Gold Creek Cellular of Montana Ltd. Partnership v. StateGold Creek Cellular of Montana Ltd. Partnership v. State
For Appellant:
For Appellees: Richard G. Smith; Hawley Troxell Ennis & Hawley, LLP; Boise, Idaho (Counsel for Appellee AT & T Mobility); R. Allan Payne, Marc G. Buyske, Doney, Crowley, Payne, Bloomquist, P.C.; Helena (Counsel for Appellee AT & T Mobility); Terry B. Cosgrove; Murry Warhank; Gough, Shanahan, Johnson & Waterman; Helena (Counsel for Appellee Verizon).
JUSTICE WHEAT delivered the Opinion of the Court.
¶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
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
¶3 Issue Two: Did the District Court correctly conclude that the Department‘s regulation defining “intangible personal property” is invalid because it conflicts with
¶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
¶6 The Department of Revenue implements this statute with
¶7 In 2010, the Department made substantial changes to its regulations implementing
¶8 The District Court considered cross-motions for summary judgment concerning the validity of the Department‘s new regulations. The District Court granted Plaintiffs’ motion upon concluding that the new definitions of intangibles and goodwill imposed additional and contradictory requirements on state law, and that the WSATA and NCUVS handbooks were invalid as applied to the new regulations. The Department now appeals from this order.
STANDARD OF REVIEW
¶9 Whether an administrative regulation impermissibly conflicts with a statute is a question of law to be decided by the court. Thompson v. J.C. Billion, Inc., 2013 MT 20, ¶ 11, 368 Mont. 299, 294 P.3d 397. We review a district court‘s conclusions of law to determine if they are correct. Talon Plumbing & Heating v. Dept. of Lab. & Indus., 2008 MT 376, ¶ 19, 346 Mont. 499, 198 P.3d 213.
DISCUSSION
¶10 The Department of Revenue argues that its interpretations of “intangible personal property” and “goodwill” are compatible with the statute, and at any rate, are entitled to administrative deference pursuant to Chevron v. Nat. Resources Def. Council, 467 U.S. 837, 104 S. Ct. 2778 (1984). Plaintiffs argue that Chevron deference applies only to a state or federal agency‘s implementation of federal law, or of state law companions to federal law.
¶11 When examining regulations from a state agency implementing purely state law, we have applied the standard of deference set forth in the Montana Administrative Procedures Act (MAPA),
¶12 The issues on appeal concern a state agency‘s implementation of purely state law, a law that has no federal counterpart. Thus, the District Court correctly declined to apply Chevron‘s standard for administrative deference in this case, and examined this case under Montana‘s deference standard. Administrative rules are invalid when they “(1) engraft additional and contradictory requirements on the statute; or (2) if they engraft additional, noncontradictory requirements on the statute which were not envisioned by the legislature.” Bell v. Dep‘t of Licensing, 182 Mont. 21, 23, 594 P.2d 331, 333 (1979) (citations and quotations omitted); Safeway, Inc. v. Montana Petroleum Release Compensation Bd., 281 Mont. 189, 194, 931 P.2d 1327, 1330 (1997). Regulations that are consistent with the statute must also be reasonably necessary to effectuate the statute‘s purpose.
¶13 When a department‘s regulation restricts a broad statutory exemption, that regulation is in direct conflict with the statute. Thompson, ¶¶ 19-23. In Bell, the statute required that a barber college operator have 10 years’ experience and be able to withstand character investigation by the Board of Barbers. Bell, 182 Mont. at 23, 594 P.2d at 333. When the Department of Licensing required these same operators to pass an examination, we found that this additional requirement was not contemplated by the Legislature, and was therefore invalid. Id. at 23, 594 P.2d at 333. In Michels, a regulation required indigent persons to provide notice within five days of medical care in order for the State to cover the costs of such care. Michels, 187 Mont. at 173, 609 P.2d at 271. The statute in that case provided broad medical coverage for indigent persons, so we invalidated the five day limit, holding that such regulations were not reasonable to effectuate the purpose of the statute. Michels, 187 Mont. at 178, 609 P.2d at 273 (“[I]n what way is this ideal [providing medical care to indigent persons] furthered by distinguishing between those who apply for the benefits within five days of receiving medical services and those who apply after five days?“).
