                                 No. 8 0 - 3 7 5
                 IN THE SUPREPIIE COURT OF THE STATE OF MONTANA

                                       1981



WARD PAPER BOX COMPANY, a Missouri
corp. ,
               Respondent and Appellant,


DEPARTMENT OF REVENUE OF THE STATE
OF MONTANA,
                  Appellant and Respondent.




Appeal from:      District Court of the First Judicial District,
                  In and for the County of Lewis & Clark, The
                  Honorable Peter Meloy, Judge presiding.

Counsel of Record:
         For Appellant:

                  Terry B. Cosgrove, Helena, Montana
                  (Special Asst. Atty. General), Argued

    For Respondent :
                  Ward A. Shanahan; argued, Helena, Montana
                  G~ugh,  Shanahan, Johnson & Waterman, Helena,
                  Montana



                                 Submitted: September 21, 1981
                                   Decided :       2i


Filed:    QEC 2 ."L 4981




                                 Clerk
Mr. C h i e f J u s t i c e F r a n k I . H a s w e l l d e l i v e r e d t h e O p i n i o n of t h e
Court.

            T h i s is an a p p e a l by t h e D e p a r t m e n t of Revenue ( D O R ) from
a judgment o f t h e D i s t r i c t C o u r t o f L e w i s and C l a r k County
v a c a t i n g an a s s e s s m e n t of a d d i t i o n a l c o r p o r a t i o n l i c e n s e t a x e s

a g a i n s t t h e Ward P a p e r Box Company ( W a r d ) f o r t h e y e a r s 1 9 7 1

t h r o u g h 1975.       W reverse.
                           e
            Ward f i l e d Montana c o r p o r a t i o n l i c e n s e t a x r e t u r n s f o r t h e
y e a r s i n q u e s t i o n b a s e d on t h e s e g r e g a t e d income from i t s Montana
operations alone.                DOR a u d i t e d Ward s r e c o r d s , d e t e r m i n e d t h a t

Ward was a u n i t a r y b u s i n e s s n o t e n t i t l e d t o s e p a r a t e a c c o u n t i n g

o f i t s Montana o p e r a t i o n s and income, and a s s e s s e d a d d i t i o n a l

c o r p o r a t i o n l i c e n s e t a x e s a g a i n s t Ward by use of a t h r e e f a c t o r

f o r m u l a which a p p o r t i o n e d to Montana a p a r t of Ward                  I   s    total
income.

            Ward p r o t e s t e d t h i s a s s e s s m e n t t o t h e S t a t e Tax Appeal
Board     ( STAB)    .    STAB a f f irmed t h e a s s e s s m e n t by DOR.                    Ward f i l e d a

p e t i t i o n f o r r e v i e w i n t h e ~ i s t r i c tC o u r t of L e w i s and C l a r k

County.        On A u g u s t 4 , 1 9 8 0 , t h e D i s t r i c t C o u r t r e v e r s e d t h e STAB

decision.          DOR now a p p e a l s from t h e judgment of                    the District Court.
           Ward i s a M i s s o u r i c o r p o r a t i o n q u a l i f i e d and d o i n g b u s i -
n e s s i n Montana, m a i n t a i n i n g i t s p r i n c i p a l p l a c e of b u s i n e s s i n

Kansas C i t y , Kansas.                A l l of   i t s common s t o c k is owned by M r .

L o u i s Ward.       Ward's a c t i v i t i e s c o n s i s t of seven d i v i s i o n s ; t h e

d i v i s i o n s l o c a t e d o u t s i d e of Montana a r e i n v o l v e d          in

m a n u f a c t u r e , s a l e and d i s t r i b u t i o n of p a p e r b o x e s and p a p e r box
p r o d u c t s i n t h e s t a t e s of K a n s a s , M i s s o u r i , C o l o r a d o , S o u t h

C a r o l i n a and V i r g i n i a .     The Montana d i v i s i o n s c o n s i s t of two
c a t t l e r a n c h e s , o n e i n Meagher County and o n e i n P o w e l l County.

