MONT NAT BK OF ROUNDUP v DEPT

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No, 12908 I N T E SUPREME C U T O THE STATE O M N A A H OR F F OTN 1975 M N A A NATIONAL BANK O ROUNDUP, OTN F P l a i n t i f f s and Respondents, THE STATE O M N A A DEPARTMENT O F OTN, F REVENUE, Defendants and A p p e l l a n t s . Appeal from: D i s t r i c t Court of t h e F i r s t J u d i c i a l D i s t r i c t , Honorable P e t e r G , Meloy, Judge p r e s i d i n g . Counsel of Record : For Appellants : R. Bruce McGinnis argued, Helena, Montana F o r Respondents : Towe, Neely and B a l l , B i l l i n g s , Montana N e i l D. Enright argued, B i l l i n g s , Montana - - Submitted: June 18, 1975 Decided :!%FIG 7 Filed : T ;.a it? Fh. i;,,;:~p 5 ef-i.;~, , .".i [ar. J u s t i c e John Conway Harrison d e l i v e r e d t h e Opinion of t h e Court. This a p p e a l i s from a judgment e n t e r e d i n t h e d i s t r i c t c o u r t , Lewis and Clark County. Appellant i s t h e S t a t e Department of Revenue ( h e r e i n a f t e r referred t o as the 11 ~ e p a r t m e n t " ) . Respondent i s t h e Montana N a t i o n a l Bank of Roundup ( h e r e i n a f t e r r e f e r r e d t o a s t h e "Bank") . O March 1 3 , 1973, t h e Bank f i l e d i t s s t a t e m e n t f o r t a x n assessment w i t h t h e M u s s e l s h e l l County a s s e s s o r . Two s p e c i f i c computations and one omission r e g a r d i n g t h a t document a r e s u b j e c t s of t h i s a p p e a l . The f i r s t c o n t e s t e d computation c r e a t e d a $100,000 r e s e r v e t o cover d e p r e c i a t i o n and p o s s i b l e l o s s e s w i t h i n t h e Bank's bond account. The second r e s u l t e d from an e r r o r i n t h e p r i n t e d i n s t r u c t i o n s i n t h e Statement f o r Assessment, which mistakenly allowed a deduction f o r "cash on hand". Rulings by t h e Montana S t a t e Tax Appeals Board and t h e d i s t r i c t c o u r t a l lowed t h e Department t o c o r r e c t t h i s m i s t a k e , and t h i s p a r t i c u l a r i s s u e i s n o t submitted f o r a p p e a l t o t h i s Court. The t h i r d item concerned a d e d u c t i o n f o r r e a l e s t a t e owned by t h e Bank a s of t h e d a t e of assessment. The Bank mistakenly o m i t t e d t h e item on i t s s t a t e m e n t t o t h e t a x a u t h o r i t i e s , and t h e r e f o r e was n o t allowed t h e d e d u c t i o n . The Bank appealed i t s 1973 assessment of bank s h a r e s t o t h e IYrusselshell County Tax Appeal Board and t h e Montana S t a t e Tax Appeal Board. R e l i e f was denied a t b o t h l e v e l s . The d i s - t r i c t c o u r t , however, r e v e r s e d t h e S t a t e Tax Appeal Board on t h e i s s u e of t h e r e s e r v e f o r bond l o s s e s and t h e deduction f o r r e a l estate. The Department a p p e a l s and p r e s e n t s t h r e e i s s u e s . Before e n t e r i n g i n t o d i s c u s s i o n on t h e m e r i t s , we n o t e t h e method employed by t h e Department t o v a l u e t h e ~ a n k ' sp r o p e r t y f o r purposes of t a x a t i o n . A r t i c l e V I I I , S e c t i o n 3 , 1972 Montana C o n s t i t u t i o n imposes upon t h e s t a t e a d u t y t o If appraise, assess, and e q u a l i z e t h e v a l u a t i o n of a l l p r o p e r t y which i s t o be taxed i n t h e manner provided by law. R.C.M. " Under s e c t i o n 84-708.1(3), 1947, t h e Department may e x e r c i s e such a u t h o r i t y and do a