Union Pacific Corp. v. STATE TAX COM'N, No. 29219.

• Court: United States State Supreme Court of Idaho
• Writing for the Court: BURDICK, Justice.
• Citation: 139 Idaho 572,83 P.3d 116
• Decision Date: 05 January 2004
• Docket Number: No. 29219.
• Parties: UNION PACIFIC CORPORATION and affiliated companies, Plaintiff-Appellant, v. IDAHO STATE TAX COMMISSION, Defendant Respondent.

83 P.3d 116
139 Idaho 572

UNION PACIFIC CORPORATION and affiliated companies, Plaintiff-Appellant,
v.
IDAHO STATE TAX COMMISSION, Defendant Respondent

No. 29219.

Supreme Court of Idaho, Boise, December 2003 Term.

January 5, 2004.

83 P.3d 118

Hawley, Troxell, Ennis & Hawley, Boise, for appellant. Richard G. Smith argued

Hon. Lawrence G. Wasden, Attorney General, Boise, for respondent. Charles E. Zalesky argued.

BURDICK, Justice.

NATURE OF THE CASE

This is a corporate income tax case. Union Pacific Corporation (UPC) is seeking reversal of the district court's decision upholding the application of alternative apportionment provisions of I.C. § 63-3027 to determine that portion of UPC's business income attributable to Idaho.

FACTS AND PROCEDURAL BACKGROUND

UPC received a notice of deficiency from the Tax Commission for the tax years 1991, 1992, and 1993. UPC timely filed a protest of the proposed tax deficiencies, which were affirmed by the Commission in a decision dated June 3, 1997. UPC appealed the decision to the district court, which ruled in UPC's favor. The decision of the district court, which was appealed by the Commission, was reversed on appeal with the Court holding in relevant part that "including in the apportionment formula set forth in I.C. § 63-3027(i) both accounts receivable from freight sales and money received from the sale of those accounts receivable results in an apportionment that does not fairly represent how UPC earns its income." The Court remanded for the district court to consider an alternative apportionment formula. Union Pacific Corporation v. Idaho State Tax Comm'n (UPC I), 136 Idaho 34, 28 P.3d 375 (2001).

The district court on remand determined to apply an alternative apportionment formula and to exclude from the sales factor denominator UPC's sales of accounts receivable. The sales factor is but one of three components of the formula found in the Uniform Division of Income for Tax Purposes Act ("UDITPA") to identify the share of a corporation's income apportioned to a state; it is a fraction, the numerator of which is the total sales by the taxpayer in Idaho during the tax period and the denominator of which is the taxpayer's total sales everywhere during the tax period.

The district court's decision specifically addressed the "double counting of revenues" that occurred by virtue of UPC's reporting, which included accounts receivable from freight sales under the accrual accounting method, and also included the sales of those same accounts receivable under the cash accounting method, thereby understating the taxpayer's instate revenues. The district court acknowledged that ordinarily, with the use of an accrual method of bookkeeping, UPC would have only one set of receipts in its sales factor—the accrued freight revenues. The district court found that deleting the proceeds of the receivable sales from the sales factor calculated by UPC was a "reasonable" alternative apportionment method, which more accurately represents UPC's Idaho business activity for the years in question.

The district court noted that in this case, the Tax Commission not the taxpayer was asking the court to sanction the application of an alternative apportionment formula, in order to prevent Idaho income from escaping proper taxation. The district court ruled that application of alternative apportionment was not limited to cases with unconstitutional results, cases which produce a "gross distortion" between the statutory calculation and the proposed alternative, or that it discriminates against interstate commerce or unfairly subjects UPC to double taxation, as UPC had argued. In spite of UPC's claim that the

83 P.3d 119

sales of accounts receivable are not unusual, unique or nonrecurring, the district court held that the facts clearly established this to be an unusual fact situation, making it appropriate for alternative apportionment in that the statutory formula did not fairly represent UPC's Idaho activity. The district court entered partial summary judgment in favor of the Tax Commission and denied UPC's summary judgment motion. UPC has appealed from the judgment

UPC claims on appeal that the sanctioning of an alternative apportionment was the result of the district court's improper application of the facts to the law, inadequate consideration of all three factors of the apportionment formula, and failure to evaluate whether the potential "understatement" from the use of the standard formula was in excess of a normal tolerance so as to justify deviation from that formula.

STANDARD OF REVIEW

Where both parties file motions for summary judgment relying on the same facts, issues and theories, the judge, as trier of fact, may resolve conflicting inferences if the record reasonably supports the inferences. Riverside Dev. Co. v. Ritchie, 103 Idaho 515, 518-20, 650 P.2d 657, 661-62 (1982). This court exercises free review as to application of the law to the facts so found. Marshall v. Blair, 130 Idaho 675, 679, 946 P.2d 975, 979 (1997). All reasonable inferences are to be drawn in favor of the party opposing the summary judgment motion. Union Pacific Corp. v. Idaho State Tax Comm'n, 136 Idaho 34, 28 P.3d 375 (2001).

DISCUSSION

I.

Idaho Code Section 63-3027(s) (formerly subsection (r)) provides that the Tax Commission may require alternative apportionment (a) if the allocation and apportionment provisions of the statute do not fairly represent the extent of the taxpayer's business and (b) if the alternative apportionment is reasonable. Before the statutory apportionment can be rejected in favor of an alternative apportionment, either the Commission or the taxpayer must show that the three-part formula does not accurately reflect the taxpayer's business in the State. See I.C. § 63-3027(s). The party asserting alternative apportionment bears the burden of showing that alternative apportionment is appropriate. Burlington Northern, Inc. v. Idaho State Tax Comm'n, 121 Idaho 808, 828 P.2d 837 (1992).

The "reasonableness" of the alternative apportionment proposed by the Commission was left to the district court to decide on remand. The Commission's alternative apportionment sought to exclude from the denominator of the sales factor, the sale of accounts receivable totaling approximately $2.0 billion per year, which increased the denominator and ultimately reduced the amount of tax owed by UPC to the State of Idaho. UPC argues that in UPC I, the Court affirmed that the receivables were "sales" within the meaning of I.C. § 63-3027, represented business income from outside the State and were therefore to be included in the denominator of the sales factor.

The doctrine of "law of the case," mandates that the rule of law necessary to the Court's decision in UPC I must be adhered to throughout the case's subsequent progress, both in the trial court and upon subsequent appeal. See Suitts v. First Sec. Bank of Idaho,...