No. 82-497
IN THE SUPREME COURT OF THE STATE OF MONTANA
1983
JOHN C. and RUTH HANLEY, DORIS A. KROPP,
LORETTA L. UBER, et al.,
Plaintiffs and Appellants,
THE DEPARTMENT OF REVENUE OF THE STATE
OF MONTANA,
Defendant and Respondent.
APPEAL FROM: District Court of the Eighth Judicial District,
In and for the County of Cascade,
The Honorable R. D. McPhillips, Judge presiding.
COUNSEL OF LWCORD:
For Appellants:
Clary & Clary; Thomas Clary argued, Great Falls,
Montana
For Respondent:
Larry Schuster argued, Dept. of Revenue, Helena,
Montana
-
Submitted: September 16, 1983
Decided: December 22, 1983
Filed:
DEC? ? 1983
Mr. Justice John Conway Harrison delivered the Opinion of
the Court.
This appeal is a continuation of what has been tabbed
the "34%" property tax controversy, which has been brewing
in this state for several years. A group of Cascade County
taxpayers brought this petition for declaratory judgment and
writ of mandamus seeking reinstatement of property values
which had been set by the county tax appeal board in 1980
and subsequently raised by the Department of Revenue. From
the District Court's order denying the petition this appeal
is taken.
In 1975, the Montana legislature instituted a new
procedure for appraisal of all taxable property in Montana.
Section 15-7-111, MCA, provides an "appraisal cycle"
approach to revaluation of taxable property. Over a five
year period or cycle, all taxable property in the state is
to be appraised and its value updated. Once the property
values are set, they are to remain stationary until the next
cycle begins and new values are set. This procedure was
enacted to comply with the Montana constitutional mandate
that the state, through the Department of Revenue, ". . .
shall appraise, assess and equalize the valuation of all
property which is to be taxed in the manner provided by
law." 1972 Constitution of the State of Montana, Article
VIII, Section 3.
The present cycle began in 1978 and will be completed
in 1985, a two year extension having been granted by the
legislature in 1981. Chapter 350, Section 3, Laws of
Montana (1981). The properties which are the subject of
this appeal are "Class 4" properties as defined in Section
15-6-134, MCA, and include both residential property and
commercial improvements to real property. The appraisals of
"Class 4" property conducted by D.O.R., were done pursuant
to the valuation guidelines from two different appraisal
manuals. Residential property was appraised from the 1972
Montana Appraisal Manual and commercial improvements were
appraised from the 1976 Marshall-Swift Appraisal Manual.
The use of different manuals gave rise to the "34%"
controversy which has plagued D.O.R. since 1978.
After the cycle commenced, it became apparent to
taxpayers across the state that the relative values of
similar "Class 4 " properties were not always comparable.
Several appraisals were contested before various county tax
appeal boards; the taxpayers contending that the appraisal
values reached by using the Marshall-Swift manual were on
the average much higher than the appraisal values reached by
using the Montana Manual. In 1980, appellants contested
their valuations before the Cascade County tax appeal board,
and were granted a 34% reduction from their 1978 assessed
values, to be effective through the remainder of the current
appraisal cycle. D.O.R. did not appeal this decision.
Approximately the same time appellants' reductions
were granted, a change of policies and personnel took place
at D.O.R. A new Director was appointed and it was soon
acknowledged by D.O.R. that there was a disparity between
the relative values resulting from use of the different
manuals. Attempting to find an adequate solution, D.O.R.
consulted local officials, county commissioners and school
boards to seek advice. From these discussions and the
recommendation of a D.O.R. appraiser, it was determined that
t h e d i s p a r i t y averaged approximately 12%. I n June of 1981
a p r o p o s e d s t i p u l a t i o n a g r e e m e n t was s e n t by D.O.R. t o each
t a x p a y e r w i t h an a p p e a l o f t h e c o m m e r c i a l v a l u a t i o n s p e n d i n g
before a county t a x appeal board, o f f e r i n g a 12% r e d u c t i o n
from the 1978 values. Several taxpayers accepted this
offer, but a p p e l l a n t s and t h e m a j o r i t y of those contacted
did not.
