No. 14960
IN THE SUPREME COURT OF THE STATE OF MONTANA
1980
THE DEPARTMENT OF REVENUE
OF THE STATE OF MONTANA,
Petitioner and Appellant,
STATE TAX APPEAL BOARD,
COUNTRYSIDE VILLAGE, INC., et al.,
Respondents and Respondents.
Appeal from: District Court of the Eighth Judicial District, In
and For the County of Cascade,
Honorable H. William Coder, Judge presiding.
Counsel of Record:
For Appellant:
R. Bruce McGinnis, Dept. of Revenue, Helena, Montana
Randall Swanberg argued, Great Falls, Montana
Swanberg, Koby, Swanberg & Matteucci, Great Falls,
Montana
For Respondents:
Church, Harris, Johnson & Williams, Great Falls,
Montana
Robert P. Goff argued, Great Falls, Montana
Crowley, Haughey, Hanson, Toole & Dietrich, Billings,
Montana
Mark D. Safty argued, Billings, Montana
Church, Harris, Johnson & Williams, Great Falls, Montana
Milton Wordal argued, Great Falls, Montana
James R. Paul, Great Falls, Montana
Bottomly and Gabriel, Great Falls, Montana
James, Gray & McCafferty, Great Falls, Montana
Jardine, Stephenson, Blewett & Weaver, Great Falls, Montana
For Amicus Curiae:
Scott, Linnell & Newhall, Great Falls, Montana
Submitted: February 26, 1980
Decided: J,uN 2 4 ]9&
Filed: fVlJ : f$?
:
,
Honorable Gordon R. B e n n e t t , D i s t r i c t J u d g e , d e l i v e r e d t h e
Opinion of t h e C o u r t .
T h i s i s an a p p e a l by t h e Department o f Revenue from a
d e c i s i o n of t h e D i s t r i c t C o u r t of t h e E i g h t h J u d i c i a l D i s t r i c t ,
i n and f o r Cascade County, a f f i r m i n g a d e c i s i o n of t h e S t a t e
Tax Appeal Board p r o v i d e d f o r a b l a n k e t 34 p e r c e n t r e d u c t i o n
i n t h e D e p a r t m e n t ' s a p p r a i s a l of t h e improvements on c e r t a i n
p a r c e l s o f commercial r e a l p r o p e r t y i n Cascade County. The
Board i s j o i n e d by t h i r t y - e i g h t t a x p a y e r s a s r e s p o n d e n t s .
B r i e f s amicae have been r e c e i v e d from t a x p a y e r s of s e v e r a l
other counties. The d e c i s i o n of t h e D i s t r i c t C o u r t i s r e v e r s e d .
Respondent t a x p a y e r s a p p l i e d t o t h e Cascade County Tax
Appeal Board f o r r e d u c t i o n of t h e v a l u a t i o n o f t h e i r cornrner-
c i a 1 p r o p e r t y improvements p u r s u a n t t o s e c t i o n 15-15-102,
MCA, a f t e r a p p r a i s a l by t h e c o u n t y a s s e s s o r f o r t h e Department
of Revenue. A f t e r h e a r i n g , t h e c o u n t y t a x a p p e a l board d e n i e d
r e l i e f and a p p e a l w a s t a k e n t o t h e S t a t e Tax Appeal Board
( 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 Board") under s e c t i o n 15-2-
301, MCA. The Board o v e r r u l e d t h e c o u n t y a p p e a l board and
o r d e r e d t h e Department t o r e d u c e a l l of t h e c o n t e s t e d v a l u a -
t i o n s by 34 p e r c e n t . The Department p e t i t i o n e d f o r j u d i c i a l
r e v i e w under s e c t i o n 15-2-303, MCA, seeking r e v e r s a l of t h e
Board d e c i s i o n and r e i n s t a t e m e n t of i t s v a l u a t i o n s o r , i n t h e
a l t e r n a t i v e , remand t o t h e Board f o r d e t e r m i n a t i o n a s t o whe-
t h e r s e c t i o n 42-2.22(1)-S2200 of t h e A d m i n i s t r a t i v e R u l e s of
Montana ( r e f e r r e d t o h e r e a f t e r a s A.R.M.) is arbitrary, capri-
c i o u s o r unlawful. The D i s t r i c t C o u r t d e n i e d r e l i e f , a f f i r m -
i n g t h e Board d e t e r m i n a t i o n . By s e p a r a t e o r d e r , t h e C o u r t
d e n i e d t h e D e p a r t m e n t ' s motion t o p r e s e n t a d d i t i o n a l e v i d e n c e
under s e c t i o n s 15-2-303(4) and 2-4-703, MCA, on t h e ground
t h e Department had a n o p p o r t u n i t y t o p r e s e n t such e v i d e n c e a t
the county and state appeal board hearings and declined to do
so as a "deliberate tactical decision." Both orders were
appealed.
