NO. 82-479
IN THE SUPREME COURT OF THE STATE OF MONTANA
1983
DEPARTMENT OF REVENUE OF THE
STATE OF PIONTANA ,
Petitioner and Appellant,
COUNTRYSIDE VILLAGE, 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:
Larry G. Schuster argued, Helena, Montana
For Respondents:
Church, Harris, Johnson & Williams, Great Falls, Montana
George McCabe argued, Great Falls, Montana
Clary & Clary, Great Falls, Yontana
Submitted: April 2 2 , 1 9 8 3
Decided : J u l y 12, 1983
Filed :
J C 1 2 1983
U
Clerk
Mr. Justice John C. Sheehy delivered the Opinion of the
Court.
The Department of Revenue of the State of Montana (DOR)
appeals from an order of the District Court, Eighth Judicial
District, Cascade County, dismissing DOR's petition for
judicial review of an order of the State Tax Appeal Board
dated November 7, 1980.
By its ord.er, the State Tax Appeal Board (STAB) had
remanded the cause to the Department of Revenue, "for
reappraisal of the commercial properties involved in a manner
which does not violate the constitutional and statutory
requirements for equalization or uniformity with other
properties of the same legislative class."
We reverse the order of dismissal by the District Court
and return the matter to STAB for further proceedings.
The glut of 1978 tax protest cases, including the cases
involved in this cause, now clogging STAB, DOR and some
district courts, arise from the use in 1978 by DOR of the
Montana Appraisal Manual to appraise residential property
improvements which reflected 1971 replacement costs, while it
used the Marshall Valuation Service Manual in 1978 to
appraise commercial property improvements which reflected
1976 replacement costs.
Both residential and commercial improvements are in the
same legislative class for taxation purposes. Section
16-6-134, MCA. The protestors contend that the use of the
disparate manuals has resulted in inequitable appraisals of
property for taxation, the commercial properties being
appraised at or near market value, while the residential
properties are appraised substantially below market value.
It is DOR's constitutional duty to appraise, assess and
equalize the valuation of all property taxed in the state in
the manner provided by law. Article 8, Section 3, 1972
Montana Constitution. It is the duty of all taxing
jurisdictions in the state to use the assessed valuation of
property as established by the state. Article 8, Section 4,
Montana Constitution. All taxable property must be assessed
at one-hundred percent of its market value (with certain
exceptions) and the Department of Revenue may not adopt a
lower or different standard of value from market value when
making the official assessment. Section 15-8-111, MCA.
"Market value" is the value at which property would change
hands between a willing buyer and a willing seller, neither
being under any compulsion to buy or to sell and both having
reasonable knowledge of relevant facts. Section 15-8-111
(2)(a) MCA.
We had a similar facet of this same problem before us in
Department of Revenue v. State Tax Appeal Board, 1980,
Mont . , 613 P.2d 691, 37 St.Rep. 1063. In that case,
the appeal arose from an order of the same district court
which had approved STAB'S blanket reduction of thirty-four
percent on commercial improvement appraisals. We set aside
STAB'S blanket reduction and remanded the cause for further
proceedings before STAB.
After remand, STAB issued a notice of August 26, 1980 to
the litigants involved in this cause, of a hearing to be held
on October 1, 1980. The notice stated:
"The sole issue to be determined at this hearing is
whether or not the Department of Revenue may
lawfully use the 1972 Montana Appraisal Manual for
the purpose of determining the value of residential
improvements, and at the same time use the 1976
Marshall Valuation Service to determine the value
of commercial improvements, when both residential
and commercial improvements are presently in Class
4 under Section 15-6-134 MCA, 1979, and both were
in Class 11 under Section 15-6-112 MCA, 1978, in
1978. You are referred to the decision of the
Montana Supreme Court in Department of Revenue of
the State of Montana v. State Tax Appeal Board,
Countryside Village, Inc., et. al., 37 St.Rep.