            F o r t h e y e a r s 1 9 7 1 t h r o u g h 1 9 7 5 , Ward used t h e s e p a r a t e

a c c o u n t i n g method f o r f i l i n g i t s Montana t a x r e t u r n s and i n e a c h
y e a r p a i d t h e minimum c o r p o r a t i o n l i c e n s e t a x o f $50.                  During

t h o s e y e a r s t h e o p e r a t i n g costs and d e p r e c i a t i o n e x p e n s e s of t h e
Montana d i v i s i o n s e x c e e d e d t h e income e a r n e d by t h o s e d i v i s i o n s .
             D u r i n g t h e same t i m e p e r i o d , Ward f i l e d t a x r e t u r n s u n d e r

t h e u n i t a r y a p p o r t i o n m e n t method i n t h e o t h e r s t a t e s i n which it
was o p e r a t i n g and t h e Montana r a n c h d i v i s i o n s w e r e i n c l u d e d as
p a r t of its total u n i t a r y b u s i n e s s .              I n t h o s e s t a t e s t h e losses

s u s t a i n e d b y t h e r a n c h d i v i s i o n s were used to o f £ s e t income e a r n e d
b y t h e p a p e r box d i v i s i o n s .

            The f a c t s r e g a r d i n g Ward       I   s   operations during the years i n

q u e s t i o n a r e f o r t h e most p a r t u n c o n t e s t e d .         The home o f f i c e i n
Kansas C i t y provided a d m i n i s t r a t i v e s e r v i c e s f o r a l l d i v i s i o n s of
Ward s o p e r a t i o n which i n c l u d e d p r e p a r i n g f e d e r a l and s t a t e
r e p o r t s , h i r i n g t h e a c c o u n t a n t s to p r e p a r e t a x r e t u r n s , k e e p i n g

t h e b o o k s , p r e p a r i n g f i n a n c i a l s t a t e m e n t s and b a l a n c i n g c h e c k

books.        Each o f t h e d i v i s i o n s was c h a r g e d a n a r b i t r a r y f i g u r e o f

$ 6 0 p e r month f o r t h e home o f f i c e s e r v i c e s .               T h i s f i g u r e was n o t
b a s e d on t h e amount o f t i m e a c t u a l l y s p e n t o n e a c h d i v i s i o n by
t h e home o f f ice p e r s o n n e l .
            W a r d ' s d i v i s i o n s d i d n o t e x c h a n g e e q u i p m e n t or p e r s o n n e l
and d i d n o t purchase p r o d u c t s j o i n t l y .               T h e r e w a s no j o i n t a d v e r -

t i s i n g p r o g r a m among t h e v a r i o u s d i v i s i o n s and n o common

salesmen.
            T h e r e were t w o a c c o u n t s m a i n t a i n e d f o r e a c h d i v i s i o n , a n
e x p e n s e b a n k a c c o u n t and a p a y r o l l a c c o u n t .

            Each d i v i s i o n ' s e x p e n s e bank a c c o u n t w a s m a i n t a i n e d i n a
bank i n Kansas C i t y .              Any m o n i e s g e n e r a t e d b y a d i v i s i o n were

d e p o s i t e d i n t h a t d i v i s i o n ' s s e p a r a t e expense account.               I f the

d i v i s i o n d i d n o t i m m e d i a t e l y need t h e f u n d s , t h e y would be t r a n s -
f e r r e d from t h e s e p a r a t e d i v i s i o n e x p e n s e a c c o u n t i n t o a g e n e r a l
a c c o u n t and would be u t i l i z e d w h e r e v e r n e e d e d b y a n y o f t h e
separate divisions.                  The p r e s i d e n t o f t h e company would make t h e
d e c i s i o n as t o t h e t r a n s f e r .       E x c e s s f u n d s would be i n v e s t e d , i f
n o t needed by any o f t h e d i v i s i o n s .                A p o r t i o n of    the short-term

i n v e s t m e n t income was a t t r i b u t a b l e to f u n d s g e n e r a t e d i n Montana,

y e t t h e p o r t i o n a t t r i b u t a b l e to f u n d s e a r n e d i n Montana c o u l d n o t

b e s p e c i f i c a l l y i d e n t i f i e d or s e g r e g a t e d .
            I f e i t h e r o f t h e Montana r a n c h d i v i s i o n s d i d n o t g e n e r a t e

