                                                               No. 12199

                                 I N THE SUPREME COURT OF THE STATE OF M N A A
                                                                        OTN




                       PETER KIEWIT SONS ' CO.             ,
                       a Corporation,

                                                      P l a i n t i f f and    Appellant,



                       STATE BOARD OF EQUALIZATION OF THE
                       STATE OF MONTANA, J . MORLEY COOPER,
                       Chairman, JOHN C. ALLEY AND RAY J .
                       WAYRYNEN, a s members t h e r e o f ,

                                                      Defendants and Respondents.



                       Appeal from:         D i s t r i c t q o u r t of t h e F i r s t J u d i c i a l D i s t r i c t ,
'.   \   ,
             .-. . _                          -.
                                            Honorable          bvr       H. F a l l , Judge p r e s i d i n g .
                       ? ~ u ~ ~ s E J . !Record. ~
                                          .--~o :

                            For Appellant:                                      \.
                                    G a r l i n g t o n , Lohn and Robi-nson
                                    Sherman V. Lohn and Lawrence
                                     Missoula, Montana.
                                                                                 '
                                                                                     a'.
                                                                                         M i s s o u l a , Montana.
                                                                                          Daly a r g u e d ,


                                    Amicus C u r i a e
                                    S c o t t P. Crampton and G i l b e r t E . Andrews, Washington,
                                     D. C.
                                    Bruce I. Kogan a r g u e d , Washingtori, D. C.

                            For Respondents:

                                    Poore, McKenzie & Roth, B u t t e , Montana.
                                    Robert A. Poore a r g u e d , B u t t e , Montans.
                                    J e n e B e l l appeased, Helena, Montana                  .
                                                                          Submitted:          NOV-mber
                                                                                                     27, 1972

                                                                              Decided:             ; $ l ,(i
                       Filed :
                                                1
h r . J u s t i c e WesLey C a s t l e s d e l i v e r e d t h e Opinjon o f t h e Court.


         T h i s i s an a p p e a l from a judgment of t h e d i s t r i c t c o u r t of

the Cilst: j u d i c i a l d i s t r i c t , county of Lewis and C l a r k .

         I n February and March 1971, p l a i n t i f f P e t e r Kiewit s o n s '
Cu.   paid a t o t a l of $8,726.47 a s g r o s s r e c e i p t s t a x payments i n

compliance w i t h Chapter 35, T i t l e 84, R.C.M.                      1947.      A t t h e same
t i m e , p l a i n t i f f a l s o f i l e d l e t t e r s of p r o t e s t w i t h defendant S t a t e
Board of E q u a l i z a t i o n c h a l l e n g i n g t h e v a l i d i t y of t h e p u b l i c
c u n t r a c t o r s ' l i c e n s e a c t and demanded r e f u n d of t h e payments.
Within s i x t y days p l a i n t i f f proceeded t o b r i n g an a c t i o n i n
 he d i s t r i c t c o u r t s e e k i n g t o have Chapter 35, T i t l e 8 4 , R.C.M.

1947, d e c l a r e d i n v i o l a t i o n of t h e laws and C o n s t i t u t i o n of t h e
s t a t e of Montana and t h e C o n s t i t u t i o n of t h e United S t a t e s , t o
o b t a i n r e f u n d of a l l t a x e s and f e e s r e m i t t e d t o t h e s t a t e of
Xontana under t h e c h a p t e r i n q u e s t i o n .

         The d i s t r i c t c o u r t , s i t t i n g w i t h o u t a j u r y , found t h e pro-

v i s i o n s of Chapter 35, T i t l e 84, R.C.M.                1947, d i d n o t v i o l a t e

t h e laws o r C o n s t i t u t i o n of Montana n o r t h e C o n s t i t u t i o n of t h e
United S t a t e s .     Judgment was e n t e r e d f o r d e f e n d a n t .        Plaintiff

f i l e d motions t o amend t h e f i n d i n g s of f a c t and c o n c l u s i c n s of
Law and f o r a new t r i a l ,         which were denied by t h e t r i a l c o u r t .
From t h e judgment and o r d e r denying t h o s e motions, p l a i n t i f f

appeals.

         I n a d d i t i o n t o b r i e f s and argument i n t h i s Court by c o u n s e l
t o r che p a r t i e s , a b r i e f and o r a l argument was p r e s e n t e d by t h e
United S t a t e s government a s amicus c u r i a e i n s u p p o r t of p l a i n -
t i f f ' s position.

         W f e e l a t t h i s p o i n t t h a t a b r i e f h i s t o r y of t h e Act i n
          e
q u e s t i o n would b e h e l p f u l .    The i n i t i a l v e r s i o n of what became
Chapter 35, T i t l e 84, R.C.M,               1947, was passed by t h e Montana
l e g i s l a t u r e i n 1935.    I t r e q u i r e d t h e l i c e n s i n g by t h e s t a t e of

                   d e a l i n g w i t h t h e s t a t e o r any of i t s p o l i t i c a l sub-

J i - v i s i o n s ; f e d e r a l c o n t r a c t o r s were excluded from t h e Act,
           In ;.larch 1965, in a n at'iemyt t o e n s u r e t h e payment of s t a r e

and l o c a l t a x e s by c o n t r a c t o r s working i n t h e s t a t e , Chapter 2 7 7 ,
L a w s 1965, was passed by t h e l e g i s l a t u r e .                   The problem a r o s e because

some c o n t r a c t o r s working i n t h e s t a t e d i d n o t r e p o r t a l l of t h e i r

equipment t o county t a x a s s e s s o r s , who were a t t e m p t i n g t o impose
~ u u n t yp r o p e r t y t a x on t h o s e contractors,                  A l s o , some c o n t r a c t o r s

working i n t h e s t a t e would n o t f i l e c o r p o r a t e o r p e r s o n a l income

t a x r e t u r n s which would have f a i r l y r e f l e c t e d t h e i r b u s i n e s s p r o f i t s

from w i t h i n t h e s t a t e .
           Chapter 2 7 7 , Laws 1965, imposed a I%t a x upon g r o s s r e c e i p t s

