 96-600




                                                                                 No. 96-600

                                                   IN THE SUPREME COURT OF THE STATE OF MONTANA

                                                                                   1997



                                                  JOHN W. SHARP and DARLENE M. SHARP,

                                                                           Plaintiffs and Appellants,

                                                                                          v.

                                                 DEPARTMENT OF REVENUE OF THE STATE
                                                OF MONTANA; and MICK ROBINSON, in his
                                                 capacity as DIRECTOR, DEPARTMENT OF
                                                  REVENUE OF THE STATE OF MONTANA,

                                                                          Defendants and Respondents.



APPEAL FROM:                 District Court of the First Judicial District, In and for the County
                                                       of
                                                             Lewis
                                 and Clark, the Honorable Jeffrey M. Sherlock, Judge Presiding


                                                                    COUNSEL OF RECORD:

                                                                                 For Appellants:

                             Brian Lilletvedt and John B. Kuhr, Bosh, Kuhr, Dugdale, Martin & Kaze,
                                                         Havre, Montana

                                      Henry C. Breighaupt and Milo E. Ormseth, Stoel, Rives, Boley,
                                                      Jones & Grey, Portland, Oregon

                                                                                For Respondents:

                                        Deborah Harten-Moore, Department of Revenue, Helena, Montana




                                                                                Submitted on Briefs: June 5, 1997

                                                                                Decided: September 15, 1997
                                                                                Filed:



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                                                           _________________________________________

                                                                                 Clerk

                     Chief Justice J. A. Turnage delivered the Opinion of the Court.

        John W. Sharp and Darlene M. Sharp won $47,000,000 in the multi-state lottery
  game known as Lotto America. The Sharps appeal the judgment of the First Judicial
    District Court, Lewis and Clark County, that their annual lottery payments are
                                           subject
to Montana state income tax despite their change of residence from Havre, Montana, to
                           the State of Washington. We affirm.
         We restate the issue as whether the District Court erred when it ruled the
                                           Sharps'
  lottery proceeds are "income earned in Montana" within the meaning of     15-30-105,
                    MCA, and are subject to Montana's state income tax.
            The State of Montana is a member of the Multi-State Lottery Association
  (MSLA), an unincorporated government benefit association of state agencies and the
  District of Columbia, with central offices in Des Moines, Iowa. MSLA operates the
 multi-state lottery game formerly known as Lotto America. The money for all tickets
   purchased in the multi-state lottery is pooled. The winnings are paid from that
                                            pooled
     money and are administered for Montana lottery winners by the Montana Lottery
 Commission pursuant to     23-7-202, MCA. MSLA rules require that prizes of more than
                 $250,000 must be paid annually in twenty equal payments.
              The Sharps were Montana residents when they won the MSLA lottery in
    November 1991. They are to receive their winnings in twenty annual payments of
$2,348,000 each. They reported the first payment of their lottery winnings on their
                                             1991
                                 Montana income tax form.
       In August 1992, the Sharps moved to the State of Washington. They filed their
  1992 Montana income tax return as part-year residents and did not report their 1992
     lottery payment as Montana income because they received it after they moved to
                                        Washington.
          After the Montana Department of Revenue (DOR) issued the Sharps assessments
  for income taxes due on their 1992 lottery payment, the Sharps filed objections to
                                              the
   assessments and then filed this action for declaratory judgment. They maintained
                                             that
   their annual lottery payments are in the nature of annuity payments and, as such,
                                           are not
                         includable as taxable income in Montana.
        The DOR moved to dismiss for failure to state a claim upon which relief can be
  granted. There being no dispute as to issues of fact, and with the consent of the
                                          parties,
    the District Court treated the motion as one for summary judgment. Noting that
                                           similar
 challenges to taxation of payments to nonresident lottery winners have been raised
                                              and
     rejected in other states, the District Court ruled that the Sharps' 1992 and
                                         subsequent

