NO. 93-193
IN THE SUPREME COURT OF THE STATE OF MONTANA
1993
THE MONTANA DEPARTMENT OF REVENUE,
Petitioner and Appellant,
v.
JOHN C. and RITA ANN SHEEHY,
Respondents and Respondents.
APPEAL FROM: DistrictCourt of the First Judicial District,
In and for the County of Lewis and Clark,
The Honorable Jeffrey Sherlock, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
David W. Woodgerd, Chief Legal Counsel:
Lawrence G. Allen, Tax Counsel, Department
of Revenue, Helena, Montana
For Respondents:
John C. Sheehy, Pro Se, Helena, Montana
Submitted: October 5, 1993
Decided: November 18, 1993
Filed:
Justice William E. Hunt, Sr., delivered the opinion of the Court.
This is an appeal from an order of the First Judicial District
Court affirming the decision of the State Tax Appeal Board (STAB).
The STAB ruled that DOR's use of a stratified sales assessment
ratio study to determine a value multiplier, as applied to the
respondents' (Sheehys) home, caused the same disparity of treatment
of taxpayers within a specified area as that determined by this
Court in Department of Revenue v. Barron (1990), 245 Mont. 100, 799
P.2d 533.
We affirm.
Both parties raise several issues. However, we find the
following issue dispositive:
Is Senate Bill 412, Chapter 680, 1991 Mont. Session Laws
(S.B. 412) unconstitutional?
During the 1991 Session, the Legislature enacted S.B. 412 to
address the constitutional problems identified in Barron, 799 P.2d
533. Senate Bill 412 authorized DOR to use a specific stratified
sales ratio study to adjust property values in a given district
during an appraisal cycle. The DOR divided the State into 48
areas. In each area, DOR determines a ratio. The DOR established
a ratio by comparing the assessed value of various pieces of
property in the district to the actual sales price of each property
sold.
Sheehys live in Urban Helena Area 5.1, where they are joint
tenant owners of a home. In 1982, DOR appraised the property at a
value of $10,500 for the land and $66,007 for the improvements, for
2
a total of $76,507. In 1991, DOR increased those values to $10,920
for the land and $68,647 for the improvements, for a total of
$79,567.
In the area, there were 20,535 pieces of property. Prom
November 1989 to November 1990, 249 of those properties were sold.
The stratified sales assessment ratio study conducted in Area 5.1
found that 19.3 percent of the properties were within the 95 to 105
percent of their true market value: 65.1 percent were appraised
under 95 percent of their true market value; while 15.6 percent
were appraised in excess of 105 percent of their market value. A
ratio of 0.9138 was found for Urban Helena Area 5.1. The inverse
ratio is 1.09433 (1 divided by 0.9138). DOR subtracted 5 percent
from this inverse to bring it closer to 0.95, resulting in an
adjustment multiplier of 1.04 percent, or 4 percent. As a result,
DOR raised 1990 appraised value of all properties in Area 5.1 by
4 percent.
Prior to the application of the adjustment multiplier, of the
249 properties sold, 39 were considered over-appraised, 162
properties were considered under-appraised, and 48 fell between the
95 percent to 105 percent range. After the application of the
adjustment multiplier, 58 properties were considered as
over-appraised, 123 properties remained under-appraised, and 68
fell into the 95 percent to 105 percent range. Expanded to the
entire population of 20,535 parcels, this would mean that 49.4
percent or 10,144 parcels remain under-appraised.
3
Sheehys purchased the property in 1979 for $69,000. In 1990,
the DOR appraised value was 10.8 percent over the purchase price.
The revised 1991 appraised value and assessment would increase the
DOR appraised value to 15.3 percent over the 1979 purchase price.
Sheehys accept the 1990 DOR appraised value, which is the same as
the 1982 appraisal.
On June 12, 1991, Sheehys appealed their tax assessment to the
County Tax Appeal Board of Lewis and Clark County (CTAB). After a
hearing, CTAB denied the appeal. On July 24, 1991, Sheehys
appealed the CTAB decision to STAB. After conducting a hearing, on
June 5, 1992, STAB ruled in favor of Sheehys.
On August 4, 1992, DOR filed a petition for judicial review in
the First Judicial District Court. On February 2, 1993, the court
issued an order affirming STAB's decision based upon Barron. On
April 5, 1993, DOR appealed the District Court decision to this
Court.
In Barron, we held that the use of the 1990 tax values derived
from the ratio studies and the application of the 30 percent factor
to residential properties in Area 2.1 required certain taxpayers to
bear a disproportionate share of Montana's tax burden in violation
of the equal protection and due process clauses of the United
States and Montana Constitutions. Barron (1990), 799 P.2d at 542.
We also stated that it violated the appraisal provisions of our
statutes which require general and uniform appraisal, assessment,
and equalization of all taxable property in the State. Barron, 799
P.2d at 542. We held that the methodology employed by DOR for
4
yearly equalization between areas unfairly discriminates against
property taxpayers in Area 2.1 whose properties in 1989 where
appraised at or above market value. Barron, 799 P.2d at 540.
In response to Barron, the Legislature passed S.B. 412 in 1991
which provided reappraisal of areas with widely disparate
appraisals, such as existed in Area 2.1 in the Barron case. Senate
Bill 412 provided a right to appeal adjusted values. Finally,
S.B. 412 reduced the appraisal cycle from five to three years, with
no interim adjustments following the completion of the appraisal
cycle in 1993.
Even with these changes, S.B. 412 did not address the central
holding of Barron; that an across-the-board application of the 30
percent factor, without considering other factors relating to
market value, is unconstitutional. We said that the indiscriminate
use of an across-the-board 30 percent factor would "necessarily
exacerbate the values of those properties which are already
assessed at or near market value or in excess thereof." Barron,
799 P.2d at 540. DOE is employing the same methodology used in
Barron, but instead of applying a 30 percent factor, DOE is now
applying a four percent factor. The method may achieve
equalization between areas but not between individual properties
where inequities already exist. Barron, 799 P.2d at 540. The same
disparities exist here as those that occurred in Barron. The DOB
did not include in its study a representative sample relating to
age, condition, size, design, construction materials, location,
5
utilities, city or county services, or other factors that determine
market value.
The DOR contends that the appeal provision of S.B. 412 saves
the entire statute. As we stated in Barron, the non-appeal
provision of § 15-7-102(6), MCA, was not necessarily essential to
our decision. Barron, 799 P.2d at 541. We hold that S.B. 412 is
unconstitutional as it relates to the appeal process as a denial of
equal protection.
We affirm the decision of the District Court.
We concur:
IN THE SUPREME COURT OF THE STATE OF MONTANA
No. 93-193
THE MONTANA DEPARTMENT OF REVENUE,
Petitioner and Appellant,
;
v. O R D E R
;
JOHN C. and RITA ANN SHEEHY,
;
Respondents and Respondents. )
In this Court's opinion dated November 18, 1993, the second to
the last sentence on page six is amended to read as follows:
We hold that S.B. 412 is unconstitutional as it relates
to the appraisal process as a denial of equal protection.
DATED this 2q %& of November, 1993.
&
‘
Chief Justic \
November 18, 1993
CERTIFICATE OF SERVICE
I hereby certify that the following order was sent by United States mail, prepaid, to the
following named:
David W. Woodgerd, Chief Legal Counsel
Lawrence G. Allen, Tax Counsel
Dept. of Revenue, P.O. Box 202701
Helena, MT 59620-2701
John C. Sheehy
825 N. Rodney St.
Helena, MT 59601
ED SMITH
CLERK OF THE SUPREME COURT
STATE OF MONTANA