(3)'   a l l nonresident public contractors operating within the s t a t e .
I n A p r i l 1965, t h e c o n s t i t u t i o n a l i t y of Chapter 277, Laws 1965,

w a s r a i s e d t o t h i s Court and t h e Court found i t t o be u n r e a s o n a b l e

d i s c r i m i n a t i o n and r u l e d i t u n c o n s t i t u t i o n a l .   S t a t e ex r e l . Schultz-
Lindsay v . Board of E q u a l i z a t i o n , 145 Mont. 380, 403 P. 2d 635.
           I n 1967, t h e Montana l e g i s l a t u r e a g a i n attempted t o work

o u t a s o l u t i o n t o t h e problem of c o n t r a c t o r s n o t paying t h e i r
taxes.        That l e g i s l a t u r e e n a c t e d a revenue e n f o r c i n g measure de-

signed t o o p e r a t e hand i n hand w i t h ~ o n t a n a ' sl o n g - s t a n d i n g p e r s o n a l
p r o p e r t y t a x and income t a x , t o e n s u r e more e f f e c t i v e t a x c o l l e c -

t i o n and reduce t a x avoidance.                     I t t h e n passed an amendment t o
:hi< 1935 l i c e n s i n g a c t whicll r e q u i r e d a 1% a x upon a l l r e c e i - p t s
                                                             t
of p u b l i c c o n t r a c t o r s i n t h e s t a t e , i n c l u d i n g both r e s i d e n t and
n o n r e s i d e n t c o n t r a c t o r s , c o v e r i n g a l l p u b l i c works w i t h i n t h e

s t a t e i n c l u d i n g c o n s t r u c t i o n done by t h e United S t a t e s government.
          The revenue e n f o r c i n g measure was e n a c t e d i n an a t t e m p t t o

r e q u i r e some of t h e c o n t r a c t o r s working i n t h e s t a t e t o meet t h e i r

Cax r e s p o n s i b i l i t i e s .   The mechanics of t h e measure a r e b e s t
v~nderstoodb y t a k i n g , a s an example, t h e Kiewit c o n t r a c t f o r p a r t
31
 1     t h e >fontma Libby D m p r o j e c t .
                            a                                The c o n t r a c t was g i v e n t o
Xiewit because i t was t h e lowest r e s p o n s i b l e b i d d e r .                      The con-
i:ractor t h e n e n t e r e d on t h e performance of i t s c o n t r a c t and a s t h e
work progressed i t r e c e i v e d payments from t h e landowner.                                  It paid
L;L of &,uch r e c e i p r s t-o t h e a t a t e Goaid of Eq1.ializati.cn.                      I n such

ndnner Kiewit has p a i d o r w i l l pay 1%of approximately 6.4 m i l l i o n

d o l l a r s o r about $64,000 t o t h e S t a t e Board of E q u a l i z a t i o n ,

          This fund i s h e l d t o t h e c r e d i t of i < i e v ~ i t an a c c o u n t i n g
                                                                       on

.,ysi:d~n adopted by t h e S t a t e Board.                 The Act o p e r a t e s i n t h e n a t u r e
~f a w i t h h o l d i n g o r prepayment program f o r Montana p r o p e r t y and

income t a x e s .       I n t h i s c a s e , Kiewit h a s s u f f i c i e n t items of heavy
equipment working on t h e job a t Libby t o i n c u r and pay a p e r s o n a l
p r # ~ p e r t ya x of $35,803.22.
                t                               Kiewit i s e n t i t l e d t o a d o l l a r f o r

8do:lar     c r e d i t and a c t u a l refund f o r such p e r s o n a l p r o p e r t y t a x e s

k r o m i t s fund c r e a t e d    with t h e S t a t e Eoard i n 1971 by i t s payment
~f t h e 1% r o s s r e c e i p t s t a x .
           g                                        So any time i n 1971, a f t e r having
p z i d t h e p e r s o n a l p r o p e r t y t a x e s Kiewit c o u l d , upon showing proof

~f such payments of p e r s o n a l p r o p e r t y t a x e s , r e c e i v e a refund of
r h c payments o u t of t h e 1% r o s s r e c e i p t s t a x .
                                g                                               Not only could

K i e w i t o b t a i n r e f u n d s of p e r s o n a l p r o p e r t y t a x e s p a i d i n L i n c o l n

S o ~ n t y t t h e job s i t e , b u t could a l s o have t h e same b e n e f i t s f o r
           a
a n y p e r s o n a l p r o p e r t y t a x e s p a i d by i t t h a t y e a r , a n p ~ h e r ei n

Pion tana   .
          Payments on t h e job and t h e c o r o l l a r y 1% a x t h e r e o n may
                                                              t
~ ~ s ,nure r a p i d l y than p e r s o n a l p r o p e r t y t a x e s a r e due o r may
      u ~ e

zxceed t h e amount of such t a x e s .                  I n t h a t e v e n t , t h e remainder of

the 1%fund t o t h e c o n t r a c t o r ' s c r e d i t a t t h e S t a t e Board may be
used t o pay, d o l l a r f o r d o l l a r , t h e c o n t r a c t o r ' s income t a x e s .

