laws of the United
     States which shall be made in Pursuance thereof
     ..   . shall be the supreme Law of the Land; and the
     Judges of every State shall be bound thereby, any
     Thing in the Constitution or Laws of any State to
     the Contrary notwithstanding.
     When there is a conflict between federal law and the
application of an otherwise valid state enactment, the
Supremacy Clause requires that the federal law prevail. H a m
v. City of Rock Hill (1964), 379 U.S. 306, 311-312, 85 S.Ct.
384, 389, 13 L.Ed.2d 300, 305.
      Burlington Northern relies on the holding in H a m and
also the statement in Aloha ~irlinesv. Director of axa at ion
of Hawaii (1983), 464 U.S. 7, 12, 104 S.Ct. 291, 294, 78
L.Ed.2d 10, 15, where the United States Supreme Court said:
      [Wlhen a federal statute unambiguously forbids the
      States to impose a particular kind of tax on an
      industry affecting interstate commerce, courts need
      not look beyond the plain language of the federal
     statute to determine whether a state statute which
     imposes such a tax is pre-empted.
     Burlington Northern employees also rely on the
legislative history of S 11504 when it was before Congress,
con-tending that the legislative history indicates a clear
intent on the part of Congress to preclude states from
obtaining such tax information.
     There is a basic flaw in the Supremacy Clause argument
posed by Burlington Northern employees in this case.       It
presupposes that the provisions of 5 11504 and the state
income tax laws, rules and regulations are in direct
conflict.    That is not the case.     Section 11504 directs
itself to two subjects of state income taxation: when states
can require interstate rail carriers to withhold taxes from
their employees for application of the particular state's
income tax laws; and, when the rail carrier can be required
by state law to file with the state income tax information
returns respecting its employees.
     The language of S 11504 and its legislative history
clearly indicate the purpose of Congress to relieve carriers
engaged in interstate commerce from the burden of withholding
income taxes and providing income tax information returns to
every jurisdiction over which the carrier operated regardless
of the size of those earnings. Congress set out to provide,
and did provide, certain minimums under which the rail
carriers were not obliged to withhold income taxes for states
or other governmental entities, or obliged to file income tax
information returns.
     In setting those minimums, Congress did not intend to,
and the language of the statute of S 11504 shows that it did
not prohibit the states or other governmental entities from
levying income taxes on earnings by employees of interstate
carriers within the jurisdiction of the various governmental
entities.   Section 11504 directs itself only to the problem
of withholding state income taxes and of filing mandatory
reports by the carrier.     Neither of these have a direct
bearing on the power of a state or other governmental entity
to levy income taxes. We hold, as did the ~istrictCourt,
that S 11504 does not preclude a state from obtaining payroll
information   through   the   use  of   a   properly   issued
administrative subpoena. There is, therefore, no conflict to
which the Supremacy Clause of the United States Constitution
would apply.
     The intervenors also argue that enforcement of the
administrative subpoena duces tecum issued by the Department
of Revenue is an unreasonable burden on interstate commerce.
     The Commerce Clause of the united States Constitution
(Art. 1, Section 8, Clause 3) provides:
     That Congress shall have Power   ...To regulate
     Commerce with foreign ~ations, and among the
     several States and with the Indian Tribes;. .     .
    Again, the intervenors rely on the legislative history
of 49 U.S.C. § 11504, wherein the Senate report stated that
the legislation was addressed to the problem of those
employees who were required by the nature of their employment
to work in more than one state on a regular basis.  S.Rep.
No. 91-1261, 91st Cong. 2d Sess. (1970).
     We agree that under the Commerce Clause of the united
States Constitution, a state may not enact a law or adopt
procedures which unreasonably imposes a direct burden on
interstate commerce or discriminates against it.        Union
pacific Railroad Company v. Woodahl (D. Mont. 1970), 308
F.S.upp. 1002, 1009. Senator Prouty, speaking in favor of the
adolption of 5 11504 stated on the floor of the Senate on
Declember 3, 1970:
    Nonetheless, Mr. President, the bill which you have
    before you, and which was agreed to in conference,
    is a very great step toward solving the unique tax
    problems of the employees of interstate common
    carriers and, I might add, of the carriers
    themselves. While it does not limit the liability
    of such employees, it does limit the number of
    - -
    states which may require withholding from the
    compensation pald to an interstate carrier employee
    to not more than one, and the number of states
    which may require the filing of information returns
    with respect to the compensation of such employees
    to not more than two.
Cong. Record, December 3, 1970, at 40313.
     While S 11504 fixes the mandatory duties of employers
engaged in interstate commerce to withhold taxes and to file
reports respecting earnings in any particular state, the
statute does not prohibit the furnishing of earnings
information at the request of the state, or under a properly
issued administrative subpoena. Since the furnishing of such
information is necessary for the Department of Revenue
properly to administer and apply the Montana state income tax
on nonresident employees, the requirement that Burlington
Northern   furnish    such  information   pursuant   to   the
administrative subpoena cannot be an unreasonable burden on
inter             ce.   We so hold, because for one reason,
such              while in Montana, enjoy the comfort and
protection of Montana's civil and criminal laws, and so must
share a proportionate burden of the cost of such protections.
washington Rev. Dept. v. stevedoring Ass'n. (1978), 435 U.S.
734, 748, 98 S.Ct. 1388, 1398, 55 L.Ed.2d 682, 695.
     This Court said:
     The taxing power of a state is an essential power
     of its sovereignty (citing a case.)      This power
     cannot be set aside or limited on weightless
     statements that a      federal policy     is being
     substantially frustrated.
Commonwealth Edison Co.,   et a1 v.   State of Montana   (19801,
189 Mont. 191, 217, 615 P.2d 847, 861.
    We affirm the judgment of the District Court.
