                              No.     90-584

              IN THE SUPREME COURT OF THE STATE OF MONTANA




GBN, INC. ,
          Petitioner and Appellant,


THE MONTANA DEPARTMENT OF REVENUE,
          Respondent and Respondent.



APPEAL FROM:      District Court of the First Judicial District,
                  In and for the County of Lewis and Clark,
                  The Honorable Dorothy McCarter, Judge presiding.


COUNSEL OF RECORD:
          For Appellant:
                  Kenneth R. Neill; Larsen      &   Neill, Great Falls,
                  Montana.
          For Respondent:
                  Geralyn Driscoll, Department of Revenue, Helena,
                  Montana.


                                    Submitted on Briefs:   June 28, 1991
                                                Decided:   August 1, 1991
Filed:



                                 Clerk
Justice Karla M. Gray delivered the Opinion of the Court.

      Pursuant to 5 15-2-303, MCA, GBN, Inc., (GBN) petitioned the
District Court of the First Judicial District, Lewis and Clark
County, for judicial review of a decision by the State Tax Appeal
Board (STAB).          STAB upheld the decision of the Department of
Revenue which disallowed, in accordance with the Department's
interpretation of 5 15-31-114 (2)(b)(iv), MCA (1987) (recodified,
but not substantively amended, as 5 15-31-119(8), MCA (1989)) , a
net operating loss deduction from taxable income claimed by GBN on
its corporate license tax return for its tax year ending March 31,
1988.      The    District Court     affirmed   the     findings    of   fact,
conclusions of law and order of STAB.           From that judgment, GBN
appeals.    We affirm.
     GBN raises the following issues on appeal:
     1.    Does 5 15-31-114(2) (b)(iv), MCA (1987), expressly prohibit
a   deduction     by    the   surviving   corporation    in   a    merger   of
corporations for net operating losses it sustained prior to the
date of the merger?
     2.    Does 9 15-31-114(2) (b)(iv), MCA (1987), unconstitution-
ally discriminate against the surviving corporation in a merger of
corporations?
     The factual circumstances giving rise to this appeal are not
in dispute.      During the corporate tax year ending March 31, 1988,
GBN and Rock, Inc. entered into a merger, with GBN as the surviving
corporation. Prior to the merger, GBN and Rock, Inc. sustained net
operating losses of $39,546 and $100,127 respectively.      After the
merger, GBN, on November 16, 1988, filed under protest its state
corporate license tax return for the corporate tax year ending
March 31, 1988 and reported a tax liability of $6,038 and interest
of $181.   On its return, GBN claimed it was entitled to a net
operating loss carry forward of $89,467 as a deduction from taxable
income.
     On November 28, 1988, the Department of Revenue notified GBN
that it had disallowed the deduction for net operating losses
sustained by both GBN and Rock, Inc.    The Department assessed GBN
$7,185.51, which included a tax liability of $6,039 along with
interest of $543.51 and a penalty of $603.
     GBN sought and received an informal conference with the
Department on May 17, 1989. By letter dated May 26, 1989, GBN was
notified that the Department's final decision in the matter was to
disallow the deduction for net operating loss carry forward.      On

June 19, 1989, GBN appealed the Department's final decision to STAB
challenging the interpretation and constitutionality of 5 15-31-
114(2)(b)(iv),    MCA (1987).   STAB entered its findings of fact,
conclusions of law and order on March 20, 1990. STAB affirmed the
Department's interpretation of     15-31-114(2)(b)(iv),   MCA (1987),
as disallowing a deduction by the surviving corporation of the net
operating losses sustained by the merged corporations prior to the
date of the merger. STAB declined to address the constitutionality
of the statute.
     On May 11, 1990, GBN petitioned the District Court of the
First Judicial District, Lewis and Clark County, to review STAB'S
decision pursuant to the provisions of 5 15-2-303, MCA. The matter
was submitted on agreed facts.    On October 23, 1990, the District
Court rendered its decision and order affirming STAB'S findings of
fact, conclusions of law and order.       In addition, the District
Court held   that   5   15-31-114(2)(b)(iv),    MCA   (1987), did   not
unconstitutionally discriminate against the surviving corporation
of a corporate merger.


     Does 5 15-31-114 (2)(b)(iv), MCA (1987), expressly prohibit a
deduction by the surviving corporation in a merger of corporations
for net operating losses it sustained prior to the date of the
merger?
     Section 2-4-704, MCA, sets forth the statutory standards for
judicial review of administrative decisions.           This Court has
interpreted 5 2-4-704, MCA, to mean that an agency's findings of
fact are subject to a "clearly erroneousffstandard of review while
an agency's conclusions of law will be upheld if the agency's
interpretation of law is correct. Steer, Inc. v. Dept. of Revenue
(Mont. 1990), 803 P.2d 601, 603, 47 St.Rep. 2199, 2200.      GBN does
not challenge STAB'S findings of fact.         It asserts that STAB'S
interpretation of 5 15-31-114(2)(b)(iv), MCA (1987), is incorrect.
That statute provides that:
          In the case of a merger of corporations, the
     surviving corporation shall not be allowed a net
       operating loss deduction for net operating losses
       sustained by the merged corporations prior to the date
       of merger.     In the case of a consolidation of
       corporations, the new corporate entity shall not be
       allowed a deduction for net operating losses sustained
       by the consolidated corporations prior to the date of
       consolidation.
       GBN asserts that although the language of the statute refers
to the merged corporations in the plural, the legislature could
well    have   intended to prohibit   loss carry   forward    for the
disappearing corporation only.        It argues that    a plausible
construction of the statute is that Itmerged corporationsttrefers
only to the corporations which cease to exist after a merger.
       The rules of statutory construction require the language of
a statute to be construed according to its plain meaning.       If the
language is clear and unambiguous, no further interpretation is
required. Boegli v. Glacier Mountain Cheese Co. (1989), 238 Mont.
426, 429, 777 P.2d 1303, 1305.   Here, there is no basis for arguing
legislative intent because the plain language of the statute
clearly and unambiguously precludes pre-merger net operating loss
deductions.      The   statute expressly prohibits    the    surviving
corporation from carrying forward net operating losses incurred by
the corporations prior to merger.
       The application of the statute to GBN and Rock, Inc. exhibits
the clarity of      the   legislaturels intent when   enacting this
provision:
            In the case of a merger of corporations [GBN and
       Rock, Inc.], the surviving corporation [GBN] shall not
       be allowed a net operating loss deduction for net
       operating losses sustained by the merged corporations
      [GBN and Rock, Inc.] prior to the date of the merger.
Accordingly,        we   hold    that      the     administrative   agency's
interpretation of the statute was correct.