Lf r e f u n d s of t h e p e r s o n a l p r o p e r t y t a x e s have n o t consilmed t h e

1% r o s s r e c e i p t s t a x payments t o t h e S t a t e Board, t h e c o n t r a c t o r
  g
can t a k e d o l l a r f o r d o l l a r c r e d i t d i r e c t l y a g a i n s t h i s t a x f o r
the b a l a n c e of g r o s s r e c e i p t s t a x s t i l l remaining t o h i s c r e d i t

at t h e S t a t e Board.

          'Mr~eret h e r e i s heavy equipment s u b j e c t t o p r o p e r t y t a x and/
or r i e i income t a x on a job and t h e taypayer c l a i m s t h e r e f u n d s o r
credits,        t h e g r o s s r e c e i p t s t a x washes i t s e l f o u t .       The A c t , a s
can be seen from t h e c r e d i t s procedure, was i n t e n d e d a s an i n -
c e n t i v e t o p u b l i c c o n t r a c t o r s t o d e c l a r e t h e i r items of p e r s o n a l
p r o p e r t y Cer taxation.          I t a l s o encourages c o n t r a c t o r s t o more

f a i r l y a l l o c a t e o u t - o f - s t a t e home o f f i c e overhead expenses, i n
p a r t a t l e a s t , t o Montana.

           I t i s t r u e t h a t t h e Act i n p r a c t i c e t o d a t e h a s n o t r e s u l t e d
in   .A   totrai - s h o u t    of t h e 1% r o s s r e c e i p t s payments,
                                           g                                             It does

appear t h a t one of t h e r e a s o n s f o r t h i s f a i l u r e i s t h a t t h e

f e d e r a l government h a s i n s e r t e d a c l a u s e i n some of t h e f e d e r a l

c o n t r a c t s which p r o h i b i t s a c o n t r a c t o r from t a k i n g t h e r e f u n d s and
c r e d i t s a v a i l a b l e t o him.    Such a c l a u s e was i n t h e c o n t r a c t

Kiewit had w i t h t h e f e d e r a l government.                Clause 5 8 ( f ) of t h a t
contract reads:

           "The Act (R.C.IJI., 1947, s e c . 55-3514) a l l o w s t h e
           l i c e n s e f e e based on g r o s s r e c e i p t s t o be used a s a
           c r e d i t on: (I) t h e C o n t r a c t o r ' s c o r p o r a t i o n l i c e n s e
           t a x (R.C.M. , 1947, T i t l e 84, Chapter 15) o r on
           C o n t r a c t o r ' s income t a x (R.C.M., 1947, T i t l e 84,
           Chapter 4 9 ) , depending upon t h e t y p e of t a x t h e Con-
           t r a c t o r ( o r s u b c o n t r a c t o r ) i s r e q u i r e d t o pay under
           t h e laws of t h e S t a t e of Montana; and ( 2 ) p e r s o n a l
           p r o p e r t y t a x e s p a i d i n Montana on p e r s o n a l p r o p e r t y of
           t h e C o n t r a c t o r ( o r s u b c o n t r a c t o r ) which i s used i n t h e
           b u s i n e s s of t h e C o n t r a c t o r and i s l o c a t e d w i t h i n t h e
           ,State. The C o n t r a c t o r , and. i n t u r n , t h e s u b c o n t r a c t o r s
           w i l l n o t t a k e advantage of t h e s e c r e d i t s . " (Emphasis
           added).

T h i s p r o h i b i t i o n by t h e f e d e r a l government i s of n e c e s s i t y p a r t
of t h e r e a s o n t h e r e i s a s u r p l u s of t h e revenue of t h e g r o s s

receipts tax.

           As f o r o t h e r r e a s o n s why t h e Act i s n o t a t o t a l wash i t e m ,
t h e d i s t r i c t c o u r t , upon h e a r i n g t h e e v i d e n c e , found t h a t some of

the c o n t r a c t o r s were n o t aware of t h e c r e d i t a v a i l a b l e t o them

and some were simply i n d i - f f e r e n t t o t h e u s e of t h e i r c r e d i t s ,

In i t s f i n d i n g of f a c t No, 1 7 , t h e d i s t r i c t c o u r t s a i d :
           I '-1.    -L
                4b   4b That t h e p r e s e n t r e s i d u e of t a x w i t h t h e
                          -1-
                           8b


           S t a t e Board o r S t a t e of Montana i s n o t f a i r l y
           r e p r e s e n t a t i v e of how t h e t a x i s l i k e l y t o o p e r a t e
           i n f u t u r e y e a r s , 11
There has been n o t h i n g p r e s e n t e d t o t h i s Court on a p p e a l which

would change t h e f i n d i n g of t h e d i s t r i c t c o u r t and i t i s c l e a r
t h a t t h i s Act i s i n t e n d e d t o o p e r a t e a s a revenue e n f o r c i n g
          A p p e l l a n t ' s p r i n c i p a l argument i s t h a t a t a x which i s
placed s o l e l y on p u b l i c c o n t r a c t o r s i s d i s c r i m i n a t o r y .   I t main-
t a i n s t h e only d i f f e r e n c e between p u b l i c c o n t r a c t o r s and p r i v a t e
c o n t r a c t o r s i s t h e s t a t u s of t h e p a r t y f o r whom t h e c o n t r a c t o r
i s working.          Such a d i f f e r e n c e , i n a p p e l l a n t ' s view, i s n o t
s u f f i c i e n t t o j u s t i f y t h e imposj-tion of t h e t a x ,




t h e i s s u e of t a x d i s c r i m i n a t i o n .


