Peter Kiewit Sons' Co. v. State Bd. of Equalization

• Decision Date: 29 January 1973
• Docket Number: No. 12199,12199
• Citation: 161 Mont. 140,505 P.2d 102
• Parties: PETER KIEWIT SONS' CO., a corporation, Plaintiff and Appellant, v. STATE BOARD OF EQUALIZATION of the State of Montana et al., Defendants and Respondents.
• Court: Montana Supreme Court

Page 102

505 P.2d 102

161 Mont. 140

PETER KIEWIT SONS' CO., a corporation, Plaintiff and Appellant, v. STATE BOARD OF EQUALIZATION of the State of Montana et al Defendants and Respondents.

No. 12199.

Supreme Court of Montana.

Submitted Nov. 27, 1972.

Decided Jan. 10, 1973.

Rehearing Denied Jan. 29, 1973.

Garlington, Lohn & Robinson, Sherman V. Lohn and Lawrence F. Daly argued, Missoula, for plaintiff and appellant.

Scott P. Crampton and Gilbert E. Andrews, Jr., Bruce I. Kogan argued, Washington, D. C., amicus curiae.

Poore, McKenzie & Roth, Robert A. Poore, argued, Butte, Jene Bell appeared, Helena for defendants and respondents.

CASTLES, Justice.

This is an appeal from a judgment of the district court of the first judicial district, county of Lewis and Clark.

In February and March 1971, plaintiff Peter Kiewit Sons' Co. paid a total of $8,726.47 as gross receipts tax payments in compliance with Chapter 35, Title 84, R.C.M.1947. At the same time, plaintiff also filed letters of protest with defendant State Board of Equalization challenging the validity of the public contractors' license act and demanded refund of the payments. Within sixty days plaintiff proceeded to bring an action in the district court seeking to have Chapter 35, Title 84, R.C.M.1947, declared in violation of the laws and Constitution of the state of Montana and the Constitution of the United States, to obtain refund of all taxes and fees remitted to the state of Montana under the chapter in question.

The district court, sitting without a jury, found the provisions of Chapter 35, Title 84, R.C.M.1947, did not violate the laws or Constitution of Montana nor the Constitution of the United States. Judgment was entered for defendant. Plaintiff filed motions to amend the findings of fact and conclusions of law and for a new trial, which were denied by the trial court. From the judgment and order denying those motions, plaintiff appeals.

In addition to briefs and argument in this Court by counsel for the parties, a brief and oral argument was presented by the United States government as amicus curiae in support of plaintiff's position.

We feel at this point that a brief history of the Act in question would be helpful. The initial version of what became Chapter 35, Title 84, R.C.M.1947, was passed by the Montana legislature in 1935. It required the licensing by the state of contractors dealing with the state or any of its political subdivision; federal contractors were excluded from the Act.

In March 1965, in an attempt to ensure the payment of state and local taxes by contractors working in the state, Chapter 277, Laws 1965, was passed by the legislature. The problem arose because some contractors working in the state did not report all of their equipment to county tax assessors, who were attempting to impose county property tax on those contractors. Also, some contractors working in the staste would not file corporate or personal income tax returns which would have fairly reflected their business profits from within the state.

Chapter 277, Laws 1965, imposed a 1% tax upon gross receipts of all nonresident public contractors operating within the state. In April 1965, the constitutionality of Chapter 277, Laws 1965, was raised to this Court and the Court found it to be unreasonable discrimination and ruled it unconstitutional. State ex rel. Schultz-Lindsay v. Board of Equalization, 145 Mont. 380, 403 P.2d 635.

In 1967, the Montana legislature again attempted to work out a solution to the problem of contractors not paying their taxes. That legislature enacted a revenue enforcing measure designed to operate hand in hand with Montana's long-standing personal property tax and income tax, to ensure more effective tax collection and reduce tax avoidance. It then passed an amendment to the 1935 licensing act which required a 1% tax upon all receipts of public contractors in the state, including both resident and nonresident contractors, covering all public works within the state including construction done by the United States government.