                                                   - 3 -
e n o u g h income t o meet e x p e n s e s , a d d i t i o n a l f u n d s would be t r a n s -

f e r r e d from Ward's g e n e r a l a c c o u n t to t h e ranch d i v i s i o n ' s

expense bank a c c o u n t .
            The p a y r o l l a c c o u n t f o r e a c h r a n c h d i v i s i o n w a s m a i n t a i n e d

i n a Montana b a n k and c h e c k s c o u l d be w r i t t e n o n t h e a c c o u n t by
t h e ranch manager.             However t h e home o f f i c e p e r s o n n e l m a i n t a i n e d
t h e r e c o r d s , b a l a n c e d t h e b o o k s , and made t h e d e p o s i t s .

           T h e r e w a s some c e n t r a l management o f t h e c o r p o r a t i o n .
From      t h e e v i d e n c e p r e s e n t e d a t t h e h e a r i n g , STAB found t h a t
t h e home o f f i c e made a l l o f t h e d e c i s i o n s r e g a r d i n g t h e f i n a n -

c i a l a f f a i r s o f t h e c o r p o r a t i o n and t h a t major d e c i s i o n s
r e g a r d i n g t h e r a n c h e s , s u c h as t h e p u r c h a s e of e q u i p m e n t and t h e
b u y i n g and s e l l i n g o f c a t t l e , r e q u i r e d t h e a p p r o v a l o f t h e

c h a i r m a n o f t h e b o a r d or t h e p r e s i d e n t o f t h e c o r p o r a t i o n .
             B a s e d o n i t s f i n d i n g s r e g a r d i n g Ward   I s   o p e r a t i o n , STAB

h e l d t h a t Ward was a u n i t a r y b u s i n e s s and t h a t t h e DOR had p r o -

p e r l y a s s e s s e d t h e a d d i t i o n a l t a x e s a g a i n s t Ward.     The D i s t r i c t

C o u r t r e v e r s e d t h e STAB d e c i s i o n , and DOR a p p e a l s .
             Two i s s u e s a r e r a i s e d o n a p p e a l :
             1.     W h e t h e r t h e Montana r a n c h d i v i s i o n s were p a r t o f
W a r d ' s u n i t a r y b u s i n e s s r e q u i r i n g Ward to a p p o r t i o n i t s t o t a l

i n c o m e f o r Montana c o r p o r a t i o n and l i c e n s e t a x p u r p o s e s .

             2.     W h e t h e r t h e p r o p e r s t a n d a r d o f r e v i e w was used b y t h e
D i s t r i c t C o u r t i n r e v i e w i n g t h e STAB d e c i s i o n .

             I n o r d e r t o r e s o l v e t h e f i r s t i s s u e we must l o o k a t t h e

p e r t i n e n t s t a t u t o r y language i n e f f e c t f o r t h e years 1971 through
1 9 7 5 , t h e y e a r s f o r which Ward was a s s e s s e d a d d i t i o n a l cor-
poration license taxes.

             I n 1 9 7 1 and 1 9 7 2 s e c t i o n 84-1503,            R.C.M.       1947, provided
i n pertinent part:
             " I f t h e income o f a n y c o r p o r a t i o n from s o u r c e s
             w i t h i n t h e s t a t e c a n n o t be p r o p e r l y s e g r e g a t e d
             from income w i t h o u t t h e s t a t e , t h e n , i n t h a t
             e v e n t , t h e amount o f t h e n e t income r e t u r n e d
             s h a l l be t h a t p r o p o r t i o n o f t h e t a x p a y e r ' s
             t o t a l n e t income which t h e t a x p a y e r ' s g r o s s
             b u s i n e s s d o n e i n t h e s t a t e of Montana b e a r s
             t o t h e t o t a l g r o s s b u s i n e s s of t h e t a x p a y e r , and
             a p p o r t i o n m e n t s h a l l be made u n d e r t h e r u l e s and
             r e g u l a t i o n s p r e s c r i b e d by t h e s t a t e board of
             e q u a l i z a t i o n , g i v i n g c o n s i d e r a t i o n t o sales,
             p r o p e r t y and p a y r o l l and s u c h o t h e r f a c t o r s as
             may be deemed a p p l i c a b l e        . . ."
A 1 9 7 3 amendment o f          t h i s s e c t i o n s u b s t i t u t e d t h e words

