Montana Dept. of Revenue v. Barron

• Decision Date: 12 October 1990
• Docket Number: No. 90-416,90-416
• Citation: 799 P.2d 533,245 Mont. 100
• Parties: The MONTANA DEPARTMENT OF REVENUE, Petitioner, v. Patricia C. BARRON, and the State Tax Appeal Board, Respondents.
• Court: Montana Supreme Court

Page 533

799 P.2d 533

245 Mont. 100

The MONTANA DEPARTMENT OF REVENUE, Petitioner, v. Patricia C. BARRON, and the State Tax Appeal Board, Respondents.

No. 90-416.

Supreme Court of Montana.

Submitted Sept. 7, 1990.

Decided Oct. 12, 1990.

David W. Woodgerd, Chief Legal Counsel, Geralyn Driscoll, Tax Counsel, Dept. of Revenue, Helena, for petitioner.

J. Vaughn Barron, Great Falls, State Tax Appeal Bd., Helena, Charles A. Smith, Attorney for STAB, Helena, for respondents.

SHEEHY, Justice.

On September 11, 1990, this Court in this cause handed down a temporary order declaring that the application by the Department of Revenue of the stratified sales assessment ratio study in Area 2.1 (Great Falls Downtown) to the valuation of Patricia C. Barron's property was invalid for reasons to be later explained; we ordered that for all other properties in the state to which the Department's stratified sales assessment ratio studies for tax year 1990 had been applied, except for those instances now pending on appeal or properly appealed by the property owners, the effective date and application of our temporary order was prospectively continued until December 31, 1990; and we reserved for future decision the proper valuation of the property of Patricia C. Barron.

The effect of the prospective stay in the Order of September 11, 1990, is that as to all property affected by the stratified sales assessment ratio studies except for those stated in the Order, the appraised values for property tax purposes for the tax year 1990 shall be those found and applied by the Montana Department of Revenue (DOR) under said studies.

Under our state constitutional duty to pronounce our decisions in writing (Art. VII, § 3, 1972 Mont. Const.), as an aid to the legislature in its future enactments and by way of explanation to affected Montana taxpayers, we come now to make permanent the provisions of our temporary order and to set out the facts and conclusions This is an original proceeding in this Court brought by the DOR which petitioned for a writ of review, a writ of supervisory control, or other appropriate emergency writ for relief from an order of STAB dated August 3, 1990. In that order, STAB had concluded, upon the protest of Patricia C. Barron, that the DOR's implementation of §§ 15-7-111(4), (8), MCA, was unconstitutional. (STAB contended here that it did not find the implementation unconstitutional, but only that a court would find it unconstitutional.) DOR's petition pointed to imminent statutory deadlines in the property tax collection process which created an emergency situation and said that a prompt ruling from this Court was necessary to end the uncertainty. DOR contended that no other adequate remedy existed that was speedy enough and that irreparable harm to taxpayers and governmental entities would occur if the controversy was not resolved well in advance of the issuance of tax notices that had to be mailed by October 25, 1990.

which form the basis for the temporary order.

On receipt of DOR's application, we ordered that we would treat the proceedings as one for declaratory relief under Ch. 8, Title 27, MCA, obtain a response from the respondents, and set an oral argument date. Responses were filed and served, oral argument was had, and thereafter, on consideration, we issued a temporary order to which we have above adverted.

OVERVIEW

The Montana Constitution provides that the state shall appraise, assess, and equalize the valuation of all property which is to be taxed in a manner provided by law (Art. VIII, § 3). The state must establish the assessed valuations (Art. VIII, § 4) and the legislature must provide independent appeal procedures for taxpayer grievances, appraisals, assessments, equalization and taxes, with a review procedure at the local government unit level (Art. VIII, § 7).

To implement the constitutional provisions, the legislature provided for property appraisals in Ch. 7, Title 15, MCA. In 1975, a scheme was adopted whereby the state would evaluate under a comprehensive reappraisal plan all taxable property in the state at least every five years. The DOR was required to adopt a plan so that all property in each county was revalued at least every five years or that no less than 20% of the property in each county was revalued each year. Section 15-7-111, MCA (1987).

The current five-year cycle for reappraisal began in 1986. The legislature extended that cycle period in 1989 for an additional two years, to end December 31, 1992, and postponed the commencement of another five year revaluation cycle until January 1, 1993. Section 15-7-133, MCA. The DOR was given an additional two years to complete the current revaluation cycle. Section 15-7-132, MCA.

