                                                                                             June 3 2008


                                           DA 07-0429

                  IN THE SUPREME COURT OF THE STATE OF MONTANA

                                           2008 MT 191



FRONTIER CHEVROLET,

              Plaintiff and Appellant,

         v.

DEPARTMENT OF REVENUE, STATE
OF MONTANA,

              Defendant and Appellee.



APPEAL FROM:            District Court of the Thirteenth Judicial District,
                        In and For the County of Yellowstone, Cause No. DV 06-1260
                        Honorable Ingrid G. Gustafson, Presiding Judge


COUNSEL OF RECORD:

                For Appellant:

                        Peter T. Stanley, Attorney at Law, Billings, Montana

                For Appellee:

                        Derek R. Bell, Special Assistant Attorney General, Helena, Montana



                                                     Submitted on Briefs: April 24, 2008

                                                                 Decided: June 3, 2008


Filed:

                        __________________________________________
                                          Clerk
Justice Jim Rice delivered the Opinion of the Court.

¶1     Appellant Frontier Chevrolet Company (Frontier) appeals the order of the

Thirteenth Judicial District Court, Yellowstone County, affirming the decision of the

Montana State Tax Appeal Board (STAB) requiring Frontier to pay additional taxes and

interest thereon for tax years 1995 and 1996. We affirm.

¶2     We restate the issue on appeal as follows:

¶3     Did the District Court err by affirming STAB’s determination that the Department

of Revenue’s assessment requiring Frontier to pay additional taxes and interest for tax

years 1995 and 1996 was timely?

                 FACTUAL AND PROCEDURAL BACKGROUND

¶4     The parties agree that the following facts are undisputed. Frontier is a Montana

taxpayer and subject to corporate license tax. In 1998 the Internal Revenue Service (IRS)

issued a Notice of Deficiency to Frontier with respect to its federal tax liability for tax

years 1994, 1995, and 1996. Frontier disputed the deficiency and initiated litigation in

the United States Tax Court (Tax Court), claiming it could amortize a non-compete

agreement over a five-year period, rather than a fifteen-year period as argued by the IRS.

In May 2001, the Tax Court rejected Frontier’s claim. See Frontier Chevrolet, Co. v.

Commr, 116 T.C. 289 (2001). Subsequently Frontier stipulated to the financial figures

subject to adjustment by way of Frontier’s claim, and on August 31, 2001, the Tax Court

issued its final decision, concluding therein that Frontier owed additional federal income

tax for the years 1995 and 1996 in the amounts of $38,720 and $9,289 respectively.

Frontier appealed to the Ninth Circuit Court of Appeals, which subsequently affirmed the


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Tax Court decision on May 28, 2003. Frontier Chevrolet, Co. v. Commr, 329 F.3d 1131

(9th Cir. 2003).

¶5     In July of 2004, the Montana Department of Revenue (DOR) received two

Revenue Agent Reports from the IRS. Both reports reflected changes in Frontier’s

federal taxable income for tax years 1995 and 1996. On September 23, 2004, DOR

issued Frontier an assessment of additional tax owing for tax years 1994, 1995, and 1996.

DOR and Frontier subsequently agreed to adjustments of the financial figures at issue in

the initial assessment and DOR issued a revised assessment on April 4, 2005, which

addressed only tax years 1995 and 1996. The revised assessment indicated that Frontier

owed an additional $7,687 in taxes for 1995 and $1,844 in taxes for 1996, plus interest

accruing at a rate of one percent per month from the due date of each return to the

payment date, for a total balance owed of $15,858.83 for 1995 and $3,614.32 for 1996.

¶6     Frontier appealed DOR’s assessment to the DOR Office of Dispute Resolution

(ODR), arguing that DOR had issued the assessment beyond the statute of limitation set

forth in § 15-31-509, MCA (1997). DOR moved for dismissal of Frontier’s appeal,

which was granted by the hearing examiner, and Frontier appealed the dismissal to

STAB. On October 3, 2006, STAB upheld the assessment, determining that the Ninth

Circuit’s decision, issued May 28, 2003, constituted “the final determination by a

‘competent authority’ pursuant to § 15-31-506, MCA[.]” Accordingly, STAB concluded

that “[b]ecause Frontier Chevrolet failed to timely file an amended Montana Return at the

time it filed amended federal returns, and such a return was required by § 15-31-506,




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MCA, the DOR may assess tax liability pursuant to § 15-31-544, MCA, and is not barred

by statute of limitations.”

¶7      Frontier then petitioned the District Court for review of STAB’s decision,

asserting that STAB “made incorrect conclusions of law related to the effects of the tax

statutes of limitations on the time available to the [DOR] to assess taxes.” The District

Court affirmed, concluding that “§ 15-31-544, MCA, operated to toll the general statute

of limitations found at § 15-31-509, MCA.” Frontier challenges this conclusion on

appeal.

