Albright v. State By and Through State

• Decision Date: 27 February 1997
• Docket Number: No. 96-704,96-704
• Parties: Raymond and M.A. ALBRIGHT, et al., Plaintiffs, Respondents, and Cross-Appellants, v. STATE of Montana, By and Through the STATE of Montana, and the Montana Department of Revenue, et al., Respondents and Appellants.
• Court: Montana Supreme Court

Page 815

933 P.2d 815

281 Mont. 196

Raymond and M.A. ALBRIGHT, et al., Plaintiffs, Respondents, and Cross-Appellants, v. STATE of Montana, By and Through the STATE of Montana, and the Montana Department of Revenue, et al.,

Respondents and Appellants.

No. 96-704.

Supreme Court of Montana.

Submitted Feb. 18, 1997.

Decided Feb. 27, 1997.

David W. Woodgerd (argued), R. Bruce McGinnis, Deborah Harten, Brendan R. Beatty, Patrick N. Dringman, Tax Counselors; Special Assistant Attorneys General; Montana Department of Revenue; Helena, MT, for Respondents and Appellants.

Larry G. Schuster (argued), and Jerry W. Schuster; Attorneys at Law; Great Falls, MT, for Plaintiffs, Respondents.

David J. Patterson; University of Montana; School of Law; Missoula, MT, (Montana Association of Counties), J. Cort Harrington, Jr.; Attorney at Law; (Montana County Treasurers Association), Allen B. Chronister; Chronister, Moreen & Larson; (Montana Education Association), David L. Nielsen; Helena City Attorney; (Montana League of Cities and Towns), Janice Frankino Doggett and Lance Melton; (Montana School Boards Association), Geralyn Driscoll; Montana Office of Public Instruction; Helena, MT (Montana Superintendent of Public Instruction), for Amici Curiae.

TRIEWEILER, Justice.

On December 30, 1993, a group of Montana taxpayers commenced a class action suit in the District Court for the Eighth Judicial District in Cascade County to challenge the constitutionality of the statewide reappraisal of all residential and commercial property conducted by the Montana Department of Revenue (Department) pursuant to § 15-7-111, MCA. The taxpayers filed fifteen motions for partial summary judgment, and the We address two issues on appeal:

Department responded with fifteen cross-motions for summary judgment. On December 5, 1996, following oral argument, the District Court entered an order in which it (1) granted one of the taxpayers' motions for partial summary judgment and held that by utilizing more than one method of appraisal for both residential and commercial property, the Department had failed to equalize the values of the taxpayers' properties as required by both Article VIII, Section 3, of the Montana Constitution, and § 15-7-112, MCA, and (2) granted another of the taxpayers' motions for partial summary judgment and held that the Department had failed to assess taxable property in four Counties before the second Monday in July 1993, as required by § 15-8-201, MCA. The District Court stayed enforcement of its decision pending an appeal of its order to this Court. The Department appeals the District Court's order which granted two of the taxpayers' motions for summary judgment. The taxpayers cross-appeal on three grounds. We reverse the order of the [281 Mont. 199] District Court which granted summary judgment in favor of the taxpayers and remand to that court for entry of judgment consistent with this opinion. Based on our conclusions, we do not reach the issues raised on cross-appeal.

1. Did the District Court err when it granted summary judgment to the taxpayers based on its determination that the Department's appraisal and valuation processes violate § 15-7-112, MCA, and Article VIII, Section 3, of the Montana Constitution?

2. Did the District Court err when it concluded that tax assessments were invalid for those taxpayers whose assessment notices were not sent before the second Monday in July 1993?

FACTUAL BACKGROUND

Pursuant to § 15-7-111, MCA, the Montana Department of Revenue is charged with the administration and supervision of a program for the revaluation of all taxable property within the state for ad valorem tax purposes. The Department began the revaluation or reappraisal of property, which is the subject of this appeal, in 1987 and completed the process on or before December 31, 1992. As part of its system of revaluation, the Department adopted a comprehensive appraisal plan, as required by § 15-7-111, MCA. That plan is set forth in Rules 42.18.101 through 42.18.126, ARM. The Department's original appraisal plan provided that, for the first time, a Computer Assisted Mass Appraisal System (CAMAS) would be implemented to assist the Department's appraisers in the valuation process.

