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Vision Net, Inc. v. State, Department of Revenue

Supreme Court of Montana

August 27, 2019

VISION NET, INC., Petitioner and Appellant,
v.
STATE OF MONTANA, DEPARTMENT OF REVENUE, Respondent and Appellee.

          Submitted on Briefs: April 10, 2019

          APPEAL FROM: District Court of the First Judicial District, In and For the County of Lewis and Clark, Cause No. DDV-2016-312 Honorable James P. Reynolds, Presiding Judge

          For Appellant: Celia Blewett, Slate Law PLLC, Great Falls, Montana, Michael W. Green, D. Wiley Barker, Crowley Fleck PLLP, Helena, Montana

          For Appellee: Nicholas J. Gochis, Teresa G. Whitney, Special Assistant Attorneys General, Montana Department of Revenue, Helena, Montana

          OPINION

          JIM RICE JUSTICE

         ¶1 Vision Net, Inc., (Vision Net) appeals the order entered by the First Judicial District Court, Lewis and Clark County, denying its motion for summary judgment and granting summary judgment to the Montana Department of Revenue (DOR or Department). The District Court held the Department could properly centrally assess Vision Net's property, resulting in a significant increase in the company's state tax liability. Vision Net argues that DOR's central assessment violated statute and the company's constitutional rights of equal protection and equalization under Article II, § 4 and Article VII, § 3 of the Montana Constitution. We affirm and address the following issue:

         Did the District Court err by holding the Department properly centrally assessed Vision Net's property?

         FACTUAL AND PROCEDURAL BACKGROUND

         ¶2 Vision Net is a Montana corporation headquartered in Great Falls, collectively owned by nine telephone companies, but is not a subsidiary of any other company. Vision Net provides internet-related services to Montana customers, including two-way video conferencing, internet connections, technical consulting, and network management, among other things. Vision Net owns telecommunications equipment that is positioned in thirty-two Montana counties and connected by fiber optic cables that transport customer data across the network. As of 2015, Vision Net owned 7.43 miles of fiber cable, all of which was located within the separate boundaries of Yellowstone County, Lewis and Clark County, and Flathead County. None of the cable owned by Vision Net physically crosses state or county lines. Vision Net also leases access to additional cable. Telephone companies and cooperatives own fiber optic cables that stretch across Montana and into other states. To connect its telecommunications equipment and create its state-wide network, Vision Net leases access to "dark fiber"-an industry term referring to individual strands of unused fiber within a fiber optic cable-from other telephone companies. By entering "indefeasible right of use" agreements with telephone companies, Vision Net obtains access to fiber that crosses county lines, connects its equipment, and ultimately provides network services to its Montana customers.

         ¶3 Vision Net monitors and maintains its network from the company's Network Operations Center located in Great Falls. The Center operates twenty-four hours per day, seven days per week, and 365 days per year. The Great Falls location serves as Vision Net's principal office, which houses the company's CEO, business operations, and customer service call center. Vision Net also manages its centralized billing system from the Great Falls office.

         ¶4 Historically, Vision Net's properties have been locally assessed by the counties in which the property is located, and were classified by the Department as Class Four commercial and Class Eight business equipment, pursuant to §§ 15-6-134, -138, MCA. In 2015, the Department, pursuant to § 15-8-601(1), MCA, reclassified Vision Net as a centrally assessed company under § 15-23-101(2), MCA, placing its properties within Class Thirteen pursuant to § 15-6-156(1), MCA, which increased Vision Net's total tax liability by over 300%. To avoid a claim of double taxation, the Department removed the value of the fiber leased by Vision Net from the valuation of the company, choosing instead to tax the telephone companies for the entire fiber cable lines.

         ¶5 Vision Net filed a Petition for Declaratory Judgment in April 2016, challenging the Department's decision to reclassify Vision Net's property as a violation of Montana statutory and constitutional rights. The parties filed cross-motions for summary judgment and the District Court held oral argument on the motions in January 2018, after which the District Court granted summary judgment to the Department.

         STANDARD OF REVIEW

         ¶6 We review a district court's ruling on summary judgement de novo, applying the same criteria as the district court according to M. R. Civ. P. 56. Bailey v. State Farm Mut. Auto. Ins. Co., 2013 MT 119, ¶ 18, 370 Mont. 73, 300 P.3d 1149. This Court may "reverse or modify" the decision of a state agency "if substantial rights of the appellant have been prejudiced" through a "violation of constitutional or statutory provisions." Section 2-4-704(2)(a)(i), MCA. We review a district court's ...


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