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Gold Creek Cellular of Montana Ltd. Partnership v. State, Department of Revenue

Supreme Court of Montana

September 24, 2013

GOLD CREEK CELLULAR OF MONTANA LIMITED PARTNERSHIP d/b/a VERIZON WIRELESS and AT&T MOBILITY, LLC, Plaintiffs and Appellees,
v.
STATE OF MONTANA, DEPARTMENT OF REVENUE, Defendant and Appellant.

Submitted on Briefs: August 28, 2013

APPEAL FROM: District Court of the First Judicial District, In and For the County of Lewis and Clark, Cause No. DDV 11-154 Honorable James P. Reynolds, Presiding Judge

For Appellant: C. A. Daw, David R. Stewart, Courtney Jenkins, Special Assistant Attorneys General, Montana Department of Revenue, Legal Services Office; Helena, Montana

For Appellees: Richard G. Smith; Hawley Troxell Ennis & Hawley, LLP; Boise, Idaho (Counsel for Appellee AT & T Mobility), Terry B. Cosgrove; Murry Warhank; Gough, Shanahan, Johnson & Waterman; Helena, Montana (Counsel for Appellee Verizon)

OPINION

Michael E Wheat Justice

¶1 Plaintiffs Gold Creek Cellular and AT&T Mobility (Plaintiffs) brought this action for declaratory judgment alleging that the Department of Revenue's (Department) regulations Admin. R. M. 42.22.101(12), 42.22.101(10), and 44.22.109, were invalid. Judge James Reynolds granted summary judgment to Plaintiffs. T he Department of Revenue now appeals from this order.

STATEMENT OF ISSUES

¶2 Issue One: Did the District Court correctly conclude that the Department's regulation defining "goodwill" is invalid because it conflicts with § 15-6-218(2)(b), MCA?

¶3 Issue Two: Did the District Court correctly conclude that the Department's regulation defining "intangible personal property" is invalid because it conflicts with § 15-6-218(2)(a), MCA?

¶4 Issue Three: Did the District Court correctly conclude that the valuation manuals adopted by the Department are invalid to the extent they support its new rules?

FACTUAL AND PROCEDURAL BACKGROUND

¶5 Section 15-6-218, MCA, grants tax exemption to intangible personal property. Intangible personal property is defined as property that is not tangible and (a) has no intrinsic value but is the representative of value, or (b) property that lacks physical existence. Section 15-6-218(2), MCA. The statute includes a non-exhaustive list of common intangible personal property items, including "certificates of stock, bonds, promissory notes, licenses, copyrights, patents, trademarks, contracts, software, and franchises." Section 15-6-218(2)(a), MCA. T he statute gives only one non-exhaustive example of intangible property that lacks physical existence, "goodwill, " but does not define the term anywhere in Title 15, MCA.

¶6 The Department of Revenue implements this statute with Admin. R. M. 42.22.110. That administrative regulation provides default exemptions that a taxpayer may use when declaring certain intangible items as exempt. If taxpayers disagree with the default exemption, they may provide the Department with information supporting a higher exemption. Admin. R. M. 42.22.110(2).

¶7 In 2010, the Department made substantial changes to its regulations implementing § 15-6-218, MCA. T he Department amended its definition of intangible personal property to include a requirement that the property "be separable from the other assets in the unit and capable of being held under separate title or ownership." A dmin. R. M. 42.22.101(12). T he regulation further required that the property be able to be bought and sold separate from the operating assets, that it be capable of earning income as a standalone entity, and also defined "intangible value" as separate from intangible property and non-exempt. Admin. R. M. 42.22.101(12). Finally, the Department defined "goodwill" as goodwill that can be calculated through the purchase price accounting method. Admin. R. M. 42.22.101(10). While the Department has used the purchase price accounting process for goodwill since 1999, this change in the definition of goodwill prohibits any other method for valuing this specific intangible. T he Department ...


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