The uncontested central facts in the case include the
following: The Department in its 1978 appraisal procedures
used replacement cost less depreciation as the basis for deter-
mining values of all real property improvements. In deter-
mining the replacement cost itused statistics contained in
two manuals adopted under A.R.M. Section 42-2.22(1)-S2200.
The Montana Appraisal Manual was used for appraising residen-
tail property improvements and the Marshall Swift Valuation
Service Manual was used for appraising commercial property
improvements. The statistics in the Montana Appraisal Manual
reflected 1971 replacement costs, while those in the Marshall
Swift Manual reflected 1976 replacement costs. At the county
appeal board hearing several witnesses testified the 1971
replacement cost figures contained in the Montana Appraisal
Manual were only 66 percent of the 1976 replacement cost figures
contained in the Marshall Swift Manual. The Cascade County
appraiser testified that impiementation of the regulation
resulted generally in valuation of residential impro7aernents
at 60 percent of market value and valuation of commercial
improvements at 100 percent of market value.
A preliminary issue is whether the Board has authority
to review and determine the legal pro2riety of the ~epartment's
appraisal methods. This gives us little pause. Article VIII,
Section 7 of the 1972 Constitution calls for legislature pro-
vision of ". . . independent appeal procedures for taxpayer
grievances about appraisals . . ." Pursuant to that require-
ment, section 15-2-201(1)(c) MCA, was enacted to give the
Board general authority to hear appeals from the ~epartment
w i t h r e g a r d t o p r o p e r t y a s s e s s m e n t s , and s e c t i o n 1 5 - 7 - 1 0 2 ( 5 ) ,
MCA, g i v e s t h e Board s p e c i f i c power t o d e t e r m i n e a p p e a l s o f
appraisals. C e r t a i n l y t h e power t o h e a r a p p r s i s a l a p p e a l s
i n c l u d e s t h e power t o p a s s judgment on a p p r a i s a l methods, and
we s o h o l d .
The n e x t q u e s t i o n i s whether u s i n g d i f f e r e n t c o s t d a t a
f o r a p p r a i s i n g d i f f e r e n t t y p e s of p r o p e r t y w i t h i n t h e same
s t a t u t o r y c l a s s i f i c a t i o n c o n s t i t u t e d unlawful discrmination
and v i o l a t i o n of t h e r e q u i r e m e n t f o r u n i f o r m i t y i n t a x a t i o n .