n o t on o t h e r s , a s long a s
cations" a r e not permitted.
                                            Il




                                                      +
          Since t h a t was t h e same p o i n t r a i s e d i n Schultz-Lindsay,
a review of t h a t d e c i s i o n w i l l g i v e u s a view of Montana law on
                                                           There, we s t a t e d t h a t t h e
l e g i s l a t u r e may impose a l i c e n s e t a x on c e r t a i n occupations and
                                                 a r b i t r a r y and unreasonable c l a s s i f i -
                                                      Schultz-Lindsay p . 398.
          I n Schultz-Lindsay a t p. 390, t h e Court c i t i n g S t a t e v ,
Sunburst Refining Co., 73 Mont. 68, 235 P. 428, s t a t e d t h a t i n
making such c l a s s i f i c a t i o n s :
         "'Equal p r o t e c t i o n of t h e law i s seldom, i f e v e r ,
         o b t a i n e d ; and because of t h e v e r y f r a i l t y of human
         agencies, the a u t h o r i t i e s a l l recognize the r i g h t
         of t h e l e g i s l a t i v e branch of government t o make
         r e a s o n a b l e c l a s s i f i c a t i o n s a £ sulnjects f o r p r o p e r t y
         o r occupation t a x e s y            :  *       and i f t h e c l a s s i f i c a t i o n
         i s r e a s o n a b l e , and i f a l l of t h e s u b j e c t s w i t h i n a
         g i v e n c l a s s a r e accorded t h e same t r e a t m e n t , t h e
         1 e g i . s l a t i o n cannot be s a i d t o deny t o anyone w i t h i n
         such c l a s s t h e e q u a l p r o t e c t i o n of t h e law, even
         though t h e burden imposed upon him may be more onerous
         than t h a t imposed upon a member of a n o t h e r c l a s s .
          [ C i t i n g c a s e s ] But t o j u s t i f y such d i s c r i m i n a t o r y
         l e g i s l a t i o n , and avoid t h e condemnation of t h e Four-
         t e e n t h Amendment t o t h e f e d e r a l C o n s t i t u t i o n , t h e
         c l a s s i f i c a t i o n must be r e a s o n a b l e - - - t h a t i s , must be
         based upon slabs t a n t i a l d i s t i n c t i o n s which r e a l l y make
         one c l a s s d i f f e r e n t from a n o t h e r . [ C i t i n g c a s e ] (Emphasis
         o u r s . ) "'
L a t e r i n t h e sane opinion a t p, 392, t h e Court s a i d :
          11 1
             The c o n s t i t u t i o n a l safeguard a g a i n s t u n j u s t d i s -
         c r i m i n a t i o n i n l e g i s l a t i o n of t h i s t y p e i s w e l l
         d e f i n e d by t h e d e c i s i o n s everywhere, and t h a t i s ,
         t h a t t h e c l a s s i f i c a t i o n must be r e a s o n a b l e , n o t
         a r b i t r a r y , and must r e s t upon some ground of d i f f e r
         ence having a f a i r and s u b s t a n t i a l r e l a t i o n t o t h e
         o b j e c t of t h e 3 - e g i s l a t i o n , s o t h a t a l l persons
         s i m i l a r l y circumstanced s h a l l be t r e a t e d a l i k e . M i l
         v. S t a t e Board of Equalizati.sn, 97 Mont. 113, 31', 33
         2d 563.' (Emphasis d u r s . ) "

         The s t a t e h a s t h e d u t y and a u t h o r i t y t o levy t a x e s .          Such
i s r e q u i r e d i n t h e C o n s t i t u t i o n ; however, S e c t i o n I1 of A r t . X I I
~ it h e Ibiontaiud i;ons'iitt~ii.on r e q u i r e s t h a t such ;:axes s h a l l a l s o
     .

1 5 tlniform upon t h e c l a s s w i t h i n t h e t a x i n g a u t h o r i - t y .
 x                                                                                              Inter-

;;ieting t h a t s e c t i o n of t h e Montana C o n s t i t u t i o n i n S c h u l t z -
5 - n d s a y a t p . 393, t h i s Court s a i d :
             r t 1 Itor
                         , s t a t i n g t h e p r i n c i p l e of s e c t i o n s 1 and 11 i n
             d i f f e r e n t form, t h e mandatory i n j u n c t i o n t o t h e Legis-
              l a t u r e i s t h a t i t s h a l l p r e s c r i b e such uniform mode of
             zssessment a s s h a l l s e c u r e a j u s t v a l u a t i o n of a l l
              :axable p r o p e r t y , t h a t a l l t a x e s s h a l l be l e v i e d and
             ,:ollected by g e n e r a l laws and f o r p u b l i c purposes o n l y ,
              dnd t h a t t h e y s h a l l be uniform upon t h e same c l a s s of
             p r o p e r t y wi.thin t h e t e r r i t o r i a l l i m i t s of t h e a u t h o r i t y
              l e v y i n g t h e t a x . This i s t h e r u l e of u n i f o r m i t y d e c l a r e d
             ' ~ y  our C o n s t i ~ u t i o n ,i f w e a r e a b l e t o determine t h e i n -
              t e n t i o n of i t s framers a r i g h t . "