" d e p a r t m e n t of revenue" f o r "board of e q u a l i z a t i o n . "

             The s e c t i o n was amended a g a i n i n 1 9 7 4 and as amended
stated in part:

             "A c o r p o r a t i o n engaged i n a u n i t a r y b u s i n e s s
             w i t h i n and w i t h o u t Montana m u s t a p p o r t i o n i t s
             b u s i n e s s income    ...           A b u s i n e s s is u n i t a r y
             when t h e o p e r a t i o n o f t h e b u s i n e s s w i t h i n t h e
             s t a t e is d e p e n d e n t upon or c o n t r i b u t o r y to t h e
             o p e r a t i o n of t h e b u s i n e s s o u t s i d e t h e state o r
             i f t h e u n i t s o f t h e b u s i n e s s w i t h i n and w i t h o u t
             t h e s t a t e are c l o s e l y a l l i e d and n o t c a p a b l e o f
             s e p a r a t e m a i n t e n a n c e as i n d e p e n d e n t
             business [es]       ."
T h i s same r u l e was f o u n d i n t h e a d m i n i s t r a t i v e r e g u l a t i o n s p r i o r
t o t h e 1 9 7 4 amendment o f s e c t i o n 84-1503.                The r e g u l a t i o n s which

c o n t a i n e d t h i s r u l e were e f f e c t i v e f o r t a x y e a r s b e g i n n i n g o n or

a f t e r J a n u a r y I , 1967.
             I n Mont. D e p t . o f Rev. v . Am.             Smelting      &   ~ e f i n i n g( 1 9 7 7 ) ,

1 7 3 Mont. 3 1 6 , 567 P.2d           9 0 1 ( h e r e i n a f t e r c i t e d as ASARCO), t h i s
C o u r t h e l d t h a t t h e p u r p o s e o f t h e 1 9 7 4 amendment was to c l a r i f y
t h e s t a t u t e ; w e s t a t e d t h a t t h e unamended v e r s i o n of t h e sta-

t u t e w a s n o t i n c o n f l i c t w i t h t h e r e g u l a t i o n s i n e f f e c t p r i o r to
t h e 1 9 7 4 amendment and w e u p h e l d t h e a d m i n i s t r a t i v e r e g u l a t i o n s .

T h e r e f o r e , t h e r u l e quoted above a p p l i e d d u r i n g t h e e n t i r e p e r i o d

i n d i s p u t e , f i r s t as a n a d m i n i s t r a t i v e r e g u l a t i o n and t h e n as a
s t a t u t e i n which t h a t r e g u l a t i o n was c o d i f i e d .
            I f Ward was a u n i t a r y b u s i n e s s , it was r e q u i r e d to a p p o r -
t i o n i t s b u s i n e s s income f o r t h e p u r p o s e of t h e Montana cor-
poration license tax.                 If   t h e b u s i n e s s w a s u n i t a r y , t h e income
f r o m s o u r c e s w i t h i n Montana c o u l d n o t be " p r o p e r l y s e g r e g a t e d v

f r o m income w i t h o u t t h e s t a t e .

            S e g r e g a t i n g t h e income by s o u r c e d o e s n o t n e c e s s a r i l y
" p r o p e r l y s e g r e g a t e " t h e Montana income from t h e o u t - o f - s t a t e
income t h e r e b y making t h e u s e o f t h e s e p a r a t e a c c o u n t i n g method
p r o p e r , a n y s t a t e m e n t i n ASARCO, s u p r a , t h a t m i g h t be i n t e r p r e t e d
to the contrary notwithstanding.