W s t a r t w i t h t h e f a c t u a l premise t h a t such d i s p a r a t e c o s t
e
d a t a w a s i n f a c t used i n a s s e s s m e n t of r e s p o n d e n t t a x p a y e r s '
p r o p e r t y improvements, a s found by t h e Board and t h e D i s t r i c t
Court. The l e g a l p r e m i s e i s t h a t b o t h r e s i d e n t i a l and com-
m e r c i a l improvements t o r e a l p r o p e r t y a r e i n t h e same l e g i s -
lative classification. S e c t i o n 15-6-134, MCA. The c o n s t i t u -
t i o n a l and s t a t u t o r y r e q u i r e m e n t s f o r e q u a l i z a t i o n o r u n i f o r m i t y
w i t h i n a l e g i s l a t i v e c l a s s i f i c a t i o n c a n n o t be q u e s t i o n e d . See
Article VIII, S e c t i o n s 3 and 7, 1972 Montana C o n s t i t u t i o n ; sec-
t i o n 15-7-103(1), MCA; s e c t i o n 1 5 - 9 - 1 0 1 ( 1 ) , MCA; Larson v .
S t a t e and Dept. of Revenue ( 1 9 7 5 ) , 166 Mont. 449, 454-455, 534
P.2d 854, 857; S t a t e e x r e l . S c h u l t z - L i n d s a y C o n s t r . Co. v .
Board of E q u a l i z a t i o n ( 1 9 6 5 ) , 145 M m t . 380, 393, 403 P.2d
635, 641-642. F a i l u r e t o adhere t o t h e uniformity r u l e a l s o
o f f e n d s due p r o c e s s and e q u a l p r o t e c t i o n p r i n c i p l e s . Larson,
s u p r a , 166 Mont. a t 455, 534 P.2d a t 857. Given t h e l e g a l
and f a c t u a l p r e m i s e s n o t e d , t h e method used by t h e Department
in t h e s e c a s e s would s e e m , on i t s f a c e , t o have v i o l a t e d u n i -
f o r m i t y , e q u a l p r o t e c t i o n and due p r o c e s s r e q u i r e m e n t s . I£
d i f f e r e n t valuation s t a t i s t i c s a r e applied t o different
p i e c e s of p r o p e r t y i n t h e same l e g a l c l a s s i f i c a t i o n , a n il-
legal disparity i n valuation i s likely t o result. W e cannot,
however, r e a c h such a c o n c l u s i o n a s t o any p a r t i c u l a r prop-
e r t i e s e v a l u a t e d i n t h i s c a s e because t h e r e i s i n a d e q u a t e
e v i d e n c e i n t h e r e c o r d t o do s o . N e v i d e n c e of comparable
o
e v a l u a t i o n s , a s between p a r t i c u l a r commercial and r e s i d e n -
t i a l improvements, under t h e D e p a r t m e n t ' s system, a p p e a r s i n
t h e record.
The Department c o n t e n d s , however, t h a t even i f t h e v a l u a -
t i o n d i d n o t meet e q u a l i z a t i o n and due p r o c e s s / e q u a l protection
r e q u i r e m e n t s , t h e a s s e s s m e n t s were p a r t of a " r o l l i n g " o r
" c y c l i c a l " r e a p p r a i s a l system and were, t h e r e f o r e , a n excep-
t i o n t o t h e s e requirements. Such a system c o n t e m p l a t e s r e a p -
p r a i s a l of a p o r t i o n of t h e p r o p e r t y i n a p a r t i c u l a r c l a s s i f i -
c a t i o n e a c h y e a r under a p l a n t h a t i s aimed a t u n i f o r m i t y
w i t h i n t h e c l a s s i f i c a t i o n of t h e c o n c l u s i o n of a l l r e a p p r a i s a l .
See d i s c u s s i o n i n E r n e s t W. Hahn, I n c . v. County A s s e s s o r f o r
B e r n a l i l l o County ( 1 9 7 8 ) , 92 N.M. 609, 592 P.2d 965, 969;
Maricopa County v . North C e n t r a l Development Co. ( 1 9 7 7 ) , 115
Ariz. 540, 566 P.2d 688, 691-692; P a t t e r s o n v . S t a t e and De-
p a r t m e n t of Revenue ( 1 9 7 6 ) , 1 7 1 Mont. 168, 176, 557 P.2d 798;
Larson, s u p r a , 166 Mont. a t 455; Annot., 76 A.L.R.2d 1077 ( 1 9 6 1 ) .