               ''We thinlc i t w i l l be admitted t h a t any t a x a g a i n s t t h e
              jame kind of p r o p e r t y used f o r i d e n t i c a l purposes i s n o t
             uniform when a d i f f e r e n t v a l u a t i o n and a d i f f e r e n t ratre
             's a p p l i e d t o two d i s t i n c t t a y p a y e r s , s e p a r a t e l y d i s t i n -
             g u i s h a b l e o n l y i n name, and t h e t a x b e i n g imposed by t h e
             same t a x i n g d i s t r i c t . W f u r t h e r b e l i e v e i t w i l l be
                                                   e
             ~ d m i t t e dt h a t such d i s r e g z r d of t h e uniform c l a u s e of
             i e c t i o n s 1 and 1 of A r t i c l e X I I , s u p r a , c o n s t i t u t e s
                                         1
             c l e a r discrimination."'           (Emphasis t h e i r s ) .

             In Schultz-Lindsay               i t i s c i e a r t h e s t a t e had d i s c r i m i n a t e d

     i l ~ s cn o n r e s i d e n t t a x p a y e r s doing p u b l i c work.          A l l contractors

doing p u b l i c work were n o t t r e a t e d i n a f a i r manner as t h e r e was

n d b a s i s t o make t h e d i s t i n c t i o n between r e s i d e n t and n o n r e s i d e n t

public contractors.                   That i-s n o t t h e s i t u a t i o n h e r e , because a l l

p u b l i c c o n t r a c t o r s a r e now t r e a t e d e q u a l l y , a l l a r e taxed on 1%
of t h e i r gross r e c e i p t s .          There i s a c l a s s of t a x p a y e r s , p u b l i c
c o n t r a c t o r s , and t h a t c l a s s comes under t h e s p e c i a l t a x e n f o r c i n g

!rleasure of t h e Act.               This s i t u a t i o n i s c l e a r l y d i s t i n g u i s h a b l e
from t h e Schultz-Lindsay s i t u a t i o n .                   W do n o t r e a d t h e law t o
                                                                  e

r e q u i r e a l l c o n t r a c t o r s t o be taxed i n an i d e n t i c a l manner, only
t h a c members of a c l a s s be given t h e same tax t r e a t m e n t .
             I t i s t r u e t:hat t h e p r i v a t e c o n t r a c t o r does n o t have t h e
#5ame revenue e n f o r c i n g measure t h a t t h e p u b l i c c o n t r a c t o r h a s ,
        1t
5ur,         even though t h e burden imposed upon him may be more onerous
chan t h a t imposed upon a member of a n o t h e r c l a s s " , t h a t does n o t
v i o l a t e the c a s t i t u t i o n a l s a f e g u a r d s if t h e c l a s s i f i c a t i o n i s
justified.                Schultz-Lindsay, p. 390.
           Montana z a s e l a w has e s t a b l i s h e c l t h a t t h e L e g i s l a t u r e may

rncike : L a s s i f i c a t i o n s   f o r t a x purposes on d i f f e r e n t i n d u s t r i e s i n

hoiltana.         As long a s t h e c l a s s i f i c a t i o n i s r e a s o n a b l e , i t w i l l

b e upheld,           Quong Wing v . K i r k e n d a l l , 39 Mont. 64, 101 P. 250;
,~ilacondaCopper Mining Co. v . Junod, 7 1 Mont. 132, 227 P. 1001;
d a l e v. County T r e a s u r e r of Mineral C o , , 82 Mont, 9 8 , 265 P. 6 ;

Norum v . Ohio O i l Co., 83 Fiont. 353, 272 I?.                            534.

           Our q u e s t i o n now i s - - - i s      i t r e a s o n a b l e t o make a c l a s s i f i -
cation f o r t a x purposes f o r c o n t r a c t o r s doing p u b l i c work and

n o t f o r c o n t r a c t o r s doing p r i v a t e work?

           A t t r i a l , respondent S t a t e Board s t r e s s e d t h e d i f f e r e n c e s
between t h e two t y p e s of c o n t r a c t o r s i n t h i s manner:

           1, A p u b l i c work i s i n t e n d e d f o r t h e              u s e of t h e p u b l i c

and i f t h e work i s i n a d e q u a t e i n some p a r t i c u l a r way, t h i s could
(2xpose and would expose some p a r t of t h e p u b l i c a t l a r g e t o d a n g e r ,
inconvenience, o r i n j u s t i c e .              That of c o u r s e would n o t be always
t r u e i n t h e c a s e of a p r i v a t e c o n t r a c t o r ,
           2.     P u b l i c c o n t r a c t o r s must be e x p e r i e n c e d , t h e y must

e s t a b l i s h t h e i r q u a l i f i c a t i o n s t o t h e s t a t e o r f e d e r a l govern-
n~efit, However, p r i v a t e p r o p e r t y owners c o u l d engage a l i c e n s e d

o r u n l i c e n s e d c o n t r a c t o r o r an experienced o r i n e x p e r i e n c e d one.

           3.     P u b l i c c o n t r a c t o r s i n v a r i a b l y must provide a bond,
P r i v a t e worlcs r e q u i r e bonds only a t t h e e l e c t i o n of t h e owner.