1063. The Montana Supreme Court in that case, at
page 1067, adopted the criteria established by the
Iowa Supreme Court for determination of unequal
appraisals. The hearing will, therefore, be
confined to the following evidence:
''I 1 ) That there are several other
properties within a reasonable area
similar and comparable to his; (2) The
amount of the assessments on these
properties; (3) The actual value of the
comparable properties; (4) The actual
value of his property; (5) The assessment
complained of; (6) That by a comparison
his property is assessed at a higher
proportion of its actual value than the
ratio existing between the assessed and
actual valuations of the similar and
comparable properties, thus creating
discriminations.'"
On September 10, 1980, the notice given to the litigants
in this case was expanded by a memorandum addressed to all
parties having tax protests. The expanded list included some
forty-five taxpayers, and approximately sixty-one tax
protests. The memorandum stated:
"Each county will be heard separately, with the
taxpayers presenting their case-in-chief first, and
the Department of Revenue going second. Rebuttal
will be permitted."
The memorandum also requested that any objections to the
procedures be filed with the State Tax Appeal Board
immediately.
On October 1, 1980, the time set for the hearing, the
chairperson of STAB announced that the purpose of the hearing
on that date would be to determine if, "the Board might find
on such hearing that the Department's method is arbitrary,
capricious, or otherwise unlawful", quoting from our
Countryside decision supra, 613 P.2d1 at 695. Counsel for
DOR did not specifically object to that method of procedure
at the time, but did point out that STAB, at that time, had
jurisdiction of "Countryside Village matter, PT-78-385;, the
Colonial Inn case, PT-78-641; East Broadway, Inc., PT-78-65;
James T. and Carol Harrison, PT-78-73; and Jerome T.
Loendorf, PT-78-77," and that all the other cases were
presently pending before district courts. The chairperson
announced that nonetheless the hearing would proceed with
respect to all the cases with the jurisdictional question
"something that may have to be settled later".
The hearing then proceeded with the counsel representing
various tax protestors from the various counties appearing.
Proposed findings and conclusions were presented to STAB
after the hearing, and on November 7, 1980 STAB made its
findings, conclusion and order. It found that there was a
disparity between the assessed values of residential and
commercial improvements in the various counties, differing
from county to county, but that commercial property was
consistently appraised in an amount substantially higher than
residential property. DOR had introduced no evidence to
justify the disparity and STAB therefore concluded that the
appraisal method used by the Department of Revenue violates
uniformity, equal protection and due process requirements of
the Montana Constitution and statutes, and was, therefore
arbitrary, capricious and unlawful. It then entered the
following order:
"It is hereby ordered that the above matter be and
it is remanded to the Department of Revenue for
reappraisal of the commercial properties involved
in a manner which does not violate the
constitutional and statutory requirements for
equalization or uniformity with other properties of
the same legislative class. It is suggested that
one method by which this may be accomplished is by
use of the Marshall Valuation Service Manual which
reflects 1971 replacement costs.''
DOR appealed the order to the District Court in Cascade
County. There STAB's order was sustained and DOR's petition
for judicial review dismissed, the District Court noting that
no statute or regulation precludes STAB from requiring DOR to
remedy its appraisals, nor from fashioning the remedy
required in the order of November 7, 1980.
In its newest appeal to this Court, DOR contends, (1)
that STAB proceeded improperly on remand in hearing all the
tax protest cases collectively according to the county in
which the property was situated; (2) that the evidence
produced as a result of that procedure failed to conform to
the standard of proof established by this court in Department
of Revenue v. State Tax Appeal Board, supra. 613 P.2d 695;
and (3) that the order rendered by STAB to DOR was in excess
of STAB's statutory authority. The taxpayers respond that
STAB's order is a proper exercise of its power, that evidence
supports the findings of STAB and that its order is not
arbitrary, capricious or otherwise erroneous.
Further substantive issues are DOR's contention that the
evidence is insufficient to sustain STAB's order of November
7, 1980, and the taxpayers contention that since this issue
is not briefed and argued before the District Court, it may
not be raised in appeal.
Before determining the legal issues herein, we turn now
to recap the evidence educed at the October 1, 1980 hearing
before STAB.