      Does   §    15-31-114(2)(b)(iv),     MCA (1987), unconstitutionally
discriminate against the surviving corporation in a merger of
corporations?
      In addressing a constitutional challenge to any statute, the
statute is presumed to be constitutional and the challenging party
has the burden of establishing the statute's unconstitutionality.
Harper v. Greely (1988), 234 Mont. 259, 269, 763 P.2d 650, 656.
If   a doubt exists,        it is to be          resolved in favor of   the
legislation.       Harper, 234 Mont. at 269, 763 P.2d at 656.
     GBN asserts that 5 15-31-114(2) (b) (iv), MCA (1987), violates
the due process and equal protection clauses of the Montana and
United States constitutions. It argues that no distinction exists
which would justify a separate and different classification for
merged corporations.
     A general rule of taxation is that an item may constitute a
deduction only when the legislature specifically establishes the
deduction.       Cyprus Mines Corp. v. Madison County (1977), 172 Mont.
116, 118, 560 P.2d 1342, 1343.           Therefore, tax deductions are not
constitutionally mandated, but rather are a matter of legislative
determination.       Consequently, because the tax classification at
issue in this case relates to the deductibility of certain net
operating losses, which is strictly a matter of legislative
determination, the proper test for the validity              of the tax
classification     is   the    rational   basis   test.      See    Montana
Stockgrowers Assfn v. Dept. of Revenue (1989), 238 Mont. 113, 117,
777 P.2d   285, 288.      A tax statute satisfies equal protection
analysis   under    the   rational    basis   test   if     (1)    the   tax
classification is reasonable, not arbitrary; and (2) the statute
applies equally to all who fall within the same classification.
Lehnhausen v. Lakeshore Auto Parts Co. (1973), 410 U.S. 356, 360-
64, 93 S.Ct.     1001, 1004-06, 35 L.Ed.2d        351, 355-58; Montana
Stockarowers, 238 Mont. at 117-18, 777 P.2d at 288-89.
     In Montana Stocksrowers, this Court reaffirmed that the
legislature has the authority to create tax classifications and
acknowledged judicial deference to the legislative determination
establishing a particular tax classification.             ~uoting earlier
cases, we stated:
          "Equal protection of the law is seldom, if ever,
     obtained; and because of the very frailty of human
     agencies, the authorities all recognize the right of the
     legislative branch of government to make reasonable
     classifications of subjects, for property or occupation
     taxes * * * and if the classification is reasonable, and
     if all of the subjects within a siven class are accorded
     the same treatment, the legislation cannot be said to
     deny to anyone within such class the equal protection of
     the law, even though the burden imposed upon him may be
     more onerous than that imposed upon a member of another
     class. ...    " (Emphasis in original.)
Montana Stocksrowers, 238 Mont. at 118, 777 P.2d at 288-89.
     Section 15-31-114 (2) (b)(iv), MCA       (1987), satisfies equal
protection analysis.          There are plausible policy reasons for
legislative reluctance to allow the carryover of tax deductions in
mergers.        Disallowing the carryover of tax deductions prevents
larger, profitable corporations from gaining a tax advantage by
acquiring another corporation's losses.              In addition, it is
reasonable to attribute to the legislature the intent to encourage
the continued existence of smaller corporations which have less
ability than do large corporations to take advantage of substantial
tax shelters and other means of avoiding taxation.            An apparent
effect of the statute is to increase revenue to the State from the
net operating losses that the merged corporations would have been
able to deduct prior to the date of merger. However, the fact that
the State receives increased revenue as a result of a reasonable
tax classification does not affect the validity of the legislation.
     GBN points to the statute's deviation from federal tax law as
a basis for the statute's invalidity.          Whether the net operating
losses     in    question   are   deductible   for   federal purposes   is
irrelevant.       Federal tax law does not preempt the area of state
taxation; the fact that the Montana Legislature chooses not to
classify an item in the same manner as Congress does not make the
classification unreasonable. In Lazy JD Cattle Co. v. State Board
of Equalization (1972), 161 Mont. 40, 46, 504 P.2d 287, 290, this
Court recognized that the legislature enacted legislation governing
net operating loss deductions without reference to federal law "in
an effort to create a balanced, reasonable tax structure."
     With respect to the second prong of equal protection analysis,
it is clear that 5 15-31-114(2) (b) (iv), MCA (1987), applies equally
to all entities falling within the same classification.            The
statute prevents all merged corporations from deducting pre-merger
net operating losses.
     We hold that 9      15-31-114 (2) (b)(iv), MCA   (1987), does not
unconstitutionally discriminate against the surviving corporation
in a merger of corporations.




We concur:

    A-7w7-
       Chief Justice




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