It was a p p a r e n t l y f e l t by D.O.R. that the sporadic
r e s p o n s e s were n o t s o l v i n g t h e problem. Thus a d i r e c t i v e
was issued t o each county assessor in the s t a t e ordering
t h a t a l l v a l u e s o f c o m m e r c i a l p r o p e r t y r e a c h e d by u s e o f t h e
Marshall-Swift manual be r e t u r n e d t o t h e i r 1978 v a l u e s and
reduced by 12%. E f f e c t i v e J a n u a r y 1, 1 9 8 2 , t h i s r o l l b a c k
was to take place regardless of whether the particular
p r o p e r t y v a l u e s were t h e s u b j e c t o f p a s t o r p r e s e n t a p p e a l s
o r were n o t being c o n t e s t e d a t a l l . This d i r e c t i v e applied
t o appellants' p r o p e r t y and had t h e n e t e f f e c t o f raising
t h e i r p r o p e r t y v a l u e s by 2 2 % .
Appellants appealed this rollback to the Cascade
County t a x a p p e a l board. A t t h e same t i m e a p p e l l a n t s f i l e d
t h i s a c t i o n i n D i s t r i c t C o u r t s e e k i n g a d e c l a r a t o r y judgment
t h a t t h e p r o c e d u r e i n s t i t u t e d by t h e d i r e c t i v e was i l l e g a l
and improper and a writ of mandamus requiring D.O.R. to
r e t u r n t h e a p p r a i s e d v a l u e s of a p p e l l a n t s ' p r o p e r t y t o t h o s e
s e t by t h e C a s c a d e C o u n t y t a x a p p e a l b o a r d i n 1 9 8 0 . Briefs
were filed and the matter was heard before Judge R.D.
McPhillips. F i n d i n g s of f a c t and c o n c l u s i o n s o f law were
e n t e r e d and t h e p e t i t i o n was d e n i e d . A p p e l l a n t s moved t o
amend the f i n d i n g s and conclusions or in the alternative
g r a n t a new t r i a l . After r e v i e w i n g a d d i t i o n a l b r i e f s and
h e a r i n g o r a l a r g u m e n t s , t h e m o t i o n was d e n i e d . This appeal
is t a k e n from t h e o r d e r d e n y i n g a p p e l l a n t s ' p e t i t i o n .
Three i s s u e s a r e r a i s e d f o r c o n s i d e r a t i o n :
(1) Can D.O.R. circumvent the county tax appeal
board's decision within the appraisal cycle, or is it
p r e c l u d e d from d o i n g s o by A.R.M. 2.51.307(3) (Admin. R u l e s
of Montana)?
(2) Are a p p e l l a n t s p r e c l u d e d f r o m r a i s i n g t h e f i r s t
i s s u e f o r f a i l u r e t o r a i s e it a t the District Court l e v e l ?
(3) S h o u l d t h e D i s t r i c t C o u r t h a v e r e q u i r e d D.O.R. to
return the valuations of appellants' property to those
g r a n t e d by t h e C a s c a d e C o u n t y t a x a p p e a l b o a r d i n 1 9 8 0 ?
Our a n s w e r t o t h e s e c o n d i s s u e d i s p o s e s o f t h e f i r s t
i s s u e , which w i l l n o t b e d i s c u s s e d . Appellants argue t h a t
D.O.R. should not be allowed t o change t h e v a l u a t i o n s of
t h e i r p r o p e r t y because it d i d n o t appeal t h e 1980 Cascade
County t a x a p p e a l board r u l i n g . A.R.M. 2.51.307(3) (Admin.
R u l e s o f M o n t a n a ) would seem t o r e q u i r e s u c h a h o l d i n g a s i t
is a r e s t a t e m e n t o f t h e d o c t r i n e o f r e s j u d i c a t a a d a p t e d t o
f i t t h e p u r p o s e s o f t h e s t a t e and c o u n t y t a x a p p e a l b o a r d s .
However, D . O . R . c o r r e c t l y contends t h a t s i n c e appellants d i d
n o t r a i s e t h i s t h e o r y i n t h e D i s t r i c t C o u r t , t h e y may n o t d o
s o on a p p e a l .