Yellowstone County
We glean from STAB'S expanded Notice of Hearing that
there are eight protesting taxpayers in Yellowstone County,
comprising eleven cases. On behalf of these tax protestors,
a single witness testified, Gene Thornquist.
Thornquist testified that he conducted a study to
determine the ratio between DORIS appraisal of residential
improvements and the market value of those residential
improvements. He used the records of Multiple Listing
Service in Billings concerning 1,242 residential sales in
1978. To determine the value of the improvements in each
instance, he assumed that the land had been fairly appraised
by DOR and so subtracted the appraised land value from the
sales price, in each instance, so that presumptively in each
category, the DOR appraisal and the sales price, he was
dealing only with the value of the improvements. He
determined in each of the 1,242 instances the ratio between
DORIS appraisal of the residential improvements and the sales
price of the residential improvements. He also added up all
of the figures in each category so as to reach a total for
all of DOR's appraisals of the residential improvements, and
for all of the sales prices for the same residential
improvements. Using this methodology, he reached the
following mathematical conclusions:
Residential:
Total DOR Value of Improvements $26,123,047
Total Sales Value of Improvements $57,601,230
Ratio DOR Value/Sales Value 45.35%
In addition, Thornquist testified to the number of sales
based on various percentages of DORIS appraised value of the
improvements. That effort resulted in the following figures:
Residential Properties:
% of DOR Value No. of Sales
Thornquist also had made a study of forty commercial
improvements to realty. He used DOR1s appraisals,
subtracting its land value, to obtain DOR1s value of the
improvements for taxation purposes. For twenty-eight of the
commercial properties he used construction costs for fair
market value, for six he used actual sales prices, and for
the remaining six he used certified appraisals which he had
obtained. Not all of the figures used derived from the year
1978, although most did. He deducted DOR1s appraisal of the
land to determine the value of the improvements for the
purposes of his study. All six of the certified appraisals
of the commercial improvements were substantially below DOR1s
appraised values, resulting in ratios ranging from
one-hundred three percent to two-hundred twenty-one percent.
Thornquist totaled DOR1s appraised value of the improvements
in comparison to his determined sale value of those same
improvements, which resulted in the following figures:
Commercial:
Total DOR Value of Improvements $24,912,920
Total Sales Value of Improvements $25,321,128
Ratio DOR Value/Sales Value 98.39%
On the basis of these figures, Thornquist concluded that
the average difference between DOR appraisals of commercial
and residential improvements as to their respective market
values, was 53.04 percent.
Cascade County
Robert P. Goff, one of counsel representing Countryside
Village in this case, was the principal witness with respect
to the claimed disparities in Cascade County. His method of
determining the difference in ratios between sales price and
the DOR appraisal of commercial properties, and sale price
and the DOR appraisal of residential properties, followed the
same pattern as that described by witness Thornquist. From
the Multiple Listing Service in Great Falls, Goff took the
first 200 sales for 1978 in residential properties and
compiled the figures for the same. He discounted the land
value both for the DOR appraisal and the sales price before
deducting therefrom the appraisal figure set by the DOR. The
results of his study are tabulated as follows:
COMMERCIAL
Total App. Value of Imp. $ 730,030
Total Sale Value of Imp. $1,134,965 ~ a t i o 64.32%
Total of Individual Ratios 1161.81
Average of Ratios
RESIDENTIAL
Total App. Value of Imp. $3,202,994
Total Sale Value of Imp. 8,197,867 Ratio 39.07%
Total of Individual Ratios 7619.61
Average of Ratios
COMP. OF COMM. & RESIDENTIAL RATIOS
Residential Ratio
Commercial Ratio
Average Residential Ratio 38.29%
Average Commercial Ratio 64.54% 59.33%
(100% - 59.33% = 40.67%)
Goff also testified that he examined six different
commercial properties, all apartment buildings, applying
first the Montana Manual, and then the Marshall-Swift Manual.
By using the depreciation factors provided in each of those
manuals, he determined, "a reduction factor required" of
39.9% in the case of the Montana Manual, and 35% in the case
of the Marshall-Swift Manual. Goff did not identify the
properties to which these specific comparisons were made,
except that possibly one of those was a tax protestor in
these several actions.
