State ex rel. Anderson v. State Bd. of Equalization

• Decision Date: 31 December 1957
• Docket Number: No. 9478,9478
• Citation: 319 P.2d 221,133 Mont. 8
• Parties: The STATE of Montana, ex rel. John H. ANDERSON, Jr. and Lemuel C. Cragholm, as Executors of the Last Will and Testament of John H. Anderson, Deceased, and John H. Anderson, Jr., individually, Relators, v. The STATE BOARD OF EQUALIZATION of the State of Montana, and Archie E. Simon, Cal A. Robinson, and J. F. Reid, as Members of said State Board of Equalization, Respondents.
• Court: Montana Supreme Court

Page 221

319 P.2d 221

133 Mont. 8

The STATE of Montana, ex rel. John H. ANDERSON, Jr. and

Lemuel C. Cragholm, as Executors of the Last Will and

Testament of John H. Anderson, Deceased, and John H.

Anderson, Jr., individually, Relators, v. The STATE BOARD OF EQUALIZATION of the State of Montana, and Archie E. Simon, Cal A. Robinson, and J. F. Reid, as Members of said State Board of

Equalization, Respondents.

No. 9478.

Supreme Court of Montana.

Submitted May 20, 1957.

Decided Oct. 24, 1957.

Rehearing Denied Dec. 31, 1957.

Lyman H. Bennett, Jr., Bozeman, for relators.

Forrest H. Anderson, Atty. Gen., Arnold H. Olsen, former Atty. Gen., William F Crowley, Asst. Atty. Gen., H. O. Vralsted, Sp. Asst. Atty. Gen., Lyman J. Hall, Deputy Tax Counsel, Bd. of Equalization, Helena, for respondents. H. O. Vralsted argued orally.

HARRISON, Chief Justice.

This an appeal from a judgment of the district court of Madison County, Montana, concerning income taxes of the respondents, John H. Anderson, Jr., and Lemuel C. Cragholm, as executors of the last will and testament of John H. Anderson, deceased and John H. Anderson, Jr., individually. Hereafter we will refer to the appellants, the State Board of Equalization and members, as the Board. The facts are as follows:

John H. Anderson, Jr., filed his personal income tax returns with the State Board of Equalization on or before the 15th day of April, for each of the years 1947, 1948, 1949 and 1950. The returns were reached for examination by the Board in the orderly and regular course of business and the audit completed May 18, 1953. Examination purportedly showed that the taxpayer had incorrectly reported his net income for each of the above-mentioned years. On the above date the appellants assessed deficiency taxes and notified him thereof.

John H. Anderson, Sr., died January 6, 1950. He filed his income tax returns in proper time for the years 1947, 1948 and 1949, and his personal representatives prepared and filed a return for him for the period January 1 to January 6, 1950. Those returns were reached for examination by the Board in the orderly and regular course of business and the audit completed May 18, 1953. This examination also purportedly showed net income had been incorrectly reported for the years 1947 and 1948. On May 18, 1953, the Board assessed deficiency taxes and notified his personal representatives thereof.

With respect to the tax return for the period January 1 to date of decedent's death on January 6, 1950, the personal representatives failed to apply to decedent's closing inventory of personal property, the appraised value thereof as found and determined by the appraisers appointed by the district court to make inventory and appraisement of decedent's property, as required by R.C.M.1947, Sec. 84-4905 ([Laws 1947, c. 167, Sec. 1] before the 1955 amendment).

The Board pursuant to the above statute applied the appraised value to decedent's closing inventory, which resulted in a deficiency tax.

In addition thereto, decedent's personal representatives filed their income tax return on behalf of his estate for the period of January 6 to December 31, 1950, and purportedly this report was also incorrect.

On or about July 13, 1953, John H. Anderson, Jr. and the personal representatives of John H. Anderson, Sr., deceased, filed with the Board their separate written applications for revision and resettlement of the income taxes for the years in question.

In the application for revision of the deficiency taxes assessed for the years 1947, 1948 and 1949 against John H. Anderson, Jr., his contention was that recomputation was barred by R.C.M.1947, Sec. 84-4920 ([Laws 1933, c. 181, Sec. 20] before the 1955 amendment). He also requested a rehearing on the assessment for the years 1947 through 1950.

With reference to the application of John H. Anderson, Sr., it was contended the deficiencies for the years 1947 and 1948 were barred by the provisions of section 84-4920; that time had elapsed for presenting claims against the estate under R.C.M.1947, Secs. 91-2704 and 91-2711, and further that the original returns as filed were computed correctly.

At the hearing of respondents' protest the attorney for the estate of John H. Anderson, Sr., made the additional contention that the assessment, made under the provisions of section 84-4905, was invalid as taxing an item which was not income, and that the tax imposed by such section was arbitrary.