It h a s l o n g been the rule i n Montana that a legal
theory raised for the first time on appeal w i l l not be
c o n s i d e r e d by t h i s C o u r t . Chamberlain v. Evans ( 1 9 7 9 ) , 180
Mont. 511, 591 P.2d 237. Appellants' petition for
declaratory judgment and writ of mandamus alleged that
D.O.R. had improperly reappraised or reassessed their
property within the appraisal cycle. On appeal, they
broadly s t a t e a s t h e i r theory before t h e D i s t r i c t Court t h a t
"procedural defects" precluded the D.O.R.Is attempted
actions. They h a v e a r g u e d a p p l i c a t i o n o f t h e above c i t e d
administrative rule, and a s s e r t t h a t i t i s n o t a new l e g a l
theory but additional support f o r t h e i r "procedural defects"
theory. T h i s a r g u m e n t is n o t p e r s u a s i v e b e c a u s e " p r o c e d u r a l
defects" i s much too broad to be considered appellants1
l e g a l theory f o r t h i s purpose. Appellants pointed out the
p r o c e d u r a l d e f e c t s i n t h e i r p e t i t i o n and a r g u e d them b e f o r e
the District Court. We have previously held that the
proposed a p p l i c a t i o n of a s t a t u t e r a i s e d f o r t h e f i r s t time
on a p p e a l w i l l n o t b e c o n s i d e r e d . Hares v. Nelson (1981),
1 9 5 Mont. 463, 637 P.2d 19. A s with t h e s t a t u t e i n Hares,
t h e p r o p o s e d a p p l i c a t i o n o f t h e r u l e r a i s e s a n e n t i r e l y new
set of questions not argued before or presented to the
District Court. There can be no e r r o r on a n issue not
p r e s e n t e d t o o r r u l e d on by t h e l o w e r c o u r t , t h u s we w i l l
n o t r e v i e w t h e q u e s t i o n on a p p e a l . A p a r t y complaining of
e r r o r m u s t s t a n d o r f a l l on t h e g r o u n d s r e l i e d upon i n t h e
trial court. S t a t e ex r e l . , Department o f H e a l t h and
E n v i r o n m e n t a l S c i e n c e s v. L a s o r t e ( 1 9 7 9 ) , 1 8 2 Nont. 267, 596
P.2d 477.
By r a i s i n g t h e t h i r d i s s u e a n d p h r a s i n g i t i n s u c h a
b r o a d way, appellants attack the D i s t r i c t Court's holding
that the f a c t s and law p e r t a i n i n g to the case warranted
n e i t h e r a d e c l a r a t o r y judgment i n t h e i r f a v o r , nor i s s u a n c e
o f a w r i t o f mandamus. The f a c t s f o u n d by t h e t r i a l c o u r t
are not contested on appeal, and so we test only the
c o n c l u s i o n of the District Court that appellants are not
e n t i t l e d t o a d e c l a r a t o r y j u d g m e n t o r w r i t o f mandamus a s a
matter of law. We first address the District Court's
refusal to issue a declaratory judgment in appellants'
favor .
As noted in the discussion of the previous two issues,
appellants claimed in the District Court that D.O.R.'s
actions were procedurally incorrect. Specifically, they
contend that the valuation of taxable property cannot be
altered during the course of an appraisal cycle. Our
inquiry is thus limited to deciding whether the valuation of
taxable property in this state may be changed in the midst
of an appraisal cycle in the manner it was done here.
There is no question that the 1978 appraisals of
"Class 4" property did not always result in equivalent
values being placed on similar properties. The use of two
different appraisal manuals, and divergent sets of valuation
statistics belie this difference. This Court noted in
................................................... Board and
D e p a r t m e n t of Revenue v. S t a t e Tax Appeal
Countryside Village (M0nt.1980)~ 613 P.2d 691, 37 St.Rep.
1063, that, "If different valuation statistics are applied
to different pieces of property in the same legal
classification, an illegal disparity in valuation is likely
to result." 613 P.2d at 693, 37 St.Rep. at 1065. The
factual background of Countryside, was the same as
that which gave rise to the present controversy, the
disparity caused by use of the two manuals being the focus
of that case as well. Though we did not hold that there was
an illegal disparity in Countryside Village, D.O.R. has
since concluded that there in fact was an illegal disparity
and by their actions attempted to remedy the problem.
D.O.R. properly assumed the responsibility of
alleviating the problem. The State is constitutionally
a u t h o r i z e d and d i r e c t e d t o " [A] p p r a i s e , a s s e s s and e q u a l i z e
t h e v a l u a t i o n of a l l p r o p e r t y which i s t o b e t a x e d in the
manner p r o v i d e d b y law." 1972 C o n s t i t u t i o n of t h e S t a t e o f
Montana, A r t i c l e V I I I , Section 3 (emphasis s u p p l i e d ) . The
State has in turn empowered D.O.R. to, " [ A l d j u s t and
e q u a l i z e t h e v a l u a t i o n o f t a x a b l e p r o p e r t y among t h e s e v e r a l
c o u n t i e s and d i f f e r e n t c l a s s e s of t a x a b l e p r o p e r t y i n any
c o u n t y and i n t h e s e v e r a l c o u n t i e s and b e t w e e n individual
taxpayers . . . " Section 1-9-lOl(1) MCA (emphasis
supplied) . D.O.R. was clearly acting under its
c o n s t i t u t i o n a l m a n d a t e and a u t h o r i t y t o e q u a l i z e v a l u e s o f
taxable property.