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     lottery winnings are taxable as income earned in Montana. The Sharps appeal.
                                                      Discussion
         Did the District Court err when it ruled the Sharps' lottery proceeds are
                                          "income
     earned in Montana" within the meaning of     15-30-105, MCA, and are subject to
                                Montana's state income tax?
        Section 15-30-105, MCA, provides that nonresidents of Montana are subject to
Montana income tax based upon the ratio of income earned in Montana to total income.
                   "Income earned in Montana" is not defined by statute.
          The Sharps assert that     15-30-105, MCA (1991), applies here. That statute
 provided for a tax on the income of a nonresident "at the rates specified in 15-30-
                                              103
with respect to his entire net income as herein defined from all property owned and
                                             from
every business, trade, profession, or occupation carried on in this state." It was
                                          amended
   in 1992 to provide for a tax on a nonresident's "income earned in Montana." The
                                           Sharps
  maintain that the purpose of the 1992 amendment to      15-30-105, MCA, was to change
 the method of calculating the income taxes due from nonresidents, not to change the
existing source of income rules in determining the base for taxation of nonresidents.
        The Sharps further maintain that the applicable source of income rule is set
                                            forth
                   at   15-30-131(1), MCA (1991). That statute provided:
               In the case of a taxpayer other than a resident of this state, adjusted
             gross income includes the entire amount of adjusted gross income from
            sources within this state but shall not include income from annuities,
       interest on bank deposits, interest on bonds, notes, or other interest-bearing
          obligations, or dividends on stock of corporations except to the extent to
               which the same shall be a part of income from any business, trade,
                       profession, or occupation carried on in this state.

The statute was amended in the July 1992 special session of the Montana Legislature
                                            to
read, "In the case of a taxpayer other than a resident of this state, adjusted gross
                                         income
 includes the entire amount of adjusted gross income as provided for in 15-30-111."
                                           The
amendment took effect for tax years beginning after December 31, 1991. Thus, it took
                effect before the Sharps became nonresidents of Montana.
             The Sharps also cite the following Administrative Rule of Montana:

                   A nonresident's income from annuities . . . and all other income from
                  intangible personal property is derived from or attributable to Montana
                  sources only to the extent earned in connection with a business, trade,
                              profession, or occupation carried on in Montana.

    Rule 42.16.1113(1), ARM. This administrative rule was last amended in 1983.
         The Sharps suggest that payments on an intangible are only taxable by the
domicile of the owner. They argue that their right to collect lottery payments has
                                       all the
 legal characteristics of intangible personal property, in that the annual payments

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                                              are
   income from intangible contract rights and are in the nature of income from an
                                          annuity.
Based upon the above now-revised statutes and the corresponding administrative rule,
                                              the
 Sharps argue that in order for Montana to tax their lottery payments, the payments
                                             must
be found to be from a business, trade, or profession carried on in Montana. Although
the DOR contends that the lottery payments are income from the Sharps' occupation as
      lottery winners, the Sharps reply that they are not professional gamblers.
      A general statement of legislative intent as to what income is subject to state
                   taxation in Montana is provided at    15-30-102, MCA:
           All income except what has been expressly exempted under the provisions
         of this chapter and income not permitted to be taxed under the constitution
      of this state or the constitution or laws of the United States shall be included
          and considered in determining the net income of the taxpayers within the
                                   provisions of this chapter.
 No Montana statute or administrative rule has specifically defined lottery proceeds
                                               as
income from intangible personal property or specifically exempted such winnings from
   state taxation. Further, when they receive their annual lottery payments, the
                                         Sharps are
 not receiving income from or interest on their prize; they are receiving the prize
                                           itself.
   Given the absence of a specific exception of Montana lottery winnings from state
taxation, and the above expression of the legislature's general intent, we conclude
                                             that
support for the Sharps' position as to the rule on taxation of lottery prizes prior
                                           to 1992
                                 is, at best, speculative.
       In Couchot v. State Lottery Comm. (Ohio 1996), 659 N.E.2d 1225, cert. den. 117
  S.Ct. 55, the Supreme Court of Ohio considered a challenge by nonresident lottery
    winners to Ohio state income tax assessments against their annual installment
                                          payments
   of lottery winnings. When Couchot redeemed his winning lottery ticket, Ohio law
 provided that lottery winnings of nonresidents were not subject to the Ohio income
                                             tax.
Ohio statutes were subsequently amended to provide for taxation of lottery winnings
                                               of
 nonresidents.      Stating that "the taxable event upon which [Ohio statute] levies a
                                            tax is
                       the receipt of income," the Ohio court ruled:
            Couchot's winning of the lottery in 1988 was not a closed transaction,
          wholly completed at that time. Accordingly, the application of [the Ohio
             statute as amended in 1989] to his subsequent receipt of installment
         winnings does not result in new obligations respecting transactions already
                completed, and, thus, no question of retroactivity is involved.

