Robison v. Mont. Dep't of Revenue

• Decision Date: 06 July 2012
• Docket Number: No. DA 11–0672.,DA 11–0672.
• Citation: 365 Mont. 336,2012 MT 145,281 P.3d 218
• Parties: Dustin ROBISON, Petitioner and Appellant, v. MONTANA DEPARTMENT OF REVENUE, Respondent and Appellee.
• Court: Montana Supreme Court

365 Mont. 336

281 P.3d 218

2012 MT 145

Dustin ROBISON, Petitioner and Appellant,

v.MONTANA DEPARTMENT OF REVENUE, Respondent and Appellee.

No. DA 11–0672.

Supreme Court of Montana.

Submitted on Briefs May 23, 2012.

Decided July 6, 2012.

For Appellant: Thomas J. Stusek, Stusek Law Firm, P.C., Bozeman, Montana.

For Appellee: Michelle R. Johnson, Amanda L. Myers, Teresa G. Whitney, Special Assistant Attorneys General, Helena, Montana.

Justice MICHAEL E WHEAT delivered the Opinion of the Court.

[365 Mont. 337]¶ 1 Petitioner Dustin Robison (Robison) appeals from an order of the First Judicial District Court, Lewis and Clark County, which reversed the findings of the State Tax Appeals Board (STAB) and reinstated the findings of the Montana Department of Revenue (DOR). We affirm.

BACKGROUND

¶ 2 This case concerns whether Robison is allowed to claim a deduction on his Montana income taxes for certain mileage as a business travel expense. The facts that follow are undisputed.

¶ 3 Robison resides in Billings, Montana. He was employed by Unit Drilling Company (Unit) as a rig hand on oil rigs in the Big Piney/Pinedale area of western Wyoming. When Robison began working in the Big Piney/Pinedale area in 2005, he did not know how long his employment there would last—for example, 1 week, or 5 years, or longer. Robison also did not know that his employment there would be for a specific limited duration; for example, he did not know at the outset that his employment there would terminate in 8 months. Robison said “Oil rigs are designed to move. That's the principle that allows us to do what we do. We rig up on a location. Once our hole is drilled, we have to move to the next one. No telling where that will be.” Robison also stated that Billings is a good place to live because it is central to several oil fields. As STAB found, it is “uncontroverted” that Robison “never knew how long he would be employed at any one site.” In reality, Robison was employed in the same Big Piney/Pinedale area for over 3 years, from March of 2005 to early October of 2008.

¶ 4 While so employed, Robison worked a 7–day–on, 7–day–off schedule. As his mileage logs reflect, he would drive his personal vehicle ¹ from his residence in Billings to a camp (provided and maintained by Unit for its workers) in the Big Piney/Pinedale area. Then, during the 7 days he worked, he would drive from the camp to an oil rig (or rigs) and back, until finally, at the end of the 7–day–on schedule, Robison would drive from the rig location back to his residence in Billings.

¶ 5 Robison claimed this mileage as a business travel expense during tax years 2005–2008, and deducted it accordingly. In total, Robison claimed $78,812 in business travel expenses for the 2005–2008 tax years. Robison was audited by the DOR in 2009 after “reporting significant amounts of unreimbursed employee business expenses claimed for extended periods.” The audit determined that Robison's employment was indefinite, making his “tax home” the Big Piney/Pinedale area of Wyoming; thus, the claimed business expenses were actually personal commuting expenses and therefore disallowed. DOR determined additional tax liability for the 2005–2008 tax years of approximately $7,000, including penalties and interest. It appears that interest continues to accrue on the balance the DOR claims is due.

¶ 6 Robison requested informal review by the DOR. The Field Unit Audit Manager determined the initial audit was correct. Robison then appealed to the DOR's Office of Dispute Resolution (ODR). After a full evidentiary hearing, the ODR hearing examiner issued a lengthy and well-reasoned order affirming the audit determination. The hearing examiner found Robison's employment in Wyoming was indefinite, not temporary. Because Robison's employment was indefinite, his “tax home” for purposes of the business travel expense deduction was the Big Piney/Pinedale area of Wyoming, not Billings, Montana, his place of residence. Therefore, none of the $78,812 claimed was allowed as a business travel expense.

¶ 7 Robison then appealed to STAB. The STAB appeal was confined to the ODR's order, transcript, and exhibits. After review, STAB reversed the decision of the ODR and found Robison's employment was temporary, that his “tax home” was in Billings, and that all his business travel expenses were allowable deductions. To reach this conclusion, STAB found that Robison's “tax home” was Billings (based upon its reading of Coombs v. Commissioner, 608 F.2d 1269, 1275 (9th Cir.1979)), and that Robison “was not located in Wyoming for over a year, but actually made numerous seven-day temporary business trips to Wyoming.” STAB also separately determined that “[b]ecause the law is unclear, and can be subject to multiple interpretations,” even if the deductions were not allowed, the “case is not an appropriate one for the imposition of penalties and interest.”