A s noted above, a p p e l l a n t s a t t a c k e d D.O.R1s actions i n
the District Court by contending that they had actually
r e a p p r a i s e d t h e p r o p e r t y , which c o u l d n o t b e d o n e w i t h i n t h e
appraisal cycle. The District Court did not find this
argument persuasive and neither do we, for two reasons.
F i r s t , a p p r a i s a l o r v a l u a t i o n is t h e a c t of a s c e r t a i n i n g t h e
market v a l u e of t a x a b l e p r o p e r t y (see T i t l e 1 5 , Chapter 7 ,
Montana Code Annotated), and deals with the individual
a s p e c t s of s p e c i f i c property. Equalization, on t h e o t h e r
hand, r e f e r s t o a d j u s t m e n t s made b e t w e e n c l a s s , c o u n t y and
i n d i v i d u a l p r o p e r t y v a l u e s (see S e c t i o n 15-9-101(1) MCA) a n d
is a much b r o a d e r and more amorphous power. D.O.R. clearly
was r e l y i n g on t h e i r a u t h o r i t y t o e q u a l i z e h e r e .
Second, t h e power t o e q u a l i z e i n c l u d e s t h e power to
ad j u s t appraised values. We have held that 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 d i r e c t i v e t o e q u a l i z e r e q u i r e d
the S t a t e Board of Equalization to, Ir[D]o a l l things
necessary to secure a fair, just and equitable valuation of
all taxable property among the counties, and between the
different individual taxpayers. " (emphasis supplied) State
ex rel. Board of Equalization v. Price (1971), 157 Mont. 134
at 140, 483 P.2d 284 at 288. See also Section 15-9-101(1),
FICA. After the 1972 Montana Constitution was enacted the
State Board of Equalization was split, and eventually
replaced by the State Tax Appeal Board and D.O.R. D.O.R.
received the administrative powers of the old Board of
Equalization, including the broad power to equalize the
values of taxable property in the state affirmed in Price.
Department of Revenue v. Burlington Northern, Inc. (1976),
169 Mont. 202, 545 P.2d 1083. The overall effect of
D.O.R. Is action may have been to set new appraised values,
but this was within their power to equalize.
This Court has held that when D.O.R., or its
predecessor, becomes aware of unequal values of taxable
property, it has a duty to equalize. -
State ex rel.
Schoonover v. Stewart (1931), 89 Mont. 257, 297 P. 476.
D.O.R. is required to, " [D]o all things necessary to secure
a fair, just and equitable valuation of all taxable
property." Montana National Bank of Roundup v. Department
of Revenue (1975), 167 Mont. 429 at 431, 539 P.2d 722 at
724. There can be no doubt that the power to equalize
includes the power to alter appraised values set at the
beginning of an appraisal cycle. Appraisal is an
administrative function utilized to facilitate the
collection of revenue in the state. However, the power and
duty to equalize is constitutionally mandated to ensure that
this collection of revenue is done in a just and equitable
manner. We therefore hold that D.O.R. has the authority,
when acting under its power to equalize, to change the
taxable value of property in this state within an appraisal
cycle to comply with its constitutional mandate to tax on a
uniform basis. The District Court properly refused to issue
the declaratory judgment requested.
Appellants rested their request for a writ of mandamus
on the argument that D.O.R. had a clear legal duty to
rescind the new valuations placed on their property. This
was apparently done in anticipation of a declaratory
judgment that the procedures followed in setting these new
values were improper and illegal. Since we hold that the
District Court was correct in denying appellants' petition
for declaratory judgment, the clear legal duty upon which
their case hinged is nonexistent. The District Court
properly refused to issue the writ of mandamus.
Finally, we point out two rulings which are absent
from this decision. First, we make no ruling on the
correctness of the values placed by D.Q.R. on appellants'
property. Nor do we hold that D.O.R. has unbridled
discretion to set property values when exercising its power
to equalize. We only hold that it is within the parameters
of D.O.R. 's equalization power to adjust the taxable value
of property within an appraisal cycle.
Appellants' approach to this lawsuit has been to
attack D.O.R.'s authority to take the contested action. The
propriety of the new values has only been tangentially
mentioned, and no probative evidence from either side was
forthcoming in the trial court or on appeal. We note that
appellants filed an appeal with the Cascade County tax
appeal board simultaneous to filing the case at bar, and
initial determination of that issue will properly be made in
that forum. "Tax appeal boards are particularly suited for
settling disputes over the appropriate valuation of a given
piece of property or a particular improvement, and the
judiciary cannot properly interfere with that function."