            The U n i t e d S t a t e s Supreme C o u r t h a s d e c l a r e d t h a t a s t a t e
i s n o t p r e c l u d e d from t a x i n g a c o r p o r a t i o n u n d e r t h e a p p o r t i o n -
m e n t method e v e n i f t h e s o u r c e o f income may be a s c e r t a i n e d b y

s e p a r a t e g e o g r a p h i c a l a c c o u n t i n g a s l o n g as t h e i n t r a - s t a t e and

e x t r a - s t a t e a c t i v i t i e s are p a r t of a s i n g l e u n i t a r y b u s i n e s s .
M o b i l O i l C o r p . v . C o m l r of T a x e s of Vermont (1980), 4 4 5 U.S.

425, 100 S.Ct.            1 2 2 3 , 6 3 L.Ed.2d        510.
            I f t h e o p e r a t i o n o f W a r d ' s b u s i n e s s w i t h i n Montana was
d e p e n d e n t upon or c o n t r i b u t o r y to i t s o p e r a t i o n o u t s i d e t h e s t a t e

o r i f t h e Montana r a n c h d i v i s i o n s and t h e o u t - o f - s t a t e            p a p e r box
d i v i s i o n s were c l o s e l y a l l i e d and n o t c a p a b l e o f s e p a r a t e main-
t e n a n c e a s i n d e p e n d e n t b u s i n e s s e s , t h e n t h e Montana r a n c h d i v i -

s i o n s were p a r t o f a " u n i t a r y b u s i n e s s . "
             W e f i n d from t h e f a c t s o f t h i s case t h a t W a r d ' s o p e r a t i o n

w i t h i n Montana was d e p e n d e n t upon and c o n t r i b u t i n g to i t s o p e r a -

t i o n o u t s i d e Montana. The Montana d i v i s i o n s were d e p e n d e n t upon
t h e o u t - o f - s t a t e o p e r a t i o n f o r c e n t r a l s e r v i c e s which i n c l u d e d
t h e p r e p a r a t i o n o f f e d e r a l and s t a t e r e p o r t s , t h e h i r i n g o f

a c c o u n t a n t s t o p r e p a r e t a x r e t u r n s , t h e p r e p a r a t i o n of f i n a n c i a l
s t a t e m e n t s , t h e k e e p i n g o f r e c o r d s , and t h e b a l a n c i n g o f c h e c k
b o o k s ; f o r f i n a n c i n g when f u n d s i n t h e r a n c h d i v i s i o n s 1 e x p e n s e

b a n k a c c o u n t were i n s u f f i c i e n t to meet t h e d i v i s i o n s 1 e x p e n s e s ;
and f o r major management d e c i s i o n s which i n c l u d e d t h e p u r c h a s e of
e q u i p m e n t and t h e b u y i n g and s e l l i n g o f c a t t l e .
             Ward I s o p e r a t i o n w i t h i n Montana a l s o c o n t r i b u t e d t o i t s
o p e r a t i o n and n e t income o u t s i d e t h e s t a t e .           The Montana d i v i -
s i o n s f u r n i s h e d Ward w i t h a s u b s t a n t i a l t a x w r i t e - o f f     thereby

s a v i n g t h e c o r p o r a t i o n a s a whole a s u b s t a n t i a l amount i n t a x e s .

A l s o a p o r t i o n o f Ward s s h o r t - t e r m        i n v e s t m e n t income was a t t r i -
b u t a b l e t o f u n d s g e n e r a t e d i n Montana.
            S i n c e W a r d ' s o p e r a t i o n i n Montana was b o t h d e p e n d e n t upon
and c o n t r i b u t o r y t o i t s o p e r a t i o n o u t s i d e t h e s t a t e , t h e Montana

r a n c h d i v i s i o n s were p a r t o f W a r d ' s u n i t a r y b u s i n e s s d u r i n g t h e
years in question.
            The r e s p o n d e n t Ward c o n t e n d s t h a t t h e DORIS a s s e s s m e n t of

a d d i t i o n a l t a x e s a g a i n s t i t i n t h i s c a s e is a n a t t e m p t to s u b j e c t

income e a r n e d b y Ward i n o t h e r s t a t e s t o t h e Montana c o r p o r a t i o n
l i c e n s e t a x i n v i o l a t i o n o f t h e due p r o c e s s c l a u s e of t h e
F o u r t e e n t h Amendment of t h e u n i t e d S t a t e s C o n s t i t u t i o n .             We

disagree.