l l t h i n g s n e c e s s a r y t o s e c u r e a f a i r , j u s t and e q u i t a b l e valuat i o n of a l l t a x a b l e property. Taken t o g e t h e r , t h e s e two p r o v i s i o n s g r a n t t h e Department a c e r t a i n degree of d i s c r e t i o n i n determining what method of v a l u a t i o n w i l l be used f o r t a x purThe Department's method of v a l u a t i o n i s b e s t d e s c r i b e d a s poses. a f o r m a l i s t i c o r "book value" method. The undivided p r o f i t s , c u r r e n t e a r n i n g s and s u r p l u s a r e added t o t h e i n t r a s t a t e c a p i t a l of t h e bank. From t h a t sum i s deducted t h e bank's l i a b i l i t i e s and o t h e r p r o p e r t y a s s e s s e d and taxed t o t h e bank. The r e s u l t i n g f i g u r e i s t h e book v a l u e of bank s h a r e s upon which t h e p r o p e r t y t a x assessment i s made. The Department f i r s t contends t h e ~ a n k ' sappeal t o t h e d i s t r i c t c o u r t was moot. I t s c o n t e n t i o n i s grounded on t h e f a c t t h e Bank paid t h e f i r s t i n s t a l l m e n t of i t s t a x e s a s b i l l e d by t h e Musselshell County a s s e s s o r f i f t e e n days p r i o r t o t h e time t h e p e t i t i o n f o r j u d i c i a l review was f i l e d . This Court has h e l d t o t h e g e n e r a l e f f e c t t h a t when a judgment has been paid i t has passed beyond review; t h e s a t i s f a c t i o n i-s t h e end of t h e proceeding. In r e lack's E s t a t e , 32 Mont. 51, 79 P. 554; Peck v. B e r s a n t i , 101 Mont. 6 , 52 P.2d 168; Anno. 169 A R 985, 988. L The Department i n support of i t s argument of mootness r e l i e s on B l a i r v. P o t t e r , 132 Mont. 176, 315 P.2d 177, and G a l l a t i n T r u s t & Savings Bank v. Henke, 154 Mont. 170, 461 P.2d 448. These c a s e s a r e c l e a r l y d i s t i n g u i s h a b l e , p a r t i c u l a r l y i n view of t h e f a c t t h e l e g i s l a t u r e amended s e c t i o n 84-709.1, R.C.M. 1947, which allows d i r e c t j u d i c i a l review o f t h e S t a t e Tax Appeals ~ o a r d ' sd e c i s i o n by t h e d i s t r i c t c o u r t . I n e f f e c t t h e r e has been provided by s t a t u t e an a l t e r n a t i v e method t o paying t a x e s under protest. This i s e x a c t l y what p e t i t i o n e r d i d and B l a i r and Gallatin Trust a r e not controlling. F u r t h e r , we f i n d t h i s r u l e t o be i n a p p r o p r i a t e i n t h e c o n t e x t of t h e i n s t a n t c a s e . It i s e q u a l l y w e l l recognized t h a t payment of a money judgment by t h e judgment d e b t o r does n o t , by i t s e l f , r e n d e r t h e cause moot f o r purposes of appeal. S t a t e ex r e l . Hagerty v. Rafn, 130 Mont. 554, 304 P.2d 918, and c a s e s c i t e d t h e r e i n . A d e f e a t e d p a r t y ' s compliance w i t h t h e judgment r e n d e r s h i s a p p e a l moot only where t h e compliance makes t h e g r a n t i n g of e f f e c t i v e r e l i e f by t h e a p p e l l a t e c o u r t impossible. S t a t e ex r e l . Begeman v. Napton, 10 Mont. 369, 25 P. 1045; Anno. 39 ALR2d 153, 179. Such i s n o t t h e c a s e h e r e . The i s s u e s h e r e a r e n o t moot because t h i s C o u r t ' s d e c i s i o n r e g a r d i n g them w i l l s t r o n g l y a f f e c t t a x assessments by t h e Department i n f u t u r e y e a r s . W recognize e and approve of t h e r u l e s t a t e d i n Massell v. Daley, 