Northwest Land and Develo~mentof Montana, Inc. v. State Tax
Appeal Board (Mont. 1983), 661 P.2d 44 at 47, 40 St.Rep. 470
at 473, citing Larson v. Department of Revenue (1975), 166
Mont. 449 at 457, 534 P.2d 854 at 858, and Blair v. Potter
(1957), 132 Mont. 176, 315 P.2d 177.
Second, we do not rule on the question of whether
D.O.R. can effectively overrule a county or State Tax Appeal
Board decision by exercising its power to equalize. As
noted above, appellants improperly raised this issue on
appeal as it was not raised at the District Court level.
The District Court denial of appellants' petition for
declaratory judgment and issuance of a writ of mandamus is
a£firmed.
We concur:
sitting in place of Mr. kustib,e
Frank B. Morrison Jr.
.+'
-,
i
Justices
Mr. Justice Fred J. Weber dissents as follows:
In general I agree with the majority opinion in its well
written legal analysis of the basic issue of the equalization
power of the DOR. I dissent from its specific application in
this case.
I do not conclude that it is necessary as a matter of
law to he trapped into the position of approving the
technique used by the DOR to overrule the decision of the
County Tax Appeal Board (not appealed by the DOR) with a
resulting 22% increase in property tax value for the
plaintiffs.
I concede that the primary argument on the part of the
plaintiffs at the district court level was directed to the
lack of power to reappraise assessments statewide. I further
agree with the majority conclusion that the DOR does have a
power of statewide equalization.
The majority states that it does not rule on the
question of whether the DOR can effectively overrule a county
tax appeal board decision by exercising its power to
equalize, pointing out that the plaintiffs improperlv raised
the issue on appeal for the first time. I disagree with
that conclusion.
The petition for declaratory judgment on the part of the
plaintiffs in substance alleged:
(1) Plaintiffs protested appraisal of their property in
1979 or 1980, and obtained a 34% reduction in appraised value
for those years.
(2) In 1981 plaintiffs' appraised values were the same
as 1980.
(3) DOR requested the Cascade County assessor to return
the appraised value for taxpayers improvements to the value
set by the DOR in 1978 and the appraisal office did so.
(4) DOR then directed the coun.ty assessor to reduce the
1978 value by 12% on all improvements appraised from the 1976
Marshall Valuation Service for the tax years 1982, 1983, 1984
and 1985.
In the prayer the plaintiffs asked for a declaratory
judgment finding that the procedure adopted by the DOR in
attempting to adjust the appraised value of improvements by
returning the value to a 1978 level and reducing by only 12%
is illegal and improper.
The District Court reached the following conclusion:
"That DOR, in utilizing a. uniform equalization
process which reduces the value of all commercial
improvements by 12% for tax year 1982 and
thereafter, proceeded to do so in a wholly lawful
manner, both procedurally - ~ u b s t a n t i ~ e l ~ . "
anF
(emphasis added)
The record does not support the conclusion as to these
taxpayers and can properly be classed as "clearly erroneous"
as to them.
A determination of value at the county tax appeal board
level is binding upon the DOR. A.R.M. 5 2.51.307(3) states:
" (3) The decision of the county tax appeal board
shall be final and binding on all interested
parties for the tax year in question unless
reversed or modified by the state tax appeal board
review. If not reviewed by the state tax appeal
board, the decision of the county tax appeal board
shall also be final and binding - - interested
on all
parties - - subsequent tax years
for all . . .."
(emphasis added)
I concede that the majority opinion is correct in holding
that the DOR has the general power to equalize tax
assessments. However, I would hold that the application of
such equalization to the present plaintiff taxpayers is both
improper and unlawful. As to these taxpayers, the effect of
the equalization is to repeal or overrule the determination
by the county tax appeal board. That cannot be done under
the regulations to which the DOR is subject.
I would hold that the pleadings and proof are sufficient
to establish an appraisal of the plaintiff taxpayers'
property under the Marshall Valuation Service in 1978 and
1979, reduction of such appraisals by 348 by the county tax
appeal board. Subsequent equalization by the DOR had the
effect as to plaintiff taxpayers of improperly reducing the
34% figure to 12%, thereby increasing the values by 22%.
I would therefore conclude that a declaratory judgment
should be entered by the District Court, holding the
equalization procedure followed by the DOR was improper as to
plaintiff taxpayers who were entitled to rely upon their tax
appeal board determination.
T concur.
3 4 a 8, & H e
Chief ,Justice