In the last two legislative sessions, however, the legislature substantially amended the revaluation cycle. Ch. 613, Laws of Montana (1987); Ch. 636, Laws of Montana (1989). While keeping the five-year provision in effect, it provided in amended § 15-7-111, MCA, that for every taxable year beginning January 1, 1990, and each taxable year thereafter, the DOR is to conduct a "stratified sales assessment ratio study" of all residential land and improvements (and other property not pertinent here). Under the amendment, the DOR was to partition the State into as many as 100 areas of residential property, and as many as 20 of commercial property. The areas in each are to be separately studied. Under the study, the actual sales prices of real property parcels sold for three taxable years prior to the study were compared with their appraised values then in effect, and a ratio determined. If the average appraised values of the properties in the study, compared to the average of the actual sales amounts were less than 95% or more than 105%, the assessments for each stratum within each area were to be rescaled to bring all ratios to common value 1.

The criteria for establishing the residential areas were that they should contain statistically sufficient numbers of sales and be as economically and demographically homogenous Criteria for obtaining statistically valid samples of sales in each area were also set out in the 1989 amendment. It is enough to say that only arm's-length sales were to be considered in the ratio study. The sales of remodeled residences were not to be considered and sales which showed assessment ratios of less than 50% or greater than 200% were to be excluded.

                as practicable.   Section 15-7-111(6), MCA.   For tax year 1990, the DOR established 47 residential areas in the state, of which Area 2.1 (Great Falls Downtown) was one
                

If the result of the study in each area produced sales assessment ratios of less than minus 5% of common value 1, or greater than plus 5% of common value 1, then all of the assessments in the area were to be adjusted to bring the ratios to common value 1. Section 15-7-111(8)(a), MCA. If the ratio for any area was within plus or minus 5% of the common value 1, then the assessments in the area were considered equalized and no rescaling was necessary. Section 15-7-111(8)(c), MCA.

The legislature required the sales assessment ratio studies to commence for the taxable years beginning January 1, 1990, and for every taxable year thereafter and further provided that the ratio so determined "must be used to determine appraisals for the immediately succeeding tax year." Section 15-7-111(4), MCA.

FACTS

Patricia C. Barron is the owner of a residence in Great Falls, Cascade County, Montana. Her property is in an area designated by the DOR as Area 2.1. Prior to 1990, the Barron property was appraised by the DOR at a total value of $28,019 for land and improvements. The DOR conducted a "stratified sales assessment ratio study" in that area for taxable year 1990. It used a sample of 243 actual sales. It found therefrom an average sales price of $39,545 and an average appraised value of $29,310. The DOR determined that the weighed mean ratio of the figures was 0.7412, which required an adjustment factor of plus 30%. The appraised value of Patricia C. Barron's residence was therefore fixed at a total of $40,325.

Barron appealed to the County Tax Appeal Board on these grounds:

Through H.B. 703, an arbitrary 30% increase was imposed on my house. Such an arbitrary increase does not address the mandate of Art. VIII, § 3 of the Constitution that the State equalize the valuation of all property and is therefore unconstitutional.

The appeal was denied by the County Tax Appeal Board for the reason that "The Board was informed that an error was found and that the necessary adjustment would be made by the DOR of Revenue."

Patricia C. Barron appealed to STAB, again on the same grounds.

STAB made findings of fact and conclusions of law on August 3, 1990, relating to the appeal. Pertinent to the findings are these:

The testimony indicated that approximately 1,000 of these sales were chosen for Cascade County and that 243 sales were analyzed and used to determine that the properties located in Area 2.1 were underappraised by 30 percent.

The pertinent conclusion of law with respect to this case made by STAB is found in paragraph 1. It includes:

It is the opinion of this Board that the taxpayer did not satisfactorily challenge the DOR's constitutional authority to appraise, assess, or equalize property values. The DOR clearly has that authority and is affirmed by the Montana Supreme Court in DOR of Revenue v. Countryside Village, 205 Mont. 51 (1983); Hanley v. DOR of Revenue, 207 Mont. 302 (1983). However, along with that authority goes the duty, and the requirement, to equalize property values throughout an area, county to county, and statewide. It is clear to this Board from the evidence and testimony provided that, for Area 2.1 at least, this has not been achieved. (Emphasis in original.)

STAB then went on to examine the results of the application of the 30% adjustment. Whereas before the adjustment, 40 of the 243 properties were...