Lewis & Clark County
The principal witness here was Vern Cougill. Cougill
did not do an overall county study, but examined the sales of
four commercial properties and compared those sales to an
unspecified number of residential properties of similar age.
He testified that as to residential properties he discerned a
difference in valuation between the assessed valuation and
the actual sales price of 31-34%. With respect to the
commercial properties he reviewed, he found a disparity
between the sales price and the assessed value of the
commercial properties ranging from 47% to 80%, which he
averaged at just 60%. He then divided 33% by 60% to
determine that commercial properties were appraised 55%
higher than the residential properties. As far as the record
indicates, it does not appear whether Cougill subtracted the
land values from the values of the improvements in making his
determinations.
In addition, Mr. John A. Cooper testified on behalf of
Diana Dowling, one of the tax protestors, respecting two
fourplexes she owns. Cooper testified that in the case of
the "Eastside property1', there was a disparity between the
DOR appraisal of land under the fourplex and a single family
home next door. The fourplex land was assessed at $3,770 and
the single-family home land was assessed at $2,250. In
addition, with respect to sales of comparable residential
properties, he found two properties which he considered
applicable. After considering the sales prices of the two
residential properties, and applying varying factors to make
them compatible with the fourplexes, he determined that the
values on the single-family homes were taxed approximately
30% less than were the fourplexes.
Missoula County
Attorney Greg Hanson appeared on behalf of tax protestor
Village Motor Inn. In a statement to STAB, he indicated that
they were prepared to present evidence to compare the Village
Motor Inn commercial property with residential properties in
its immediate area, but because of the Board's ruling that it
did not wish to hear the individual cases at the time of this
hearing, he would simply join in the testimony presented by
Yellowstone and Cascade Counties for the purposes of the
hearing.
Flathead County
Witness William C. Paullin testified in this instance.
He relied on previous testimony presented in connection with
tax protestors from Flathead County. His studies had lead
him to the conclusion that the DOR appraisals of commercial
property in Flathead County are very close to 100% of actual
selling price of those properties, and in the case of
residential properties, the DOR appraisals are approximately
66% or 65.8% of the sales price of residential property in
1976. He found the 1978 ratio to be 48.2% on actual selling
price. Over a full year, looking at commercial sales and
residential sales data, he found that DOR appraised at 116.6%
of their sales values in the case of commercial properties,
and at 63.8% for residential properties.
In addition, John M. Heller testified with respect to
Flathead County. Using a different methodology, he found
that the composite ratio of disparity was 52.9%, compared to
Paullin's testimony of 62-63%. He accounts for the difference
because he excluded land values, whereas Paullin included
land values in making his determinations.
Pondera County
Janice Hoppes presented testimony respecting a specific
grain elevator in Conrad, that of the Equity Cooperative
Association. Ms. Hoppes testified that she examined all of
the residential sales in her area for the years 1976 to 1980,
which totaled seven. From her investigation of the sales
prices of these residential properties as compared to the DOR
appraisals of the same, she determined, as an average, that
the residential properties were assessed at 45% of their
market values. With respect to elevators, she explained that
she had to look about the state for sales of elevators in
order to make a determination. She also explained that
elevators are more likely to be valued on bushel capacity
rather than any other factor.
Ms. Hoppes then testified that, since the residential
ratios varied from 17-92%, she would drop the lowest and
highest from her computations to determine an average of
40.8% discrepancy between DOR valuations and residential
market values. Using commercial property sale of elevators
she determined the average sales price was 43.5 cents per
bushel capacity, but that all eight elevators that she had
examined were assessed at 214% of such average per bushel
capacity. She also determined that elevators were assessed
five times higher than residential properties, based on their
respective market values.
In addition, under Pondera County, Charles L. Jacobson
representing tax protestors, stated that the property with
which he was involved had sold four months after the
appraisal at $20,000 less than the DOR appraisal, for which
his taxpayers were asking an adjustment.