Couchot, 659 N.E.2d at 1231. The Ohio court ruled that taxation of Couchot's lottery
   payments received after the amendment of the statute was not unconstitutionally
                                    retroactive.
     We agree with the reasoning in Couchot and conclude that the statutes in effect

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                                            at
 the time of each annual lottery payment control as to taxation of that payment. We
                                           hold
  that the Sharps' 1992 and subsequent lottery payments are not excluded from income
  under     15-30-105 and -131, MCA (1991). We further hold that Rule 42.16.1113(1),
 ARM, does not alter that determination. The fact that the administrative rule has
                                           not
      been amended since the statutes were amended does not overrule the statutory
amendments. In fact, the opposite is true. The legislature has removed the language
    which appears in the rule from the statutes themselves. In Montana, a statute
                                        cannot be
  changed by administrative rule. See Bick v. State, Dept. of Justice (1986), 224
                                          Mont.
                              455, 457, 730 P.2d 418, 420.
       Thus, we return to the question of whether the Sharps' annual lottery payments
                                           are
      "income earned in Montana" pursuant to    15-30-105, MCA. The District Court
     considered four factors relevant when it determined that the Sharps' lottery
                                      winnings were
 earned in Montana: the location where the ticket was purchased, the location where
                                           the
   ticket was redeemed, the location where the first payment was received, and the
                                         location
    from which subsequent payments were mailed. In this case, all of these events
                            undisputedly occurred in Montana.
            The Sharps argue that these factors are completely irrelevant to the
                                      determination
of the source of their lottery winning income. This argument is based in large part
                                            on
their position that Montana statutes in 1992 did not justify the use of the test of
                                         contact
  counting, because the statutes did not attempt to tax income from intangibles for
 nonresidents. We have rejected that position above. Further, as pointed out by the
   District Court, the decision in Couchot and the opinion of the Court of Special
                                         Appeals
      of Maryland in Stark v. Comptroller (Md.App. 1989), 554 A.2d 458, support a
   conclusion that lottery winnings are earned in the state in which they were won.
       Couchot quoted the leading case of Harvester Co. v. Dept. of Taxation (1944),
                                           322
 U.S. 435, 64 S.Ct. 1060, 88 L.Ed. 1373. In Harvester, the Court affirmed the right
                                            of
   the State of Wisconsin to tax dividends received by out-of-state residents from
                                        corporate
     income derived from property located and business transacted within the state.
            A state may tax such part of the income of a non-resident as is fairly
        attributable either to property located in the state or to events or transac-
         tions which, occurring there, are subject to state regulation and which are
        within the protection of the state and entitled to the numerous other benefits
                                       which it confers.

                          Harvester, 322 U.S. at 441-42.   The Couchot court stated:
                          It is difficult to imagine a more fundamental exertion of a state's

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                 taxing power than where the state taxes income on winnings from its
            lottery. The income received by Couchot in this case arose by virtue of his
            participation in the Ohio lottery. The Ohio lottery is an event exclusively
                           within the power, dominion, and control of Ohio.