404 111.479, "The q u e s t i o n has n o t become moot merely by t h e payment of t h e amounts ordered by t h e judgments, because t h e d e c r e e s purported t o p e r p e t u a l l y r e s t r a i n t h e S t a t e o f f i c i a l s from c o l l e c t i n g t a x e s f : f from t h e s e p l a i n t i f f s , i therefore, affecting future tax collections. It * The Department n e x t urges t h e allowance by t h e d i s t r i c t c o u r t of a $100,000 r e s e r v e t o cover t h e p o s s i b l e d e p r e c i a t i o n of i t s bond account was e r r o r . The Court r u l e d on t h i s p r e c i s e i s s u e i n Miners National Bank of B u t t e v. County of S i l v e r Bow, 116 Mont. 31, 148 P.2d 538. Thus our d e c i s i o n i n t h e i n s t a n t c a s e must depend upon an i n t e r p r e t a t i o n of t h e holding i n Miners. S e c t i o n 84-307, R.C.M. 1947, does n o t s p e c i f i c a l l y allow f o r a deduction on bond l o s s r e s e r v e s . I t i s c l e a r t h a t Miners r e j e c t e d t h e claimed deduction f o r bond l o s s e s . Under t h e i n t e r - p r e t a t i o n adopted by t h e Bank and t h e d i s t r i c t c o u r t , t h e Miners r u l e d i s a l l o w s bond r e s e r v e s i f based on c o n j e c t u r e o r speculat i o n , b u t allows such r e s e r v e s when based on a "well d e f i n e d e v a l u a t i o n " of t h e e n t i r e account t o which t h e r e s e r v e a p p l i e s . The Bank urges t h a t t h e r e q u i r e d w e l l d e f i n e d b a s i s e x i s t s i n t h i s c a s e , and r e f e r s u s t o an e v a l u a t i o n of t h e e n t i r e bond account made by t h e a s s i s t a n t v i c e p r e s i d e n t and bond e x p e r t of t h e F i r s t Nation. t . P a u l , Minnesota. within The e v a l u a t i o n shows t h a t , 'Levant time p e r i o d , a n e t d e p r e c i a t i o n i n market v a l u e of t h e t o t a l bond account e x i s t e d i n t h e amount claimed. The Bank a t t e m p t s t o f u r t h e r b o l s t e r i t s argument by p o i n t i n g o u t chat r e s e r v e s f o r bad d e b t s a r e commonly allowed, a l t h o u g h n o t s p e c i f i c a l l y a u t h o r i z e d under s e c t i o n 84-307. It i s a g a i n suggested t h a t t h e s e r e s e r v e s a r e allowed because t h e y a r e based on f a c t o r s n o n s p e c u l a t i v e i n n a t u r e . W hold t h a t t h e ~ a n k ' si n t e r p r e t a t i o n i s an i n a c c u r a t e e a p p r a i s a l of t h e law a s s e t o u t i n Miners, and t h a t t h e d i s t r i c t court erred i n adopting i t . The p r o p r i e t y of t h e d e d u c t i o n f o r a r e s e r v e account f o r p o s s i b l e bond l o s s does n o t r e s t s o l e l y on t h e s u f f i c i e n c y o r i n s u f f i c i e n c y of t h e s u p p o r t i n g d a t a upon which i t i s based. Such d e d u c t i o n s a r e d i s a l l o w e d by t h e ' g e n e r a l p r i n c i p l e t h a t a l i a b i l i t y does n o t a c c r u e a s long a s i t remains contingent. 2 Mertens, Law of F e d e r a l Income T a x a t i o n , S e c t i o n 12.67, p. 274. T h i s Court i n Miners r e a f f i r m e d t h i s important concept : II A bank may n o t t h u s withhold from assessment a p a r t of i t s undivided p r o f i t s by s e t t i n g same up a s a r e s e r v e t o make good p o s s i b l e o r a n t i c i p a t e d l o s s e s on i t s bonds and s t o c k s which l o s s e s may never occur. 