According to the Department's appraisal manuals, adopted pursuant to Rule 42.18.123, ARM, the CAMAS system is "designed to help the Appraiser create and maintain records and procedures needed to arrive at a just, equitable, and defensible valuation for each parcel of real estate within [each] county" in the state. CAMAS uses its files of property assessment data to produce computer-assisted valuations for residential, agricultural, commercial, and industrial properties.

According to a Department of Revenue public document entitled, "What is CAMAS?" CAMAS uses three approaches to valuing property: (1) the cost approach, (2) the market data approach, and (3) the income approach. The cost approach involves estimating the depreciated cost of reproducing or replacing the building and site improvements. Depreciation is deducted from this cost for loss in value caused by physical deterioration and functional or economic obsolescence. To this depreciated cost is added the estimated value of the land. The widest application of the cost approach is in the appraisal of properties where the lack of adequate market and income data preclude the reasonable application of other traditional approaches.

The market data approach involves the compilation of sales and offerings of properties which are comparable to the property being appraised. The sales and offerings are then adjusted for any dissimilarities and a value range obtained by comparison of those properties. According to the Department's document "[t]he significance of this approach lies in the ability to produce estimates of value which directly reflect the attitude of the market. Its application is contingent upon the availability of comparable sales, and therefore finds its widest range in the appraisal of vacant land and residential properties."

The income approach measures the present worth of the future benefits of the property by the capitalization of the net income stream over the remaining economic life of the property. This approach involves making an estimate of the "effective gross income" of a property, derived by deducting the appropriate vacancy and collection losses from its estimated economic rent, as evidenced by the yield of comparable properties. From this figure, applicable operating expenses, including insurance and reserve allowances for replacements, are deducted, resulting in an estimate of net income which may then be capitalized into an indication of value.

CAMAS's three approaches to the valuation of property are consistent with the Department's appraisal plan, as set forth at Rules 42.18.101 through 42.18.126, ARM. According to the Department's appraisal plan, residential property is to be appraised using the market data approach or the cost approach. Rule 42.18.108(9), ARM. Commercial property is to be appraised using the cost approach, the income approach, or, when possible, the market data approach. Rule 42.18.111(9), ARM. Industrial property is to be appraised using only the cost approach. Rule 42.22.1304, ARM. The CAMAS system functions in accordance with the Department's appraisal plan by producing computer-assisted cost and market estimates of residential properties, cost and income estimates for commercial properties, and cost estimates for industrial properties.

For the valuation of residential property, CAMAS produces both a market value estimate and a cost estimate. CAMAS's market value estimate is produced by averaging seven values. Five of the values are comparable sales, which are determined by Realty Transfer Certificates. The remaining two values arecomputer-driven values from internal regression mathematics in CAMAS. The final market value estimate is the result of arraying the seven numbers from high value to low value. The two highest figures and the two lowest figures are struck, and the middle three figures are averaged to produce the market value estimate. A "Comparable Sales Sheet" is generated when a residential parcel has been subject to the market modeling tax appraisal process. When there are not a sufficient number of comparable sales to create a market value estimate, residential property is appraised solely by the cost approach. CAMAS's cost estimate is produced by estimating the cost of replacing or reproducing the residential structure, deducting a depreciation value from this cost and adding the underlying land value, as determined by Computer Assisted Land Pricing (CALP) models. For those properties where there is sufficient data available for both a market value estimate and a cost estimate, CAMAS will produce both figures. Because it is unusual for both figures to be identical, the appraiser reconciles the differences by choosing the most accurate approach to value after a consideration of the relevance of each approach to the subject property, the amount and reliability of data collected in each approach, and the inherent strengths and weaknesses inherent in each approach. The appraisers choice of valuation approach and the estimated appraisal of the property based on that approach are set forth in a "Property Record Card," which is available to the property owner for review.

For the valuation of commercial property, CAMAS produces a cost estimate and, in some instances, an income estimate. The income approach to valuation is the preferred method of valuation of commercial properties in Montana. The Department's process for income valuation of commercial property begins with the submission of income and expense questionnaires to commercial property owners to complete and return. The information on the statements is reviewed by an appraiser and entered into the CAMAS system. Once in the computer, it can be sorted and...