          Couchot, 659 N.E.2d at 1229.  The court went on to hold that taxation of
                                        nonresidents'
                        lottery winnings did not violate due process.
         The Sharps argue that their case is distinguishable from Couchot because the
                                            multi-
state lottery is just that--a multi-state lottery. However, the DOR points out that
                                          it is the
  Montana Lottery, not the MSLA, which bears the obligation to pay, and does pay, the
  Sharps the annual payments of their lottery winnings. The Montana Lottery is part
                                            of the
   state government of Montana. See        23-7-101 through -412, MCA. We conclude that
the Montana Lottery's participation in the multi-state lottery is inconsequential for
                        purposes of comparing this case with Couchot.
               The Couchot court also addressed the issue of whether taxation of a
                                        nonresident's
  lottery winnings violated the Commerce Clause due to an insufficient nexus between
                                              the
 State of Ohio and the winnings. The court reaffirmed the use of a physical-presence
     requirement test in analyzing such an issue. Stating that "the entire income
                                         received by
 Couchot, albeit paid over time in installments, is directly related to his physical
                                           presence
  in Ohio," the court found that the test was satisfied because Couchot purchased his
           winning ticket and redeemed it in Ohio. Couchot, 659 N.E.2d at 1230.
         In Stark, the Court of Special Appeals of Maryland considered a case in which
      Stark, a resident of the State of Washington, won $1,000,000 in the Maryland
                                           lottery.
   In the words of the court, "He is not complaining about that. What irks him, and
                                            has led
       to this appeal, is the Comptroller's attempt to tax him on $950,000 of his
                                          winnings."
                                   Stark, 554 A.2d at 459.
        Stark contended that only the first $50,000 payment on his lottery winnings was
subject to Maryland income tax. He argued that his subsequent annual payments on the
prize were not income from the State lottery, but were instead income from an annuity
which the State of Maryland had admittedly purchased to pay lottery winners and which
   was administered by a corporate entity in New Jersey. The Stark court stated the
                                             issue
 as whether the periodic payments to Stark constituted taxable earnings from a state
                                            lottery
    prize. After reviewing case law including Harvester and Couchot, the court held:
                 These cases make clear that a State may tax a nonresident not just on
             income earned from property in the State or a business carried on in the
            State but also from "events" or "transactions" occurring in the State, or
           from intangible property having a special "localization" within the State.
                   The domicile of the recipient is not necessarily controlling.
      Stark, 554 A.2d at 464. The court determined that a sufficient nexus had been

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 established between the State of Maryland and Stark's annual payments on his lottery
   winnings to validate the state's taxation of the payments. The Stark court held
                                         that the
state could tax the portion of winnings received after passage of the law authorizing
 taxation of State lottery winnings of nonresidents, even though those payments were
                                           made
  through the annuity purchased from a private corporation, because the payments were
traceable to an event or transaction which occurred in Maryland. Stark, 554 A.2d at
                                           464.
           Finding Couchot and Stark persuasive, we agree with the District Court's
determination that there is a sufficient connection between the State of Montana and
                                            the
   annual prize money the Montana Lottery pays to the Sharps to hold that the Sharps'
                       lottery prize is "income earned in Montana."
        The Sharps further object to application to this case of     15-30-246, MCA, a
                                           1993
amendment to Montana income tax law. They assert that application of this statute to
 them is impermissibly retroactive and amounts to ex post facto legislation and that
                                            it
violates their rights to due process. In the 1993 amendment, the Montana Legislature
                         adopted the following statutory language:
       It is the policy and intent of the legislature that lottery proceeds received by
             a person who redeems a ticket or chance to win a prize on a ticket or
           chance purchased in Montana under the provisions of Title 23, chapter 7,
           is Montana source income, notwithstanding the residence of the person or
             entity that redeems the ticket. This policy statement affirms that the
            legislature has always considered lottery proceeds to be Montana source
                                             income.

Section 15-30-246(1), MCA.    The Sharps argue that this is a policy statement, not a
                                           tax
  statute, and therefore does not have the effect of law. They also point out that a
legislature's attempt to declare the intention of a previous legislature is entitled
                                          to no
    weight. Section 15-30-246(2), MCA, further provides that lottery payments are
                                         subject
 to the state withholding tax. The Sharps contend that application of      15-30-246,
                                           MCA,
 to their case imposes retroactive tax liability upon them and violates Montana and
                                         federal
             constitutional guarantees of due process and equal protection.
       The DOR's response is that the Montana income tax has always taxed the Montana
   Lottery winnings of nonresidents. In any event, the DOR argues that the taxable
                                          event
    is the receipt of income in a particular year; and, therefore, taxation of that
                                      income is not
     retroactive. The DOR further maintains that it is constitutional to tax some
                                       property or
                activities differently from other property or activities.
         The District Court found it unnecessary to apply    15-30-246, MCA, in this
                                          case.
  The court instead based its ruling on the determination that the Sharps' lottery

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                                       payments
  are "income earned in Montana" under     15-30-105, MCA. We conclude that we need
not decide this issue, based on our conclusions above and because the District Court
                                          did
              not rely upon   15-30-246, MCA, in rendering its decision.
      We hold that the District Court did not err in ruling that the Sharps' annual
                                        lottery
payments are income earned in Montana from a state lottery prize. As such, they are
subject to an income tax by the State of Montana. We therefore affirm the decision
                                           of
                                 the District Court.
                                                    /S/ J. A. TURNAGE

                                                                            We concur:

                                                            /S/        WILLIAM E. HUNT, SR.