                              STANDARD OF REVIEW

¶8      A district court reviews an administrative decision to determine whether the

findings of fact are clearly erroneous and whether the agency correctly interpreted the

law. O’Neill v. Dept. of Revenue, 2002 MT 130, ¶ 10, 310 Mont. 148, ¶ 10, 49 P.3d 43,

¶ 10. We employ the same standards when reviewing a district court order affirming or

reversing an administrative decision. O’Neill, ¶ 10. If we reach the same conclusion as

the district court but on different grounds, we may still affirm the district court’s

judgment. Germann v. Stephens, 2006 MT 130, ¶ 21, 332 Mont. 303, ¶ 21, 137 P.3d 545,

¶ 21.

                                    DISCUSSION

¶9     Did the District Court err by affirming STAB’s determination that the
Department of Revenue’s assessment requiring Frontier to pay additional taxes and
interest for tax years 1995 and 1996 was timely?

¶10     Frontier contends that its stipulation with the Tax Court, whereby it agreed to

adjust its reported federal taxable income, was not a “change or correction by the United


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States Internal Revenue Service or other competent authority” and therefore § 15-31-506,

MCA (1997), does not apply and Frontier was not required to report a change to DOR.

Accordingly, Frontier argues that the general three-year statute of limitation set forth in

§ 15-31-509, MCA (1997), began when its tax returns were filed for the respective years

at issue and had expired by the time DOR issued its assessment in September, 2004,

rendering it time-barred.

¶11    DOR responds that “[t]he plain language of § 15-31-506, MCA (1995), requires a

corporate taxpayer to file with the Department a report of changes or corrections to its

federal taxable income” and Frontier’s failure to do so tolled the limitations period, which

it asserts is the five year statutory period set forth in § 15-31-509, MCA (1995). DOR

concedes that it mistakenly relied on the 2005 MCA in the previous proceedings herein

and mistakenly argued that the statute of limitation was tolled by § 15-31-544, MCA.

While both STAB and the District Court determined that § 15-31-544, MCA, tolled the

limitation period, DOR asks this Court to “analyze the timeliness of the assessments

pursuant to § 15-31-509(1)(b), MCA (1995), not § 15-31-544, MCA.”

¶12    The parties rely on different versions of the MCA, Frontier on the 1997 MCA and

DOR on the 1995 MCA, without any explanation for their respective choices. Because

the 1995 MCA was in effect at the time Frontier’s 1995 and 1996 state taxes were

incurred, review pursuant to the 1995 MCA is appropriate.

¶13    Section 15-31-506, MCA (1995), provides:

       If the amount of a corporation’s taxable income reported on its federal
       income tax return or the computation schedule filed for any taxable year is
       changed or corrected by the United States internal revenue service or other


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       competent authority, the corporation shall report such proposed change or
       correction to the department within 90 days after receiving official notice
       thereof. [Emphasis added.]

Although the Tax Court concluded that Frontier had “deficiencies in income tax due . . .

for the taxable years 1995 and 1996[,]” Frontier contends that the Tax Court’s decision

does not constitute a “change or correction” to its taxable income because the Tax

Court’s order arose by way of a stipulation entered by Frontier and the IRS. Frontier

argues that it must report only those changes which result from litigation and, given the

circumstances here, the obligation to report the change in its taxable federal income was

not triggered. DOR replies that Frontier’s federal taxable income “increased from the

amounts stated on line 28, Federal Form 1120 for each of those years”—the starting point

for calculation of Frontier’s state tax—and that these changes “resulted from an IRS audit

which led to the initiation of the federal litigation[,]” which triggered the requirement to

report to the DOR pursuant to § 15-31-506, MCA (1995).

¶14    Section 15-31-506, MCA (1995), provides that a corporate taxpayer “shall report”

to the DOR when “the amount of a corporation’s taxable income reported on its federal

income tax return . . . is changed or corrected” by the IRS or “other competent authority.”

The statute does not require that the change or correction “result from litigation” in order

to trigger the obligation to report, as argued by Frontier.       We believe that such a

rendering would insert a requirement not contained within the plain language of the

provision and would violate our duty, when construing a statute, “to ascertain and declare

what is in terms or in substance contained therein, not to insert what has been omitted or

to omit what has been inserted.” Section 1-2-101, MCA.


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¶15   It is uncontested that Frontier’s federal tax liability for tax years 1995 and 1996

increased. This increase occurred after an IRS audit, issuance of a Notice of Deficiency,

and the subsequent Tax Court order issued in August of 2001, which was affirmed by the

Ninth Circuit Court of Appeals in May of 2003. The increase was thus occasioned by the

IRS, whose position in this matter was further confirmed by the Tax Court and the Ninth

Circuit Court of Appeals, which are unquestionably “competent authorities” as

envisioned by the statute. Accordingly, Frontier was required to report the change in its

1995 and 1996 federal taxable income to DOR within ninety days of receiving notice of

the change.