            The u n i t e d S t a t e s Supreme C o u r t r e c e n t l y a d d r e s s e d t h i s
i s s u e i n Mobil --p . ,
                    O i l Cor                4 4 5 U.S.        a t 436-437,       stating:
            " I t l o n g h a s b e e n e s t a b l i s h e d t h a t t h e income of
            a b u s i n e s s o p e r a t i n g i n i n t e r s t a t e commerce is
            n o t immune from f a i r l y a p p o r t i o n e d s t a t e
            taxation.            ( C i t e omitted.)          ' [TIh e e n t i r e n e t
            income o f a c o r p o r a t i o n , g e n e r a t e d b y i n t e r s t a t e
            a s w e l l a s i n t r a s t a t e a c t i v i t i e s , may be f a i r l y
            a p p o r t i o n e d among t h e S t a t e s f o r t a x p u r p o s e s by
            f o r m u l a s u t i l i z i n g i n - s t a t e a s p e c t s of i n t e r s t a t e
            affairs.'            ( C i t e omitted.)          F o r a S t a t e to t a x
            income g e n e r a t e d i n i n t e r s t a t e commerce, t h e Due
            P r o c e s s C l a u s e of t h e F o u r t e e n t h Amendment impo-
            ses two r e q u i r e m e n t s : a ' m i n i m a l c o n n e c t i o n 1
            b e t w e e n t h e i n t e r s t a t e a c t i v i t i e s and t h e t a x i n g
            S t a t e , and a r a t i o n a l r e l a t i o n s h i p b e t w e e n t h e
            income a t t r i b u t e d t o t h e S t a t e and t h e
            i n t r a s t a t e v a l u e s of t h e e n t e r p r i s e .    (Cite
            omitted. ) "
            The " m i n i m a l c o n n e c t i o n 1 ' o r l ' n e x u s " is e s t a b l i s h e d " i f t h e
c o r p o r a t i o n a v a i l s i t s e l f o f t h e ' s u b s t a n t i a l p r i v i l e g e of

c a r r y i n g on b u s i n e s s 1 w i t h i n t h e S t a t e     . . ."       Mobil --p . ,
                                                                                        O i l Cor

445 u.S.       a t 4 3 7 , c i t i n g W i s c o n s i n v. J. C.          Penny C o .       ( 1 9 4 0 ) , 311

U.S.    4 3 5 , 444-445.          Ward c l e a r l y a v a i l e d i t s e l f of t h i s p r i v i l e g e
i n Montana.
            The " r a t i o n a l r e l a t i o n s h i p " r e q u i r e m e n t is m e t i n t h i s
case also.          Ward was o p e r a t e d a s a u n i t a r y b u s i n e s s and a s
d i s c u s s e d e a r l i e r i t s o p e r a t i o n i n Montana was b o t h d e p e n d e n t
upon and c o n t r i b u t o r y t o i t s o p e r a t i o n o u t s i d e t h e s t a t e .

T h e r e f o r e , t h e p o r t i o n of Ward     I   s   t o t a l income a t t r i b u t e d t o
Montana u n d e r M o n t a n a ' s t h r e e - f a c t o r a p p o r t i o n m e n t f o r m u l a is
r a t i o n a l l y r e l a t e d to t h e i n t r a s t a t e v a l u e of t h e c o r p o r a t i o n .
           The s e c o n d i s s u e r a i s e d by a p p e l l a n t DOR i s w h e t h e r t h e

D i s t r i c t C o u r t used t h e p r o p e r s t a n d a r d of r e v i e w of STAB'S f i n -

d i n g s and r u l i n g .     S i n c e we a r e r e v e r s i n g t h e D i s t r i c t C o u r t

j u d g m e n t , t h i s i s s u e i s i r r e l e v a n t t o a d e t e r m i n a t i o n of t h i s

appeal.
           The judgment o f t h e D i s t r i c t C o u r t is r e v e r s e d and t h e
o r d e r o f t h e S t a t e Tax Appeal Board e n t e r e d O c t o b e r 1, 1 9 7 9 i n

Docket N o .      CT-1978-3        is r e i n s t a t e d .




                                                 Chief J u s t i c e