                                                                      /S/       JIM REGNIER

                                                              /S/       W. WILLIAM LEAPHART

                                                  Justice James C. Nelson dissenting.


       I dissent. In summary, Sharps' lottery payments are income from an annuity and
from intangible personal property. When Sharps became Washington residents in August
   1992, Montana law provided that income received by a nonresident from intangible
   personal property or from annuities was not subject to Montana state income tax
                                         unless
 earned in connection with a business, trade, profession, or occupation carried on in
 Montana. Since their lottery payments were not so earned, the Department of Revenue
  (DOR) was and is without authority to subject Sharps' lottery payments to Montana
                                          state
   income tax. The 1992 amendments to the tax code did not change Montana's historic
income-sourcing rules. Finally, under the majority's rationale, the State taxed and
                                            is
 taxing Sharps' property and income by an unconstitutional and unlawful retrospective
                        application of statutes enacted in 1992.
            As the majority points out, no Montana statute or administrative rule
                                      specifically
defines lottery proceeds as income from intangible personal property. Nevertheless,
                                           that
 is precisely the nature of the property that produces Sharps' income. Intangible
                                        property
þhas no intrinsic and marketable value, but is merely the representative or evidence
                                            of
    value, such as certificates of stock, bonds, promissory notes, copyrights, and
                                      franchises.þ
Blackþs Law Dictionary 809 (6th ed. 1990). Rather, an intangible is "a 'right' such
                                            as
  a patent, copyright, trademark, etc., or one which is lacking physical existence;
                                         such as

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     goodwill." Black's Law Dictionary 809 (6th ed. 1990). These definitions are
                                        consistent
 with the notion of intangible property as used in the Montana Code. For example,
                                           30-
9-106, MCA, defines "general intangibles" as including þthings in actionþ; and        70-
                                            2-
          101, MCA, defines þa thing in actionþ as þa right to recover moneyþ.
       Sharps' lottery income derives not from any real property or tangible personal
property interest, but, rather, from their intangible right under the Montana State
                                         Lottery
Act of 1985 (Title 23, Chapter 7, Montana Codes Annotated) to receive annual payments
 for purchasing a winning lottery ticket. Sharps maintain that this statutory right
                                            is
    actually a form of contract right since     23-7-311(5), MCA (right to prize not
                                        assignable
  but payable to estate or per judicial order) and      23-7-312, MCA (lottery winnings
  subject to Title IV-D child support lien) speak in typically contract terminology.
        They also argue, persuasively in my view, that their right to receive lottery
proceeds is in the nature of another form of intangible property right, an annuity.
                                            An
                                       annuity is:
               A right to receive fixed, periodic payment, either for life or for a
            term of years. [Citation omitted.] A fixed sum payable to a person at
                specified intervals for a specific period of time or for life.
                                               . . .
                 The payment or receipt of a series of equal amounts of money per
                            period for a specified amount of time.

  Black's Law Dictionary 90 (6th ed.1990).      Indeed, Multi-State Lottery Association
                                            Rule
    30.1, effective in Montana under    23-7-202(8), MCA, specifically characterizes
                                          lottery
  payments as annuities payable in twenty equal installments. Moreover, the Internal
    Revenue Service treats lottery winnings as annuities for purposes of valuing a
                                        decedentþs
  estate under I.R.C.     7520. See Tech. Adv. Mem. 96-37-006 (May 10, 1996), 1996 WL
                                         518910.
       Accordingly, whether viewed in terms of a contractual or statutory right or as
                                            the
    right to receive annuity payments, income from winning a lottery prize clearly
                                         derives,
not from any real property or tangible personal property interest, but from a thing
                                             in
                       action or from intangible personal property.
      Recognition of this legal principle is fundamental to a correct analysis of the
                                           issue
presented in this case because since 1933 Montana has taxed nonresidents only on that
 portion of their income from annuities and from intangible personal property that is
        derived from sources within Montana. Under      15-30-131(1), MCA (1991), a
       nonresident's income from intangible personal property is derived from or
                                     attributable to
  sources within Montana only to the extent the intangible property was employed in a

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business, trade, profession, or occupation carried on in this State. Specifically,
                                           this
                            section of the tax code provides:
              In the case of a taxpayer other than a resident of this state, adjusted
            gross income includes the entire amount of adjusted gross income from
           sources within this state but shall not include income from annuities,
      interest on bank deposits, interest on bonds, notes, or other interest-bearing
         obligations, or dividends on stock of corporations except to the extent to
              which the same shall be a part of income from any business, trade,
         profession, or occupation carried on in this state. Interest income from
       installment sales of real or tangible commercial or business property located
            in Montana must be included in adjusted gross income. Adjusted gross
          income from sources within and without this state shall be allocated and
                     apportioned under rules prescribed by the department.