I n Larson, s u p r a , w e r e c o g n i z e d t h i s e x c e p t i o n whzre t h e i n -
e q u a l i t i e s a r e temporary, b u t t h e r e i s no e v i d e n c e i n t h e
r e c o r d t h a t t h e Department e v e r i n t e n d e d , much less p l a n n e d ,
t h a t t h e system b e temporary, o r t h a t i t w a s p a r t of a n o v e r -
a l l p l a n t h a t would e v e n t u a l l y r e s u l t i n e q u a l i z a t i o n . The
D i s t r i c t C o u r t found t h e r e was no r o l l i n g o r c y c l i c a l r e a p p r a i s a l
system working t h a t would p e r m i t a n e x c e p t i o n t o t h e u n i f o r m i t y ,
e q u a l p r o t e c t i o n , / d u e p r o c e s s r e q u i r e m e n t s , and w e a g r e e .
Thus, t h e Board had t h e a u t h o r i t y t o a d j u s t and e q u a l i z e
t h e s e a p p r a i s a l s and had d e t e r m i n e d t h e y w e r e u n e q u a l . What
s h o u l d i t have done? I t a p p a r e n t l y f o l l o w e d a 1923 r u l - i n g of
t h e U n i t e d S t a t e s Supreme C o u r t i n S i o u x CityBridgeCompany
v. Dakota County ( 1 9 2 3 ) , 260 U.S. 4 4 1 , 43 S.Ct. 190, 67 L.Ed.
340, and reduced t h e commercial improvement a p p r a i s a l s by 34
p e r c e n t a c r o s s t h e board i n a n a t t e m p t t o e q u a l i z e them w i t h
r e s i d e n t i a l improvement a p p r a i s a l s .
The key h o l d i n g i n S i o u x C i t y B r i d g e , s u p r a , was s t a t e d
as follows:
" T h i s C o u r t h o l d s t h a t t h e r i g h t of t h e t a x -
p a y e r whose p r o p e r t y a l o n e i s t a x e d a t 100
p e r c e n t of i t s t r u e v a l u e i s t o have h i s
a s s e s s m e n t reduced t o t h e p e r c e n t a g e of t h a t
v a l u e a t which o t h e r s a r e t a x e d even though
t h i s i s a d e p a r t u r e from t h e r e q u i r e m e n t of
s t a t u t e . T h i s c o n c l u s i o n i s based on t h e
p r i n c i p l e t h a t where ----- i b l e t o s e -
it i s i m p o s s
--- e s t a n d a r d - -e t r- v a l u e , and
cure both t h of t h - u e
-uniformity - e q u a l i t y required & -
the - and law,
t h e l a t t e r r e q u i r e m e n t - s -t . be - p r e f e r r e d -
i- o ~ as
t h e j u s t and u l t i m a t e purpose - - - w . "
--- of t h e l a
(Emphasis a d d e d . ) Sioux C i t y B r i d g e , 260 U.S.
a t 446, 43 S.Ct. a t 192, 67 L.Ed. 343.
T h i s d i s p o s e s of t h e D e p a r t m e n t ' s argument t h a t t h e a p p r a i s a l s
c o u l d n o t be r e d u c e d , even though u n e q u a l , i f t h e y r e s u l t e d i n
a n a s s e s s m e n t a t t r u e m a r k e t v a l u e , o r 100 p e r c e n t of m a r k e t
v a l u e a s r e q u i r e d by s e c t i o n 1 5 - 8 - 1 1 1 ( 1 ) , MCA. Reduction i s
r e q u i r e d where i t i s s a t i s f a c t o r i l y shown t h a t under t h e s y s t e m
a s a p p l i e d i t i s i m p o s s i b l e t o meet b o t h t h e t r u e v a l u e and
equality standards. I t c o u l d have been c o n c l u d e d , a s t h e
Board and t h e D i s t r i c t C o u r t c o n c l u d e d , t h a t a p p l i c a t i o n of
t h e D e p a r t m e n t ' s system would work a n i n e q u a l i t y of a s s e s s m e n t
and t h a t i t would be i m p o s s i b l e t o have b o t h f u l l v a l u e a s s e s s -
ment and e q u a l i t y under t h a t system. I f i t were t o be s o con-
c l u d e d , r e d u c t i o n would be r e q u i r e d and t h e r e m a i n i n g q u e s -
t i o n would b e , how much?