           4,     P u b l i c works normally would i n v o l v e e l a b o r a t e , p r o f e s -

s i ( j n a l 1 y drawn p l a n s and s p e c i f i c a t i o n s .      They would a l s o i n c l u d e

aandatory supervision o r inspection.                             P r i v a t e works would have

such i n s p e c t i o n a n d / o r s u p e r v i s i o n a t t h e o p t i o n of t h e owner.
           A p p e l l a n t a r g u e s t h a t a l l of t h e above mentioned a r e a s
a r e a l s o normally i n c l u d e d i n any p r i v a t e c o n t r a c t i n g job i n t h e

;a t e ;
 t           t h e r e f o r e , t h e r e i s no j u s t i f i c a t i o n of t h e c l a s s i f i c a t i o n .
ivc   do noc a g r e e .         It may be t r u e t h a t p r i v a t e c o n t r a c t o r s w i l l

cdke many of t h e sane p r e c a u t i o n s r e q u i r e d by t h e s t a t e o r
f e d e r a l government, b u t t h e p o i n t i s t h a t when d e a l i n g w i t h p u b l i c

works t h e s e p r e c a u t i o n s must be t a k e n .             People of t h e s t a t e have
a right        LO   make sure c h a t a b u i l d i n g b u i l t w i t h t h e i r money i s

s a f e and t h a t t h e c o n t r a c t o r i s q u a l i f i e d i n a l l r e s p e c t s .    For
khis r e a s o n i t i s c l e a r how t h e c l a s s i f i c a t i o n can be made---

f o r t h e p r o t e c t i o n of t h e p u b l i c good,             The duty of a c o n t r a c t o r
i s t o t h e person paying t h e b i l l , i n t h e c a s e of a p u b l i c con-
t r a c t o r i t i s t h e taxpayer.             I n o r d e r t o e n s u r e t h a t t h e duty i s

met,    t h e s t a t e can and does d e a l w i t h p u b l i c c o n t r a c t o r s i n a
d i f f e r e n t way t h a n p r i v a t e c o n t r a c t o r s .     Because of t h i s b a s i c

d i f f e r e n c e , t h e r e i s no r e a s o n why t h e y cannot be taxed i n a

d i f f e r e n t manner, a s long a s a l l i n t h e same c l a s s a r e t r e a t e d

equally.
          I n Quong Wing v , K i r d e n d a l l , 39 Mont. 64, 6 9 , 101 P , 250,

t h e Court s a i d :
          It
             The C o n s t i t u t i o n g i v e s t h e power t o impose a
          l i c e n s e t a x upon p e r s o n s doing b u s i n e s s i n t h i s
               a          ,, ,, " The l e g i s l a t u r e i s n o t r e q u i r e d t o
                        -1-
                                ,.
                               -1-



          !:ax a 1 1 occupations e q u a l l y o r uniformly. ; :               \ \
           f
             I f t h e c o n s t i t u e n t s of each c l a s s a r e a f f e c t e d
          3 l i k e , t h e r u l e of e q u a l i t y p r e s c r i b e d by t h e
          c a s e s i s s a t i s f i e d , I n o t h e r words, t h e law
          " o p e r a t e s e q u a l l y and uniformly upon a l l persons
                                                    .
          i n s i m i l a r c i r c u m s t a n c e s 11 1 1 1

What could be more uniform t h a n r e q u i r i n g a l l p u b l i c c o n t r a c t o r s

t o pay t h i s t a x , a l l members of t h e c l a s s a r e t r e a t e d a l i k e .

          The United S t a t e s Supreme Court h a s g i v e n t h e s t a t e s g r e a t
1 - a t i t u d e and freedom t o e f f e c t t a x c l a s s i f i c a t i o n s , a s long a s

they a r e not a r b i t r a r y o r capricious.                      I n Brown-Forman Co. v.

Kentucky, 217 U,S.                   563, 30 S.Ct.       578, 54 L ed 883, 887, t h e
s m t e of Kentucky l e v i e d a 1 114 c e n t p e r g a l l o n t a x on every
c o r p o r a t i o n o r i n d i v i d u a l engaged i n t h e b u s i n e s s of compounding,

r e c t i f y i n g , a d u l t e r a t i n g o r blending d i s t i l l e d s p i r i t s .   Corporate
o r i n d i v i d u a l d i s t i l l e r s of pure o r u n a d u l t e r a t e d s p i r i t s were
not s o taxed.                A producer of blended s p i r i t s brought an a c t i o n
stating t h e t a x was discrimi-natory.                        I n upholding t h e s t a t e ' s
power t o t a x , t h e United S t a t e s Supreme Court s a i d :
          I1
            A v e r y wide d i s c r e t i o n must be conceded t o t h e
          l e g i s l a t i v e power of t h e s t a t e i n the c l a s s i f i c a t i o n
          3f t r a d e s , c a l l i n g s , b u s i n e s s e s o r o c c u p a t i o n s which
            nay be s u b j e c t e d t o s p e c i a l forms of r e g u l a t i o n
            o r t a x a t i o n through an e x c i s e o r l i c e n s e t a x .
            I f the selection or classification i s neither
            ~ a p r i c i o u sn o r a r b i t r a r y , and r e s t s upon some
            r e a s o n a b l e c o n s i d e r a t i o n of d i f f e r e n c e o r p o l i c y ,
            t h e r e i s no d e n i a l of t h e e q u a l p r o t e c t i o n of
            che law, 1 1

            W b e l i e v e t h a t a d i s t i n c t i o n between p u b l i c and p r i v a t e
             e

c o n t r a c t o r s i-s n o t a r b i t r a r y o r c a p r i c i o u s and f o l l o w i n g t h e

r e a s o n i n g of t h e United S t a t e s Supreme C o u r t - - - t h e                statle of