                    Section 15-30-131(1), MCA (1991) (emphasis added).
           Similarly, DOR's administrative rule,    42.16.1113, ARM, provides that a
 nonresident's income from intangible personal property is not "sourced" within this
                                           state
unless earned in connection with a business, trade, profession or occupation carried
                                            on
                                in Montana. Specifically,
               (1) A nonresident's income from annuities; interest on bank deposits,
        notes, and other interest bearing obligations; dividends on capital stock of
          corporations, royalties from patents and copyrights; and all other income
             from intangible personal property is derived from or attributable to
           Montana sources only to the extent earned in connection with a business,
                    trade, profession, or occupation carried on in Montana.
               (2) Income from intangible personal property is earned in connection
       with a business, trade, profession, or occupation carried on in this state if
      the intangible personal property is employed as capital in this state or if the
        possession and control of the property has been localized in connection with
         the business, trade, or occupation carried on in this state so as to become
                                       an asset thereof.
                  (3) Interest income received by a nonresident on an installment
           transaction arising from the sale of real or tangible business property
             located in Montana shall be deemed to be income from sources within
         Montana, unless the item is properly excludable from federal gross income.


                        Section 42.16.1113, ARM (emphasis added).
         In 1992 a special legislative session adopted certain amendments to Title 15,
     Chapter 30, Montana Code Annotated. These amendments became effective August 6,
    1992. Section 9, Ch. 14, L., 1992. Section 15-30-131, MCA, was amended to read:
þIn the case of a taxpayer other than a resident of this state, adjusted gross income
   includes the entire amount of adjusted gross income as provided for in 15-30-111.þ
  Section 15-30-111, MCA, was not amended. It provides that adjusted gross income is
 an individual's federal adjusted gross income. Under      15-30-105, MCA (1992), a tax
 is imposed on the entire net income of nonresidents. However, after calculating the
                                           tax
imposed, the tax due and payable is determined based upon the ratio of "income earned
             in Montana" to total income. Section 15-30-105(1), MCA (1992).

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        While the phrase "income earned in Montana" is not defined, there is, neverthe-
less, nothing about these 1992 amendments to indicate that "income earned in Montana"
 was intended to have any different meaning than "income from sources within Montana"
 as used in the pre-1992 statutes. A close examination of these amendments leads to
                                              this
                                         conclusion.
       First, the title of Chapter 14 of the 1992 Laws of Montana, "An Act Revising the
        Method of Calculating the Individual Income Taxes Due From Nonresident and
Temporary Resident Taxpayers . . .", supports the conclusion that the amendments were
enacted to change the method of income tax calculation or income tax rate, as opposed
              to effecting a change in the decades-old source of income rules.
            Second, harmonizing the phrase "income earned in Montana" in       15-30-105,
       MCA (1992), with another section of the tax code pertaining to nonresident
                                          taxation,
    15-30-142(1), MCA, reveals that this phrase has the same meaning as "income from
  sources within Montana." Section 15-30-142(1), MCA, sets out the amount of income
  a nonresident must have before being required to file a tax return. This section
                                           was also
  amended by Chapter 14, but, here, the legislature retained the reference to income
   sources within Montana. Specifically, the nonresident must file a return if his
                                             gross
  income for the tax year derived from "sources within Montana" exceeds the amount of
 personal exemptions. Section 15-30-142(1), MCA (1992). Only if a nonresident has a
   certain threshold income from "sources within Montana" must he file a return under
  15-30-142(1), MCA, and proceed to calculate the amount of tax due and payable based
 upon the ratio of "income earned in Montana" to total income under          15-30-105, MCA.
 Thus, its use of similar language in         15-30-105 and 142(1), to describe the same
                                            thing-
      -income earned in or from sources within Montana-- is clear evidence of the
                                        legislature's
intention to retain the traditional source of income rules which had been in effect
                                               for
    nearly 60 years prior to the 1992 amendments. In fact, as Sharps point out, a
                                          different
  construction leads to the absurd result that a person without a filing obligation
                                             under
            15-30-142 could nonetheless have a tax liability under       15-30-105.
      Third, the history of the 1992 amendments to Title 15, Chapter 30 of the Montana
 Code Annotated, is devoid of any evidence that the legislature intended to change
                                               the
  historic source of income rules. Rather, the proceedings behind the adoption of
                                            Chapter
    14, clearly indicate that even DOR understood that the amendments were passed to
 correct a tax calculation problem in the pre-1992 statutes that caused residents and
    nonresidents to fall under disparate and divergent tax brackets. See Bostick v.
         Department of Revenue (Mont. Tax App. Bd. March 17, 1995), 1995 WL 147895
                (summarizing the legislative history of the 1992 amendments).
         Finally, DOR's administrative rule,       42.16.1113, ARM, cited above, remains in
   effect even today. As the majority acknowledges, this rule has not been amended
                                             since
 1983. Obviously, had the legislature actually changed the source of income rules in
                                               the