Madison County
Attorney Sam Hadden represented protesting taxpayers in
Madison County, and made a statement for the record during
the hearing before STAB on October 1, 1980. The attorney
reported to the Board that a record had been made on his
taxpayers' appeal on September 7, 1978, where the taxpayers
had presented an appraisal report and testimony on the
appraisal. The Board had ordered that DOR make a written
response to their appraisal report and testimony by October
15, 1978. The taxpayer was then to have fifteen days after
receipt of the Department's material in which to file a
response. Since that time, nothing has been done by DOR,
according to the attorney.
The attorney informed STAB that his taxpayers intend to
stand on the record that had already been made, and since DOR
had chosen not to respond, to formally ask that the record be
closed insofar as his protestors were concerned. On that
basis, the Board ruled in accordance with Mr. Hadden's
motion.
Untangling the Legal Issues
It is clear that STAB has not fully appreciated the
purposes for which we remanded the proceedings to it in our
decision of Department of Revenue v. State Tax Appeal Board,
supra, 613 P.2d at 695. It is true that we said that at the
next hearing STAB, "might find at such hearing that the
Department's appraisal method is arbitrary, capricious or
otherwise unlawful. . .". However, we also continued:
"If, upon a further hearing, the Board finds the
Department'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. (citing authority)
Each taxpayer should follow the above criteria to
establish 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 in a
county. The taxpayer must, however, introduce
evidence of enough property located near the
taxpayer's property and in the same legislative
classification so the Board can establish the
proper true value to the assessed value ratio for
the property without speculation or conjecture.
(citing authority) Once the proper ratio has been
established, the Board can determine the proper
amount to reduce an individual taxpayer's property
by applying the ratio to the property."
Moreover, STAB'S authority to affirm, reverse or modify any
appraisal made by DOR applies only to such protests as are
properly before it. If there are protestors whose causes are
before the District Court, or not yet before STAB, of course
STAB has no authority with respect to those protests until
such time as jurisdiction is properly acquired by STAB.
It is well to keep in mind the statutory scheme for
protest of assessments or valuations in property tax
proceedings. The County Tax Appeal Board is the first
jurisdictional level for considering protests by taxpayers to
assessments, classifications or appraisals. Section 15-15-101.
Challenges to an assessment procedure adopted by the
Department of Revenue apply only to taxpayers protesting the
assessments, and do not apply to all similarly situated
taxpayers unless an action is brought in District Court as
provided in Section 15-2-307 et seq MCA. Section 15-15-102.
MCA .
Any person aggrieved by the action of the County Tax
Appeal Board may appeal to the State Tax Appeal Board under
Section 15-15-104, MCA.
Appeals from the County Tax Appeal Board to STAB are
governed by Section 15-2-301. The power of STAB in
connection with any appeal under Section 15-2-301(4), MCA is
to "affirm, reverse or modify any decision" of the County Tax
Appeal Board. Although STAB is not a quasi-judicial board,
as that term is defined in our statutes, we recognized in
Department of Revenue v. Burlington Northern, Inc., (1976)
169 Mont. 202, 545 P.2d 1083 that it could exercise
quasi-judicial functions. STAB, however, as an
administrative agency, has no mandatory or injunctive powers
over DOR, a separate administrative agency. As an
administrative agency, STAB has no constitutional or
statutory judicial power to remand a matter to the Department
of Revenue for reappraisal. When an appeal is taken under
Section 15-2-301, MCA, STAB may only affirm, reverse or
modify the decision of the County Tax Appeal Board.
The statutory procedures for the determination of tax
protests must be followed, and in this case they require that
STAB proceed to take evidence with respect to the individual
protestors to determine if their individual properties have
been overvalued in accordance with the criteria which we
adopted from Maxwell v. Shivers (1965), 257 Iowa 575, 133
NW.2d 709, 711; Department of Revenue v. State Tax Appeal
Board, 613 P.2dI at 695. Based on that evidence, in protests
over which STAB now has jurisdiction, it may affirm, modify
or reverse the decision of the County Tax Appeal Boards.
With respect to those cases which may have passed beyond
STAB'S jurisdiction and are now presently being reviewed in
district courts, STAB of course has no power to make
determinations until and if those cases are returned for
further proceedings before it.