The revenue enforcing measure was enacted in an attempt to require some of the contractors working in the state to meet their tax responsibilities. The mechanics of the measure are best understood by taking, as an example, the Kiewit contract for part of the Montana Libby Dam project. The contract was given to Kiewit because it was the lowest responsible bidder. The contract then entered on the performance of its contract and as the work progressed it received payments from the landowner. It paid 1% of such receipts to the State Board of Equalization. In such manner Kiewit has paid or will pay 1% of approximately 6.4 million dollars or about $64,000 to the State Board of Equalization.

This fund is held to the credit of Kiewit on an accounting system adopted by the State Board. The Act operates in the nature of a withholding or prepayment program for Montana property and income taxes. In this case, Kiewit has sufficient items of heavy equipment working on the job at Libby to incur and pay a personal property tax of $35,803.22. Kiewit is entitled to a dollar for dollar credit and actual refund for such personal property taxes from its fund created with the State Board if 1971 by its payment of the 1% gross receipts tax. So any time in 1971, after having paid the personal property taxes Kiewit could, upon showing proof of such payments of personal property taxes, receive a refund of the payments out of the 1% gross receipts tax. Not only could Kiewit obtain refunds of personal property taxes paid in Lincoln County at the job site, but could also have the same benefits for any personal property taxes paid by it that year, anywhere in Montana.

Payments on the job and the corollary 1% tax thereon may come more rapidly than personal property taxes are due or may exceed the amount of such taxes. In that event, the remainder of the 1% fund to the contractor's credit at the State Board may be used to pay, dollar for dollar, the contractor's income taxes. If refunds of the personal property taxes have not consumed the 1% gross receipts tax payments to the State Board, the contractor can take dollar for dollar credit directly against his tax for the balance of gross receipts tax still remaining to his credit at the State Board.

Where there is heavy equipment subject to property tax and/or net income tax on a job and the taxpayer claims the refunds or credits, the gross receipts tax washes itself out. The Act, as can be seen from the credits procedure, was intended as an incentive to public contractors to declare their items of personal property for taxation. It also encourages contractors to more fairly allocate out-of-state home office overhead expenses, in part at least, to Montana.

It is true that the Act in practice to date has not resulted in a total washout of the 1% gross receipts payments. It does appear that one of the reasons for this failure is that the federal government has inserted a clause in some of the federal contracts which prohibits a contractor from taking the refunds and credits available to him. Such a clause was in the contract Kiewit had with the federal government. Clause 58(f) of that contract reads:

'The Act (R.C.M., 1947, sec. 84-3514) allows the license fee based on gross receipts to be used as a credit on: (1) the Contractor's corporation license tax (R.C.M., 1947, Title 84, Chapter 15) or on Contractor's income tax (R.C.M., 1947, Title 84, Chapter 49), depending upon the type of tax the Contractor (or subcontractor) is required to pay under the laws of the State of Montana; and (2) personal property taxes paid in Montana on personal property of the Contractor (or subcontractor) which is used in the business of the Contractor and is located within the State. The Contractor, and, in turn, the subcontractors will not take advantage of these credits.' (Emphasis added).

This prohibition by the federal government is of necessity part of the reason there is a surplus of the revenue of the gross receipts tax.

As for other reasons why the Act is not a total wash item, the district court, upon hearing the evidence, found that some of the contractors were not aware of the credit available to them and some were simply indifferent to the use of their credits. In its finding of fact No. 17, the district court said:

'* * * That the present residue of tax with the State Board or State of Montana is not fairly representative of how the tax is likely to operate in future years.'

There has been nothing presented to this Court on appeal which would change the finding of the district court and it is clear that this Act is intended to operate as a revenue enforcing measure.

Appellant's principal argument is that a tax which is placed solely on public contractors is discriminatory. It maintains the only difference between public contractors and private contractors is the status of the party for whom the contractor is working. Such a difference, in appellant's view, is not sufficient to justify the imposition of the tax.

Since that was the same point raised in Schultz-Lindsay, a review of that decision will give us a view of Montana law on the issue of tax discrimination. There, we stated that the legislature may impose a license tax on certain occupations and not on others, as long as 'arbitrary and unreasonable classifications' are not permitted. Schultz-Lindsay p. 398, 403 P.2d p. 640.

In Schultz-Lindsay at p. 390, 403 P.2d at p. 640, the Court citing State v. Sunburst Refining Co., 73 Mont. 68, 235 P. 428, stated that in making such classifications:

"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...