¶ 8 The DOR then filed a petition for judicial review in the First Judicial District Court, Lewis and Clark County. After briefing by the parties, the District Court reversed STAB's determination and reinstated the decision of the ODR hearing examiner. It found that STAB “misapprehended the effect of [the] evidence and misapplied pertinent case law” in determining that Robison's employment was temporary and that his “tax home” was in Billings, Montana. The District Court also found STAB erred as a matter of law when it suggested, in a footnote, that if Robison's “tax home” was in Wyoming, Montana could not impose state income tax on him, and when it found that DOR should not impose penalties and interest upon Robison.

¶ 9 Robison then obtained appellate counsel and filed the present, timely appeal. Robison appeals only the “deductibility of certain business-related travel, lodging, and meal expenses[.]” He does not appeal the District Court's determination that STAB erred in suggesting Montana could not imposeincome tax on him, nor does he appeal imposition of penalties and interest.

STANDARD OF REVIEW

¶ 10 A district court reviews a STAB decision to determine whether STAB's findings of fact are clearly erroneous and whether STAB correctly interpreted the law. Puget Sound Energy, Inc. v. State, 2011 MT 141, ¶ 14, 361 Mont. 39, 255 P.3d 171. A factual finding is clearly erroneous if it is not supported by substantial evidence, if the trier of fact misapprehended the effect of the evidence, or if a review of the record leaves the reviewing court with the definite and firm conviction that a mistake has been made. Micone v. Department of Public Health and Human Services, 2011 MT 178, ¶ 10, 361 Mont. 258, 258 P.3d 403. We apply the same standards when reviewing a district court's order affirming or reversing STAB's decision. Puget Sound, ¶ 14;O'Neill v. Department of Revenue, 2002 MT 130, ¶ 10, 310 Mont. 148, 49 P.3d 43.

DISCUSSION

¶ 11 Before we discuss the issues in this case, we begin by laying out the legal framework we must consider in a case such as Robison's.

¶ 12 Tax deductions are a matter of legislative grace and it is the taxpayer's burden to clearly demonstrate the right to the claimed deduction. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84, 112 S.Ct. 1039, 117 L.Ed.2d 226 (1992); Baitis v. Department of Revenue, 2004 MT 17, ¶ 28, 319 Mont. 292, 83 P.3d 1278;GBN, Inc. v. Department of Revenue, 249 Mont. 261, 266, 815 P.2d 595, 597 (1991).

¶ 13 Under Montana law, in computing net income,² deductions are generally those permitted by 26 U.S.C. §§ 161 and 211. Section 15–30–2131(1)(a), MCA. A deduction is generally allowed for all ordinary and necessary business expenses. 26 U.S.C. § 162.³ Montana has specifically adopted this provision of the Internal Revenue Code. Magnuson v. Montana State Board of Equalization, 162 Mont. 393, 395, 513 P.2d 1, 3 (1973). Included in ordinary and necessary business expenses are “traveling expenses (including amounts expended for meals and lodging other than amounts which are lavish or extravagant under the circumstances) while away from home in the pursuit of a trade or business[.]” 26 U.S.C. § 162(a)(1). Such travelling expenses are deductible if the taxpayer can prove the expenses are: 1) reasonable and necessary; 2) incurred while away from home; and 3) incurred in the pursuit of a trade or business. Commissioner v. Flowers, 326 U.S. 465, 470, 66 S.Ct. 250, 90 L.Ed. 203 (1946).

¶ 14 In contrast, it is well settled that unless specifically provided by law, expenses incurred in commuting to and from work are not deductible, but rather are personal expenses. 26 U.S.C. § 262(a); Flowers, 326 U.S. at 469–70, 66 S.Ct. 250;Coombs, 608 F.2d at 1275–76;Sanders v. Commissioner, 439 F.2d 296, 297 (9th Cir.1971). “If, for personal reasons, one chooses to live far from the place of employment, the resulting travel costs are nondeductible, personal expenses.” Kasun v. United States, 671 F.2d 1059, 1061 (7th Cir.1982). For travel expenses to be deductible, it is “ ‘the job, not the taxpayer's pattern of living, [that] must require the travel.’ ” Kasun, 671 F.2d at 1061 (quoting Commissioner v. Peurifoy, 254 F.2d 483, 486 (4th Cir.1957), aff'd,358 U.S. 59, 79 S.Ct. 104, 3 L.Ed.2d 30 (1958) (per curiam)).

¶ 15 Robison's case concerns the second prong of the test annunciated in Flowers—was Robison “away from home” while working in Wyoming? To answer this question, we must consider two distinct, yet inevitably intertwined concepts—temporary or indefinite employment and a taxpayer's “tax home.” The nature of Robison's employment will determine the location of his “tax home.” ⁴ As discussed in detail below, if Robison's employment in Wyoming was temporary, his tax home would be his residence in Billings and his business travel expenses are deductible. However, if Robison's employment in Wyoming was indefinite, his “tax home” is his principal place of business (the Big Piney/Pinedale area of Wyoming) and his business travel expenses are disallowed.

The...