We have no clear record of what the status of the
Madison County property is, relating to protestor Big Sky.
If STAB has present jurisdiction of it, it has ordered the
closing of the record in that case, and it should proceed to
make a determination.
In the case of the Dowling property in Lewis & Clark
County, if STAB has jurisdiction of those cases, the evidence
presented at the October 1, 1980 hearing by counsel and by
Ms. Dowling, creates a presumption of arbitrariness in
assessing her property to which DOR is entitled to respond in
a further hearing.
In the case of the elevator in Pondera County, that
protestor has established a presumptive showing of
arbitrariness, to which DOR is entitled to respond if STAB
now has jurisdiction of that cause.
In the Missoula County case of Village Motor Inn, that
tax protestor, through its counsel, has indicated its
readiness to proceed on its individual case. If STAB has
jurisdiction of that cause, an appropriate early hearing on
that protest should be allowed by STAB.
We detect a certain amount of struggling for turf in
these cases as between the State Tax Appeal Board and the
DOR. The District Court noted this, indicating in its
opinion that it was partially approving STAB's order for the
reason that responsibility was being placed by STAB upon DOR,
brhich apparently caused the difficulty in the first place.
One of the members of STAB indicated by a special concurrence
that he favored the procedure taken by STAB because it aided
small taxpayers to avoid the cost of tax protest proceedings.
That objective is commendable, but the statutes which relate
to determinations of tax protests are mandatory upon us and
upon STAB. We are convinced that the many cases now pending
out of the 1978 appraisals will be more expeditiously handled
if the statutory procedures are followed.
For this reason, the decision of the District Court
refusing judicial review is reversed, and this cause is
remanded to STAB for further proceedings in accordance with
this opinion. Each party to this appeal shall bear its own
appeal costs.
We find that the evidence in this case is insufficient,
but not in the manner contended by DOR. It is insufficient
because with respect to each protesting taxpayer, there is
nothing of record to show that any single taxpayer has been
discriminated against when compared to taxpayers in the same
classification; nor has the dollar amount of such
discrimination, if any, on which an adjustment could be
founded as to any taxpayer. What is lacking in the record is
the specific dollar amount of unequal valuation or
discrimination applying to the individual protesting
taxpayers. It is STAB's duty to determine the individual
effect of the discriminatory method of appraisal before STAB
can affirm, modify or reverse the County Tax Appeal Board.
The taxpayers argue on appeal that insufficiency of the
evidence was not briefed or argued by DOR in the District
Court and so that issue is unavailable to DOR on this appeal.
Nonetheless, the same issue is reached on a ground raised by
DOR in the District Court--namely, that STAB failed to follow
our directions on remand of Countryside Village, supra, 613
P.2d at 695.
We concur:
".4-#,&/,&
,,Chief Justice
Mr. Justice Frank B. Morrison, Jr. dissents as follows:
I respectfully dissent.
I believe that within the Board's statutory powers to
"affirm, reverse or modify" decisions and to not give full
effect to Department rules which are "arbitrary, capricious
or otherwise unlawful," the Board may exercise
quasi-judicial functions which encompass the power of remand.
Neither our previous decision in Department of Revenue
v. State Tax Appeal Board, supra, or the statutory scheme
set forth in Chapter 2, Title 15, MCA, precludes remand to
the Department for reassessment of the involved properties.
Respondents ably carried their burden by showing that
the Department has abrogated its constitutional duty to
appraise, assess and equalize the valuation of all property
taxed in the state.
Therefore, it should be incumbent on the Department to
either (1) justify its discriminatory methods (which it did
not do in the hearing before the Board) or (2) properly
fulfill its duty by coming forward with an assessment method
which treats respondents' properties in a manner similar to
that of other properties within the same classification.
The latter alternative is appropriately accomplished by
means of remand.
Properties owned by taxpayers who did not protest the
Departments use of a discriminatory assessment method should
not be subject to reassessment. The unconstitutionality of
the method employed does not void heretofore unchallenged
assessments. See North Central Services, Inc. v. Hafdahl
(19811, Mont . , 625 P.2d 56, 60, 38 St.Rep. I