On January 18, 1954, the Board issued its order determining that the Board's assessments were correct. On February 15, 1954, the respondents made application to the district court for writ of certiorari under the provisions of R.C.M.1947, Sec. 84-4923 ([Laws 1933, c. 181, Sec. 23] before the 1955 amendment). On the same day the court directed an 'Order To Show Cause On Application For Writ Of Review' to the Board, setting February 26, 1954, as the time in which the Board could show cause why the writ should not be issued. On February 26, the court caused to be issued the writ applied for.

On April 2, 1954, the Board filed a motion to quash which the court overruled. On the same day witnesses were sworn and testified for the respective parties, which testimony added little to the above facts. The judgment of the trial court was to the effect that the Board had operated without jurisdiction in imposing the deficiency assessments on the respondents, and that the assessments were void and of no effect. From this judgment the Board has appealed.

The issues sought to be considered on this appeal can be grouped under the following headings:

(1) Did R.C.M.1947, Secs. 84-4920 (before it was amended in 1955) constitute either a statute of limitations or a limitation of authority on the State Board of Equalization from examining, recomputing or reassessing deficiency taxes upon returns made three years or more before completion of the assessment?

(2) Was R.C.M.1947, Sec. 84-4905 (before the 1955 amendment) constitutional?

(3) Did R.C.M.1947, Secs. 91-2704 and 91-2711, bar the Board from claiming any deficiencies against the estate of John H. Anderson, Sr.?

R.C.M.1947, Sec. 84-4920, read as follows when this litigation arose:

'If, in the opinion of the Board, any return of a taxpayer is in any essential respect incorrect, it may revise such return, or if any taxpayer fails to make return as herein required, the Board is authorized to make an estimate of the taxable income of such taxpayer from any information in its possession, and to audit and state an account according to such return or the estimate so made by it for the taxes, penalties and interest due the state from such taxpayer. Except in the case of a wilfully false or fraudulent return with intent to evade the tax, the amount of tax due under any return shall be determined by the Board within three years after the return was made. In the case of such wilfully false or fraudulent returns, the amount of tax due may be determined at any time after the return is filed and the tax may be collected at any time after it becomes due, and where no return has been filed, the tax may be assessed at any time.' Emphasis supplied.

The italicized portion of the statute is the particular part upon which this controversy is centered.

It is a well-settled rule of construction in Montana that where a taxing statute is susceptible of two constructions and legislative intent is in doubt, such doubt should be resolved in favor of the taxpayer. Shubat v. Glacier County, 93 Mont. 160, 18 P.2d 614; Vennekolt v. Lutey, 96 Mont. 72, 28 P.2d 452; Mills v. State Board of Equalization, 97 Mont. 13, 33 P.2d 563; State ex rel. Whitlock v. State Board of Equalization, 100 Mont. 72, 45 P.2d 684.

There has been a distinction made between construing revenue statutes imposing a tax and construing those granting exemptions or deductions. State ex rel. Whitlock v. State Board of Equalization, supra. In the latter instance the construction is against the taxpayer and in favor of the taxing power. However in this case, since the legislature commanded a particular act to be done for the protection of the taxpayer, viz., assessment within three years, it falls within the scope of the aforementioned rule demanding construction in favor of the taxpayer. Commonwealth v. Allied Bldg. Credits, 385 Pa. 370, 123 A.2d 686, 691. With this rule of construction in mind we will attempt to ascertain the governing intent and purpose in section 84-4920.

Several other states have statutes similar to ours, therefore examination of cases construing those statutes will be helpful in arriving at the correct construction of our own.

New York has a statute similar to ours set out in McKinney's Consolidated Laws of New York Annotated, c. 60, Book 59, part 2, Tax Laws, Sec. 373. The pertinent provisions are as follows:

'Except as hereinafter provided in this section, the amount of tax due under any return shall be determined by the tax commission within three years after the return was made * * *'

Further the same section provides that a false or fraudulent return may be examined at any time and a tax assessed thereon. A brief comparison between our own section 84-4920 and the above statute illustrates the close similarity between the two.

New York courts have held that the above-quoted portions of their statute constitute a statute of limitations. Marx v. Goodrich, 286 App.Div. 913, 142 N.Y.S.2d 28, 30; Brown v. New York State Tax Com'n, 199 Misc. 349, 99 N.Y.S.2d 73, 78.

The Vermont court in Union Twist Drill Co. v. Harvey, 113 Vt. 493, 37 A.2d 389, 396, stated their statute, which provided that the commission could assess a tax within two years after the tax was due if no tax had been assessed on the income or part thereof of a taxpayer, was not merely directory, but stated a condition precedent to the legality of the tax and was intended for the security of the taxpayer. That court stated:

'With the proviso that...