¶16   Although Frontier concedes it failed to report, it next argues that the statute of

limitations expired prior to DOR’s issuance of an assessment for these tax years. Both

STAB and the District Court concluded that § 15-31-544, MCA,1 tolled the statute of

limitation set forth in § 15-31-509, MCA (1995), which provides:

             (1) Except as otherwise provided in this section and in 15-31-544, no
      deficiency shall be assessed or collected with respect to the year for which a
      return is filed unless the notice of additional tax proposed to be assessed is
      mailed within 5 years from the date the return was filed.

In turn, § 15-31-544, MCA (1995), provides:

             Whenever a return is required to be filed and the taxpayer files a
      fraudulent return or fails to file the return, the department may at any time
      assess the tax or begin a proceeding in court for the collection of the tax
      without assessment. [Emphasis added]


1
   It is unclear on which version of § 15-31-544, MCA, STAB and the District Court
relied. However, the current version of § 15-34-544, MCA, is the same as the 1995
version.


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The District Court concluded from these provisions that “STAB appropriately determined

[that Frontier] was required to file an amended Montana tax return setting forth the

changes or corrections” and because Frontier “did not file any such amended returns[,]”

§ 15-31-544, MCA, tolled the limitation period within § 15-31-509, MCA. However, as

explained above, § 15-31-506, MCA (1995), required only that Frontier “report” the

changes to its federal taxable income, not that it file an amended return.2 We cannot

conclude that a requirement to “report” is synonymous with “filing a return” and thus, the

District Court erred in reaching this conclusion. Section 15-31-544, MCA (1995), does

not toll the statute of limitation in this case because that provision only applies when a

taxpayer fails to “file a return” or files a fraudulent return.

¶17    Acknowledging this error, DOR asks us to review the tolling provisions within

§ 15-31-509(1)(b), MCA (1995), which provides:

       (1) . . . The limitations prescribed for giving notice of a proposed assessment of
       additional tax shall not apply when:
               ....
               (b) a taxpayer has failed to file a report of changes in federal taxable
       income or an amended return as required by 15-31-506 until 5 years after the
       federal changes become final or the amended federal return was filed, whichever
       the case may be.


2
 The District Court’s determination that Frontier was required to file an amended return
may have stemmed from DOR’s citation to the 2005 version of § 15-31-506, MCA,
which includes a provision added in 1999 that required filing of an amended return:

       If the amount of a corporation’s taxable income reported on its federal
       income tax return or the computation schedule filed for a taxable year is
       changed or corrected by the United Sates internal revenue service or other
       competent authority, the corporation shall file an amended Montana return
       with the department within 90 days after receiving official notice of the
       change or correction. [Emphasis added]

                                            8
As discussed above, Frontier failed to report the changes in its federal taxable income as

required by § 15-31-506, MCA (1995). Accordingly, § 15-31-509(1)(b), MCA (1995),

effectively tolled or extended the limitation period until “5 years after the federal changes

became final . . . .” The parties thus argue about when the federal changes to Frontier’s

1995 and 1996 federal tax liability became final.

¶18    Frontier asserts that the federal “changes became final when the stipulation was

reached[.]” Frontier does not provide the date of the stipulation between it and the IRS,

but offers that it occurred sometime “before May of 2000 . . . .” DOR contends that the

federal changes became final on May 28, 2003, the date of the Ninth Circuit decision, and

we agree with this position. Frontier explains in its briefing that had Frontier “prevailed

on the amortization issue raised at the Tax Court and appealed to the Court of Appeals,

the taxes for the years 1995 and 1996 would have been decreased and not increased.”

Though this is offered to explain that the litigation did not produce the increase in its

taxes, it also serves to acknowledge that the federal changes were not final until the Ninth

Circuit issued its opinion on May 28, 2003, and thereby resolved the disputed tax

liability. As such, DOR’s September 23, 2004, assessment was issued well within the

five year limitation period as provided within § 15-31-509(1)(b), MCA (1995).

¶19    Although the District Court erred by relying on § 15-31-544, MCA, to conclude

the limitation period had been tolled, we reach the same conclusion under application of a

different statute. Upon that alternative ground, Germann, ¶ 21, we conclude that DOR’s

assessment was timely made.




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¶20   Affirmed.

                               /S/ JIM RICE



We concur:


/S/ JOHN WARNER
/S/ PATRICIA COTTER
/S/ W. WILLIAM LEAPHART
/S/ BRIAN MORRIS




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