The e v i d e n c e p r e s e n t e d t o t h e c o u n t y and s t a t e b o a r d s and
t o t h e D i s t r i c t C o u r t p r o v i d e s a n i n a d e q u a t e b a s i s f o r any re-
duction t h a t is not conjectural o r speculative. The burden
i s on t h e t a x p a y e r t o remove t h i s d e t e r m i n a t i o n from t h e
realm of c o n j e c t u r e o r s p e c u l a t i o n . S k i n n e r v . N. M. State
Tax Comm. ( 1 9 5 9 ) , 66 N.M. 221, 345 P.2d 750, 752. It i s not
s u f f i c i e n t t o show t h e p o s s i b i l i t y o r even t h e p r o b a b i l i t y of
a n a p p r a i s a l of commercial improvements t h a t would b e , g e n e r a l l y ,
34 p e r c e n t o r 40 p e r c e n t h i g h e r t h a n a p p r a i s a l s of r e s i d e n t i a l
improvements, a s was shown h e r e . Workable c r i t e r i a f o r con-
crete d e t e r m i n a t i o n o f d i s c r e p a n c y have been d e l i n e a t e d by
t h e Iowa Supreme C o u r t :
" I n o r d e r t o o b t a i n r e l i e f upon t h e ground
t h a t h i s property i s assessed inequitably, it
i s e s s e n t i a l t h a t t h e t a x p a y e r p r o v e (1) t h a t
there a r e several other properties within a
r e a s o n a b l e a r e a s i m i l a r and comparable t o h i s ;
( 2 ) t h e amount of t h e a s s e s s m e n t s on t h e s e
p r o p e r t i e s ; ( 3 ) t h e a c t u a l v a l u e of t h e com-
p a r a b l e p r o p e r t i e s ; ( 4 ) t h e a c t u a l v a l u e of
h i s p r o p e r t y ; ( 5 ) t h e a s s e s s m e n t complained
o f ; ( 6 ) t h a t by a comparison h i s p r o p e r t y i s
a s s e s s e d a t a h i g h e r p r o p o r t i o n of i t s a c t u a l
v a l u e t h a n t h e r a t i o e x i s t i n g between t h e
a s s e s s e d and a c t u a l v a l u a t i o n s of t h e s i m i l a r
and comparable p r o p e r t i e s , t h u s c r e a t i n g d i s -
criminations." Maxwell v . S h i v e r s ( 1 9 6 5 ) ,
257 Iowa 575, 133 N.W.2d 709, 711.
W e would a d o p t t h e s e c r i t e r i a a s a t l e a s t a s t a r t i n g p l a c e f o r
a c t u a l comparison of t r u e v a l u e t o a s s e s s e d v a l u e r a t i o s . They,
and o t h e r r e a s o n a b l e c r i t e r i a t h a t m i g h t be d e v i s e d by t h e
Department o r t h e Board, s h o u l d s e t t h e s t a n d a r d f o r proof i n
each case. See a l s o Bynu!n t . A l t o I n d e p e n d e n t School D i s t .
.