116 Mont. 31,43. 11 There i s n o t h i n g i n t h e r e c o r d h e r e t o show t h a t t h e Bank has s u f f e r e d an a c t u a l l o s s i n i t s bond a c c o u n t , nor i s t h e r e a showing t h a t t h e Bank a c t i v e l y t r a d e s o r s e l l s i t s bonds. Therefore, the Bank a c t e d improper1.y by c r e a t i n g a r e s e r v e f o r p o s s i b l e bond l o s s e s and by s e g r e g a t i n g t h i s amount from i t s undivided p r o f i t s . The d e t e r m i n a t i o n of t h e Department's f i n a l i s s u e n e c e s s i t a t e s an i n t e r p r e t a t i o n of s e c t i o n 84-307, R.C.M. 1947, which provides : "The s h a r e s of a l l s t a t e banking c o r p o r a t i o n s engaged i n t h e banking b u s i n e s s i n Montana s h a l l be valued and a s s e s s e d f o r t h e purpose of t a x a t i o n a t t h e f u l l c a s h v a l u e t h e r e o f , l e s s t h e book v a l u e uf t h e r e a l e s t a t e , moneyed c a p i t a l and o t h e r p r o p e r t y o f any such bank a s s e s s e d and taxed a s t h e p r o p e r t y of s a i d bank. " (Emphasis added). Based on t h e f o l i o w i n g f a c t s t h e d i s t r i c t c o u r t allowed che 3ank a deduction f o r t h e r e a l e s t a t e d owned b u t by mistake drnitted from t h e ~ a h k ' ss t a t e m e n t of assessment: 1. A s of t h e f i r s t Monday i n March 1973, t h e Bank was t h e d m e r of and l i a b l e f o r t h e t a x e s on c e r t a i n r e a l e s t a t e valued at $150,000. 2. This ownership was f i l e d and on r e c o r d i n t h e c o u r t - h o u s e a t M u s s e l s h e l l County. 3. The M u s s e l s h e l l County a s s e s s o r knew o r should have known t h a t t h e p r o p e r t y was purchased by t h e t a x p a y e r through a sheriff's sale. 4. The Bank mistakenly f a i l e d t o p l a c e t h i s p r o p e r t y on i t s s t a t e m e n t f o r assessment. C l e a r l y t h e Bank was t h e owner of t h e p r o p e r t y on t h e f i r s t 14onday i n March and i s l i a b l e f o r t h e t a x e s on t h e p r o p e r t y , Under s e c t i o n 84-307 i t i s e n t i t l e d t o deduct t h e p r o p e r t y from t h e v a l u e of i t s s h a r e s f o r t h e purpose of d e t e r m i n i n g t h e t a x on such s h a r e s . I!+< k ; The t r i a l c o u r t found k ; s i n c e t h e allowance of a deduction f o r c a s h on hand was due t o a mistake by t h e Department t h i s Court f i n d s t h a t t h e Department i s t o be allowed t o c o r r e c t t h a t mistake a t t h i s time and t h e r e f o r e d i s a l l o w s p e t i t i o n e ? ~ c l a i m f o r a deduction f o r c a s h on hand. I t 'L'hc same wisdom and common s e n s e should a p p l y t o c o r r e c t t h i s honest mistake by t h e Bank. The t r i a l c o u r t so found and we f i n d no e r r o r i n i t s f i n d i n g . Judgment i s a f f i r m e d a s t o mootness, and f o r a l l o w i n g deduction of t h e $150,000 r e a l p r o p e r t y mistakenly l e f t o f f the s t a t e m e n t of assessment. bond r e s e r v e account. It i s reversed a s t o a u t h o r i z i n g a The c a u s e i s remanded t o t h e t r i a l c o u r t . W e Concur: Chief J u s t i c e .................................. Justices. M r . J u s t i c e Frank I. Haswell, s p e c i a l l y concurring: I concur i n t h e r e s u l t , b u t d i s a g r e e with t h e d i s c u s s i o n on mootness.

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