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    1992 amendments, DOR, being no doubt mindful of Bick v. State, Dept. of Justice
 (1986), 224 Mont. 455, 730 P.2d 418, would have, likewise, amended this rule years
                                               ago
and the agency would have adopted some test other than traditional income sourcing.
                                               Not
   only has it not done so, but DOR's instructions to taxpayers on the 1992 Montana
                                            Income
  Tax Return booklet--the very year that the source of income rules apparently were
                                              done
   away with--and such instructions in each year since, have advised taxpayers that
 "[i]ntangible income, not related to a Montana business, is nontaxable." Clearly,
                                               the
 nonresident income-sourcing rules of the pre-1992 tax code were not changed by the
                                              1992
    legislative amendments. Importantly, even DOR believed that to be the case and
                                 apparently still does.
          Sharps are absolutely correct in their assertion that where their lottery
                                        ticket was
purchased and redeemed; where their first payment was received; and the location from
     which subsequent payments were mailed, are wholly irrelevant to the statutory
interpretation issue which is at the heart of the matter before this Court. Neither
                                          the pre-
    1992 nor the 1992 statutory scheme had anything whatsoever to do with "contact"
   counting, as the majority puts it. The legislature had for decades opted to tax
   nonresidents on income from intangible property and annuities under a carefully
                                           crafted
  and very specific sourcing test; the 1992 amendments did not change that. To now
   interpret these clear and unambiguous statutory criteria by counting "contacts"
                                         which are
     not part of the statute, makes about as much sense as the blind man trying to
                                      describe the
                        elephant's trunk by reference to a tree.
         There is no legal justification or basis in Montana law for the majority's
                                          contact-
counting approach adopted in this case.         Montana's statutes provide the appropriate
                                             basis
      for analysis and that basis involves application of well-established income-
                                     sourcing rules.
 The obvious error of our disregarding these well-established rules and in adopting
                                           contact
counting is demonstrated by a simple example. If I, as a Montana resident, purchased
 General Motors stock in 1991 at a brokerage house in Billings and received the first
dividend payment while residing in that city, future dividends will now be subject to
  Montana income tax notwithstanding that I became a Washington resident in 1992. I
cannot believe that the 1992 Legislature envisioned such an absurd result or that DOR
   ever anticipated such a financial windfall when the 1992 amendments were enacted.
        Furthermore, I do not agree with the majority that the reasoning of Couchot v.
    State Lottery Comm. (Ohio 1996), 659 N.E.2d 1225, International Harvester Co. v.
  Wisconsin Dept. of Taxation (1944), 322 U.S. 435, 64 S.Ct. 1060, 88 L.Ed. 1373, or
 Stark v. Comptroller (Md.Ct.Spec.App. 1989), 554 A.2d 458 support its decision. In
                                               the
  first place, these cases did not address the sort of statutory scheme that was in