Moiitana h a s t h e power t o make such a d i s t i n c t i o n and t h e s t a t u t e
i n question i s not unconstitutional.
            The second h a l f of t h e d i s c r i m i n a t i o n q u e s t i o n r a i s e d

by appellant i s t h a t t h i s tax discriminates against the federal

juvernment.                       I t u r g e s t h a t t h e s t a t e of Montana i s r e q u i r e d t o
t r e a t t h e United S t a t e s and o t h e r p u b l i c b o d i e s a s w e l l a s i t
,:Teats p r i v a t e nongovernmental p a r t i e s .                     A p p e l l a n t contends

r a n t i n g a p r e f e r r e d t a x s t a t u s t o a s u b s t a n t i a l number of
t a x p a y e r s , c o n t r a c t o r s performing work f o r p r i v a t e owners, and
f a i l i n g t o g r a n t a comparable s t a t u s t o construction c o n t r a c t o r s
of t h e United S t a t e s , c o n s t i t u t e s u n c o n s t i t u t i o n a l d i s c r i m i n a t i o n
a g a i n s t t h e United S t a t e s and t h o s e w i t h whom i t d e a l s .
            I n response t o t h i s argument, respondent Board c o n t e n d s ,

b < i s i c a i l y , t h a t s i n c e t h e s t a t e of Kontana i s t r e a t e d i n t a x

.ua!:ters w i t h p u b l i c c o n t r a c t o r s t h e same a s t h e f e d e r a l government
i - s t r e a t e d , t h e r e i s no d i s c r i m i n a t i o n .       Counsel f o r b o t h p a r t i e s

cite i n s u p p o r t P h i l l i p s Chemical Co. v . Dumas School D i s t r i c t ,

'361 U . S .         376, 80 S e c t . 474, 4 L ed 2d 384, 391, and Floses Lake
l-lones v . Grant County, 365 U.S.                            744, 8 1 S.Ct. 570, 6 L ed 2d 66.
            I n P h i l l i p s Chemical Co., t h e s t a t e of Texas l e v i e d a t a x

J L ~   l e a s e s where t h e United S t a t e s government was t h e l e s s o r , b u t
' d i d n o t provide f o r such a t a x where t h e s t a t e of Texas was t h e
!-essore                   he c o u r t found 1:his t y p e of t a x a t i o n was d i s c r i m i n a t t n g

i g a i n s t t h e f e d e r a l government and t h e r e f o r e i n v a l i d .                   The c o u r t


                 - i t does n o t seem too much t o r e q u i r e t h a t
            I I ;k   -t.     -.
                             1
                             4,


            t h e S t a t e t r e a t t h o s e v7ho d e a l w i t h t h e Government
                                                                                                           f1
            2 s w e l l a s i t t r e a t s t h o s e w i t h whom i t d e a l s i t s e l f .
          I n Moses Lake Homes, t h e s t a t e of Washington sought t o t a x
l e a s e h o l d i n t e r e s t s wherein t h e f e d e r a l government w a s t h e l e s s o r
a t a h i g h e r r a t e than i t t a x e d l e a s e h o l d i n t e r e s t s where t h e s t a t e
of Washington was t h e l e s s o r .                The c o u r t s t a t e d t h a t Moses Lake
Homes was i n d i s t i n g u i s h a b l e from P l ~ i l l i p sChemical Co.                 and r u l e d
t h a t a t a x wbtch d i s c r i m i n a t e d a g a i n s t t h e f e d e r a l government was
invalid.
          Here, we do n o t b e l i e v e t h a t t h e s t a t e of Montana h a s
d i s c r i m i n a t e d a g a i n s t t h e f e d e r a l government,          The f e d e r a l govern-
ment i s b e i n g t r e a t e d i n t h e same manner a s t h e s t a t e of Montana
t r e a t s i t s e l f and i t s s u b d i v i s i o n s o r m u n i c i p a l i t i e s ,   The o n l y
d i s c r i m i n a t i o n t h e f e d e r a l government can c l a i m i.s t h a t p r i v a t e
c o n t r a c t o r s a r e n o t paying t h e same t a x a s p u b l i c c o n t r a c t o r s .
However, a c c o r d i n g t o c a s e law, a l l t h e United S t a t e s Supreme
Court h a s r e q u i r e d i s t h a t t h e s t a t e does n o t g i v e i t s e l f s p e c i a l
t r e a t m e n t over t h a t r e c e i v e d by t h e f e d e r a l government.               The Act
involved h e r e t r e a t s t h e federal. government i n t h e same manner a s
i t t r e a t s t h o s e who d e a l w i t h any p a r t of t h e s t a t e government,

The second h a l f of t h e d i s c r i m i n a t i o n q u e s t i o n i s d e n i e d .
         A p p e l l a n t and amicus c u r i a e a r g u e t h a t t h e Act i s i n v a l i d
because i t r e s u l t s i n i n t e r f e r e n c e w i t h f e d e r a l government func-
t i o n s and i s i n c o n f l i c t w i t h f e d e r a l procurement l e g i s l a t i o n .
T h e r e f o r e , i t v i o l a t e s t h e supremacy c l a u s e of t h e United S t a t e s
Constitution.            T h e i r b a s i s f o r such argument i s t h a t our l i c e n s i n g
s t a t u t e g i v e s Montana t h e power of review a s t o whether o r n o t
a c o n t r a c t o r can o p e r a t e w i t h i n Montana, even i f h e h a s a l r e a d y
been awarded a p u b l i c c o n t r a c t .
         A 1 1 p a r t i e s c i t e M i l l e r v. Arkansas, 352 U.S. 187, 77 S e c t ,
257, 1 L ed 2d 231,                There, Arkansas had a l i c e n s i n g s t a t u t e s i m i l a r
t o t h e one i n q u e s t i o n h e r e which allowed t h e s t a t e t o review
c o n t r a c t o r s who had been awarded p u b l i c c o n t r a c t s , i n c l u d i n g
f e d e r a l c o n t r a c t s , a s t o t h e i r f i t n e s s t o perform t h e work.             Under
t h e a u t h o r i t y of t h a t s t a t u t e , t h e s t a t e brought an a c t i o n a g a i n s t
a c o n t r a c t o r awarded a f e d e r a l c o n t r a c t because t h a t c o n t r a c t o r
was riot Licensed in riricansas,                      In reviewixng t h e case, t h e