¶14 Did the District Court correctly conclude that the Department‘s regulation defining “goodwill” is invalid because it conflicts with
¶15
¶16 The requirement for purchase price accounting of goodwill imposes a restriction on a broad statutory exemption, and thus constitutes an additional requirement. While the Department‘s method of valuation is the most common way to measure goodwill, it is not the only acceptable method. Baldwin v. Stuber, 187 Mont. 430, 433, 610 P.2d 160, 162 (1980). Because of the difficulty in valuing this particular intangible, we have held that “each goodwill case must be determined on its own facts and circumstances, and the determination of the value of goodwill is a question for the trier of fact ....” Baldwin, 187 Mont. at 432, 610 P.2d at 161. But the Department‘s regulation allows for no such leeway, and restricts goodwill to calculation by only one method. This restriction constitutes an additional requirement analogous to the barber‘s test in Bell or the five day rule in Michels.
¶17 The Department argues that it must specify the type of information that taxpayers provide to demonstrate the value of intangibles. But this does not grant the Department authority to entirely exclude alternative methods of valuation. Plaintiffs are entitled to have their goodwill valued in a method of their choosing, and the Department is free to dispute that valuation by relying on its preferred accounting method. However, the actual value of goodwill is left to the trier of fact, not the rulemaking processes of the Department.
¶18 Finally, the Department contends that its additional standard is reasonable to effectuate the purpose of the statute because the purchase price accounting method provides certainty and consistency in the valuation of goodwill. But the goodwill exemption‘s statutory purpose is to give a broad exemption to all intangible personal property, including valuable goodwill. As in Michels, we question whether mandating a specific accounting method and prohibiting taxpayers from using alternative methods in any way furthers the Legislature‘s purpose of granting broad exemption to goodwill. We conclude it does not. The regulation restricts a taxpayer‘s ability to consult other methods for valuation, and could hinder a fair and accurate determination of value. This was not the original
¶19 We do not rule that the Department must use all available methods to value goodwill. We simply hold that the Department may not define goodwill in a way that precludes a taxpayer from proposing alternative methodology or information relating to valuable goodwill.
¶20 Did the District Court correctly conclude that the Department‘s regulation defining “intangible personal property” is invalid because it conflicts with
¶21
¶22 The Department‘s definitions impose requirements that directly contradict the statute‘s non-exhaustive list of intangible personal property. Plaintiffs’ FCC licenses may be exempted by the statute, but under the Department‘s rules are only exempt if they can be bought and sold without destroying the unit value of assets. Other intangible personal property, like trade names or an assembled workforce, also fit the statutory definition, but do not fit the Department‘s rules because they are either inseparable from the business’ asset, or their separation will impair the business asset. The Department‘s distinction between intangible property and intangible value appears to sweep up goodwill, as goodwill is often defined by its ability to make excess revenues over the normal rate of return. See In re Marriage of Hull, 219 Mont. 480, 487-88, 712 P.2d 1317, 1322-23 (1985).
¶23 The Department contends that, although its regulations read alone would contradict the statutory list, it would never interpret its regulations to tax any of the items on the list. Further, the Department states that it did not incorporate the list because it is bound against repeating statutory language in its regulations under
¶24 Second, the prohibition on repeating statutory language limits “unnecessarily” repeating the statutory language.
¶25 The District Court correctly determined that the Department‘s definition of intangible personal property contradicted state law, and was invalid under MAPA.
¶26 Did the District Court correctly conclude that the valuation manuals adopted by the Department are invalid to the extent they support its new rules?
¶27 Both parties agree that the NCUVS and WSATA handbooks are only challenged to the extent that they are used to enforce the Department‘s new definitions of intangible personal property and goodwill. Because we find those definitions invalid, these handbooks are also invalid to the extent that they conflict with state law.
CONCLUSION
¶28 The judgment of the District Court is affirmed.
JUSTICES RICE, McKINNON and COTTER concur.