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                                        effect in
Montana during 1991 and 1992--a statutory scheme which did not allow for the taxation
of income from annuities and from intangible personal property of nonresidents unless
   that income was derived from sources within Montana. The 1992 amendments did not
change that scheme. Since the court in Couchot addressed only the effect of statutes
                                            that
were subsequently amended to specifically provide for taxation of nonresident lottery
                           winnings, the case is not on point.
        As to International Harvester, the property of Sharps being taxed--i.e., their
annuity income and their income from intangible personal property--was not located in
 and was not sourced within Montana after 1991 under this State's statutory scheme.
       Accordingly, the rule cited with approval by the majority is inapplicable.
          Finally, as to Stark, the opinion addresses only those payments which the
                                         taxpayer
 received after the adoption of statutory amendments expressly imposing a tax on the
 nonresident winners of the state lottery. Again, as with Couchot and International
  Harvester, the case is inapplicable. The 1992 amendments to Montana's law did not
                                           effect
    any change from the 1991 law which, clearly, did not tax nonresident annuity and
intangible property income except to the extent such income was sourced in this State
                under the business, trade, occupation or profession test.
        To summarize then, after Sharps became residents of Washington in August 1992,
    under Montana law then in effect, the income from their lottery payments, being
                                           income
 from an annuity and from intangible personal property, was subject to Montana income
    tax only to the extent such payments were earned in connection with a business,
                                           trade,
     profession or occupation carried on in Montana. Since their lottery payments
                                         received
after August 1992--i.e., the December 1992 and subsequent payments--were undisputedly
    not so earned and were, thus, not sourced within this State, Montana was and is
                                          without
 authority to tax such payments. The 1992 amendments to the tax code did not change
                         these historic income- sourcing rules.
        This brings us to the second error of the majority's decision in the case at
                                            bar.
   Assume, for purposes of this discussion only, that the 1992 special session did
                                       intend and
 did effect the fundamental change in the nonresident income-sourcing rules that the
  majority seems to believe resulted from the 1992 amendments. Because such amend-
ments were not effective until August 6, 1992, and expressly apply only to tax years
                                           after
    December 1991 (    9 & 10, Ch.14, L. 1992), Sharps' December 1992 and subsequent
  years' lottery payments were not, using the majority's contact-counting approach,
                                          "earned
 in Montana" under     15-30-105, MCA (1992).     Furthermore, any attempt to apply such
  amendments to the 1991 contact events on which the majority relies as constituting
      Sharps' "earning" of their lottery income violates Montana's constitutional
                                       prohibition
     against retrospective legislation found at Article XIII, Section 1(3), which
                                     provides: þThe
 legislature shall pass no law retrospective in its operations which imposes on the

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                                         people
     a new liability in respect to transactions or considerations already passed.þ
      Finally, while the majority judiciously chooses to avoid addressing the host of
                                          legal
    and federal and state constitutional infirmities inherent in    15-30-246, MCA
                                      (1993), the
passage of this legislation begs an obvious question, the equally obvious answer to
                                          which
further highlights the underlying error of the majority's opinion. If the intent of
                                        the 1992
special session and the effect of the 1992 amendments were in truth as clear as DOR
                                           and
 the majority now proclaim them to be--i.e., if the source-of-income rules were, in
                                          fact,
done away with by the 1992 amendments--why, then, would the legislature, less than a
    year later, find it necessary to affirm that it had þalways considered lottery
                                      proceeds to
  be Montana source income"?    Section 15-30-246, MCA (1993). The answer, of course,
  is that the legislature had not always considered lottery payments to be Montana
                                         source
 income and that this gaping hole in the tax code was discovered only after the 1992
 amendments went into effect--most likely by DOR when Sharps filed their 1992 income
  tax return. To paraphrase the quote from Stark cited by the majority, DOR was not
 complaining that Sharps won the lottery; what irked the agency was that Montana law
                  didn't allow the State to tax Sharps' good fortune.
             On the undisputed facts here and on what I believe is the correct
                                   interpretation of
 the applicable law, I would hold that Sharps' lottery payments were not and are not
    subject to Montana state income tax subsequent to their change of residence to
   Washington in August 1992. Moreover, I conclude that under the contact-counting
approach adopted by the majority here, the 1992 amendments to the tax code are being
 unlawfully and unconstitutionally applied retrospectively to the Sharps. I would
                                        reverse,
                       and I dissent from our failure to do so.
                                                        /S/ JAMES C. NELSON

   Justices Karla M. Gray and Terry N. Trieweiler concur in the foregoing dissent.

                                                                                                                    /S/   KARLA M. GRAY

                                                                                                            /S/      TERRY N. TRIEWEILER




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