United S t a t e s Supreme Court held si-npl-y t h a t t h e s t a t u t e was

n o t a p p l i c a b l e t o c o n t r a c t o r s working on f e d e r a l government

contracts.          W do n o t f i n d t h e United S t a t e s Supreme Court s t a t e d
                     e
+ h a t such Arkansas s t a t u t e was u n c o n s t i t u t i o n a l p e r s e .                I t only
s ~ a t e d h a t t h e s t a t e does n o t have t h e power t o review f e d e r a l
           t

contractors as to t h e i r fitness.
          Here, we h o l d , a s d i d t h e d i s t r i c t c o u r t , t h a t t h e p r o v i -

, i o n s of t h e Act which p e r t a i n t o q u a l i f i c a t i o n s o r competence

,,f p u b l i c c o n t r a c t o r s i s n o t a p p l i c a b l e t o f e d e r a l c o n t r a c t o r s .
The q u a l i f i c a t i o n s t e s t of t h e Act remains i n f o r c e i n r e g a r d

t o c o n i x a c t o r s working on s t a t e c o n t r a c t s , and t h e g r o s s r e c e i p t s

t a x w i l l remain i n f o r c e a s t o a l l p u b l i c c o n t r a c t o r s performing
work i n Montana.
          F i n a l l y , i t i s argued t h a t t h i s Act v i o l a t e s t h e immunity

0 2 t h e f e d e r a l government from t a x a t i o n o r t h e economic impact

of t a x a t ~ i o n . I t h a s been e s t a b l i s h e d t h a t a s t a t e cannot t a x

i:ne f e d e r a l government.             But, t h e s t a t e can t a x an independent

c o n t r a c t o r f o r t h e p r i v i l e g e of doing work w i t h i n t h e s t a t e .

The United S t a t e s Supreme Court decided t h a t p o i n t i n James v .

Dravo C o n t r a c t i n g Co., 302 U.S.              134, 58 S.Ct. 208, 8 2 L. ed 155,

1 6 6 , 173.
          I n James, t h e p l a i n t i f f was a c o n t r a c t o r domiciled i n Penn-

s y l v a ~ x i a . A s an independent c o n t r a c t o r i t had f o u r c o n s t r u c t i o n
c d n t r a c t s w i t h t h e f e d e r a l government f o r t h e b u i l d i n g of l o c k s

and dams i n t h e Kanawha River and Ohio River w i t h i n t h e s t a t e of

!&lestV i r g i n i a .    West Virgi-nj.a had a s t a c u t e known a s t h e g r o s s
8,dles and income t a x law which provided f o r annual and p r i v i l e g e
taxes on c o n t r a c t o r s dohg           b u s i n e s s i n the s t a t e of West V i r g i n i a .
The t a x was 2% of t h e g r o s s income of t h e c o n t r a c t o r w i t h i n t h e

scate.       Such t a x was i n a d d i t i o n t o a l l o t h e r s t a t e t a x e s .               The
                                                              II
c w r t was faced w i t h t h i s problem:                      I s t h e t a x i n v a l i d upon t h e
ground t h a t      j.t   l a y s a d i r e c t burden upon t h e F e d e r a l ~ o v e r n m e n t ? "

1.o   t h a t q u e s t i o n t h e c o u r t answered:
               , I ;y
                         : the W e s t V i r g i n i a t a x ;
                        fb;
                        -?-
                                                                 ;   2 does n o t
               i n t e r f e r e f-n any s u l > s t a n t i a l way w i t h t h e
               performance of t h e f e d e r a l f u n c t i o n s and i s
               a v a l i d e x a c t i o n . 11
    lhe 12oux-L ~11enwent on t o p o i n t o u t t h a t t h e economic impact

    uptjn t h e f e d e r a l government must be d i r e c t and s u b s t a n t i a l and

    t h a t the 2% g r o s s t a x was n e i t h e r d i r e c t n o r s u b s t a n t i a l ,        For

    3    f u r t h e r d i s c u s s i o n of t h i s r a t i o n a l e , s e e S i l a s Mason Co.
    v.    S t a t e Tax Commission, 188 Wash. 98, 61 P.2d 1269.

               Following t h e r e a s o n i n g of t h e United S t a t e s Supreme C o u r t ,

    we f i r t d t h e t a x involved h e r e was n o t aimed a t n o r does i t impede

    t h e f e d e r a l government i n performing i t s f u n c t i o n s .               I f there
    i s any burden on t h e f e d e r a l government, i t i s i n d i r e c t and
    not substantial.              The t a x i s v a l i d .

               The judgment of t h e d i s t r i c t c o u r t i s a f f i r m e d ,



                                                        k s s o c a e Justice




,   I     Chief J u s t i c e




    i 1   A s s ciate ~ u s t i c k s .
