W. R. Grace & Co. v. Department of Revenue, 13489

• Citation: 567 P.2d 913,34 St.Rep. 713,173 Mont. 339
• Decision Date: 28 July 1977
• Docket Number: No. 13489,13489
• Parties: W. R. GRACE & CO., a Connecticut Corp., Plaintiff and Respondent, v. The DEPARTMENT OF REVENUE of the State of Montana, Defendant and Appellant.
• Court: United States State Supreme Court of Montana

Page 913

567 P.2d 913

173 Mont. 339

W. R. GRACE & CO., a Connecticut Corp., Plaintiff and Respondent, v. The DEPARTMENT OF REVENUE of the State of Montana, Defendant

and Appellant.

No. 13489.

Supreme Court of Montana.

Submitted March 23, 1977.

Decided July 28, 1977.

William D. Dexter, argued, Olympia, Wash., for defendant and appellant.

Hughes, Bennett & Cain, Helena, George T. Bennett, argued, Helena, for plaintiff and respondent.

HASWELL, Justice.

Respondent W. R. Grace and Co. (Grace) brought this action in the district court, Lewis and Clark County, for a declaratory judgment challenging the Department of Revenue's (DOR) asserted right to compel Grace to answer certain interrogatories. The interrogatories were propounded to Grace subsequent to a deficiency assessment of corporation license taxes by DOR, but prior to protest hearing concerning the amount of the assessment. The district court granted Grace's motion for summary judgment in the declaratory judgment action and DOR appeals to this Court.

Grace is a Connecticut corporation which was at all times relevant, qualified to do, and doing business in Montana. For the calendar years 1967 through and including 1971, which are the taxable years in question, Grace filed Montana corporation license tax returns with DOR's predecessor, the State Board of Equalization. Thereafter, the auditors of the Multistate Tax Commission, of which Montana is a member, conducted a field audit of Grace's records. There is no contention that the auditors were denied access to any relevant documents or personnel during the course of the audit. On the basis of this field audit, DOR assessed additional corporation license taxes. The amount of the deficiency assessment is the underlying cause of the instant controversy.

DOR formally notified Grace by letter dated October 16, 1973, that it had made deficiency assessments for the taxable years in question in the total amount of $123,706.38, including interest. Pursuant to section 84-1508.1, R.C.M.1947, Grace timely filed a protest of DOR's deficiency assessments. This notice of protest, dated November 7, 1973, requested an oral hearing and opportunity to present evidence in support of its protest. On April 24, 1974 and again on October 23 and 24, 1974, counsel for Grace met with counsel for and representatives of DOR to discuss a possible solution to the dispute over the amount of the deficiency assessments. At the latter meeting a protest hearing was scheduled to begin on December 4, 1974.

On November 1, 1974, DOR sent to Grace a set of interrogatories consisting of thirty-nine questions. On November 20, Grace answered twenty-nine of these interrogatories and objected to the remaining ten questions on grounds of irrelevancy or because compilation of the requested information by Grace would be unreasonably burdensome. In addition, on or about November 1, DOR requested that Grace submit to a re-audit of its books and records at its corporate offices in New York City. Grace acquiesced to the re-audit and DOR continued the hearing originally scheduled for December 4, to April 9, 1975. Thereafter, on or about February 10, DOR cancelled the April 9 hearing and informed Grace that it had retained additional counsel. On February 18 DOR served a second set of interrogatories upon Grace. Grace, deeming the second set of interrogatories to be untimely, irrelevant, and unreasonable, filed this action for a declaratory judgment on April 30, 1975. On March 2, 1976, Grace filed a motion for summary judgment. Following extensive briefing and oral argument, the district court granted Grace's motion.

Two issues are presented for review in this appeal:

1. Whether DOR may discover additional information from a taxpayer after entering deficiency assessment, but prior to the protest hearing provided for by section 84-1508.1, R.C.M.1947.

2. Whether the interrogatories submitted by DOR to Grace are material and relevant in the instant case.

The portion of section 84-1508.1 which is controlling in the instant case states "(a) Deficiency assessments. If, the state department of revenue determines that the amount of tax due is greater than the amount disclosed by the return, it shall mail to the taxpayer a notice of the additional tax proposed to be assessed. Within thirty (30) days after the mailing of the notice, the taxpayer may file with the state department of revenue a written protest against the proposed additional tax, setting forth the grounds upon which the protest is based, and may request in its protest an oral hearing or an opportunity to present additional evidence relating to its tax liability. If no protest is filed, the amount of the additional tax proposed to be assessed becomes final upon the expiration of the thirty (30) day period. If such protest is filed, the state department of revenue shall reconsider the proposed assessment, and if the taxpayer has so requested, shall grant the taxpayer an oral hearing. After consideration of the protest and the evidence presented in the event of an oral hearing, the state department of revenue's action upon the protest is final when it mails notice...