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Montana Dept. of Revenue v. United Parcel Service, Inc., 252 Mont. 476, 830 P.2d 1259

Facts

United Parcel Service, Inc. (UPS) is a motor carrier providing nationwide small package delivery services. During an audit of UPS's corporate license tax returns for the years 1977 to 1982, the Department of Revenue calculated UPS's taxable income using a 'mileage method' based on the miles driven in Montana. UPS contested this method, arguing it did not accurately reflect their business activity in the state. STAB ruled in favor of UPS, stating that the mileage method was inappropriate and ordered the Department to use an 'adjusted revenue method' instead.

UPS is a multi-state, unitary corporation and therefore calculates Montana taxable income using formula apportionment. In 1983, the Department of Revenue (the Department) audited the corporate license tax returns UPS filed for 1977 through 1982. The Department calculated Montana taxable income using the mileage method based on § 42.26.264, ARM.

Issue

1. Whether the District Court erred in concluding that the mileage method of computing United Parcel Service's Montana revenue overstated the actual amount of such revenue. 2. Whether the District Court erred in concluding that § 15–31–312, MCA, authorized the State Tax Appeal Board to determine a method used in the apportionment formula results in an unfair representation of UPS's business activity in Montana.

The issues on appeal are: 1. Whether the District Court erred in concluding that the mileage method of computing United Parcel Service's Montana revenue overstated the actual amount of such revenue. 2. Whether the District Court erred in concluding that § 15–31–312, MCA, authorized the State Tax Appeal Board to determine a method used in the apportionment formula results in an unfair representation of UPS's business activity in Montana.

Rule

The sales factor is defined as a fraction, the numerator of which is the total sales of the taxpayer in this state during the tax period and the denominator of which is the total sales of the taxpayer everywhere during the tax period. Under § 15–31–312, MCA, if the allocation and apportionment provisions do not fairly represent the extent of the taxpayer's business activity in the state, the taxpayer may petition for an alternative method.

The sales factor is a fraction, the numerator of which is the total sales of the taxpayer in this state during the tax period and the denominator of which is the total sales of the taxpayer everywhere during the tax period.

Analysis

The court found that substantial evidence supported STAB's conclusion that the mileage method did not fairly represent UPS's business activity in Montana. UPS drivers in Montana drove more miles to deliver fewer packages compared to other states, indicating that the mileage method distorted the revenue calculation. The court also noted that the Department's insistence on using the mileage method for the sales factor was inconsistent with its application of the method for property and payroll factors.

UPS put forth substantial evidence to show the mileage method did not fairly represent its business activity within Montana. Evidence before STAB revealed that UPS drivers in Montana drive more miles to deliver fewer packages than drivers in any other state, and that average revenue per mile varies substantially from state to state.

Conclusion

The Supreme Court affirmed the District Court's decision, concluding that the mileage method overstated UPS's revenue derived from Montana and that STAB was authorized to determine that the method used in the apportionment formula resulted in an unfair representation of UPS's business activity in the state.

We therefore conclude that reliable, probative, and substantial evidence existed to support STAB's findings of fact and that STAB's interpretation of the law was correct.

Who won?

United Parcel Service, Inc. (UPS) prevailed in the case because the court found that the Department of Revenue's mileage method did not accurately reflect UPS's business activity in Montana, leading to an unfair tax assessment.

UPS prevailed in the case because the court found that the Department of Revenue's mileage method did not accurately reflect UPS's business activity in Montana, leading to an unfair tax assessment.

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