(Tex. 1 9 7 5 ) , 521 S.W.2d 656, 660. Because no such c r i t e r i a
w e r e f o l l o w e d , and b e c a u s e t h e r e was no comparison of a c t u a l
t r u e and a s s e s s e d v a l u e r a t i o s a s between t h e commercial i m -
provements of t h e r e s p o n d e n t t a x p a y e r s and r e s i d e n t i a l improve-
ments of o t h e r t a x p a y e r s i n t h e c o u n t y , t h e d e c i s i o n of t h e
D i s t r i c t C o u r t must be r e v e r s e d and t h e S t a t e Tax Appeal
B o a r d ' s b l a n k e t r e d u c t i o n of 3 4 p e r c e n t on commerical improve-
ment a p p r a i s a l s must be set a s i d e .
In reversing we do not, however, hold that the appraisals
of the Department are confirmed. We only hold that the tax-
payers have not introduced sufficient evidence to justify a
finding that the appraisal method employed by the Department
violates uniformity, equal protection and due process require-
ments and to warrant a blanket 34 percent reduction of the
assessments of commercial property. Therefore, the matter
must be returned to the Board for its further consideration.
On further consideration, the Board should hold a hear-
ing at which evidence of the true and assessed values of com-
mercial and residential property is introduced pursuant to
the criteria adopted above. This will allow it to compare
the actual difference in the true value to assessed value
ratios between commercial and residential property resulting
from the appraisal method adopted by the Department. The
Board might find on such hearing that the Department's ap-
praisal method is arbitrary, capricious or otherwise unlawful,
but it may not amend or repeal the appraisal regulation. Sec-
tion 15-2-301(4), MCA. It may, however, modify the appraisals
by reducing the appraisals of commercial property to a ratio
of true value to assessed value equal to the ratio applied to
residential property. Section 15-2-301(4), MCA.
If, upon a further hearing, the Board finds the Depart-
ment's appraisal procedure arbitrary, capricious or unlawful
and that a reduction in the appraisals of commercial property
is justified, proof of an excessive appraisal must be made by
each taxpayer who seeks relief. Bynum, supra, 521 S.W,2d at
660. Each taxpayer should follow the above criteria to estab-
lish the amount of reduction the taxpayer is entitled to.
This does not mean each taxpayer seeking relief must introduce
evidence as to the value of all improvements to real property
i n a county. The t a x p a y e r must, however, i n t r o d u c e e v i d e n c e
of enough p r o p e r t y l o c a t e d n e a r t h e t a x p a y e r ' s p r o p e r t y and
i n t h e same l e g i s l a t i v e c l a s s i f i c a t i o n s o t h e Board can
e s t a b l i s h t h e proper t r u e value t o assessed value r a t i o f o r
t h e property without speculation o r conjecture. Skinner,
s u p r a , 345 P.2d a t 752. Once t h e p r o p e r r a t i o h a s been
e s t a b l i s h e d , t h e Board c a n d e t e r m i n e t h e p r o p e r amount t o
r e d u c e a n i n d i v i d u a l t a x p a y e r ' s p r o p e r t y by a p p l y i n g t h e
r a t i o t o t h e property.
R e s o l u t i o n of o t h e r i s s u e s r a i s e d on t h e a p p e a l i s n o t
e s s e n t i a l t o t h i s d e c i s i o n o r i t s i m p l e m e n t a t i o n and t h e y ,
t h e r e f o r e , a r e n o t considered here. The c a u s e i s remanded
t o t h e D i s t r i c t C o u r t , which i s d i r e c t e d t o r e t u r n i t t o t h e
S t a t e Tax Appeals Board f o r f u r t h e r p r o c e e d i n g s i n a c c o r d
with t h i s opinion.
\ -r / / a -
I
; \- - * '21
Honorable ~ o r $ o nR . B e n n e t t ,
D i s t r i c t Judge, s i t t i n g i n p l a c e
of M r . J u s t i c e H a r r i s o n
W e concur:
4 A
Chief J u s t i c e
QdWJ u s t i c eL.
s
Mr. J u s t i c e Gene B . Daly a g r e e s w i t h t h i s Opinion b u t i s
unavailable t o sign.