No. 00-791
IN THE SUPREME COURT OF THE STATE OF MONTANA
2002 MT 130
DANIEL J. and SHEILA M. O'NEILL,
As Trustees of the SHEILA M. O'NEILL
FAMILY TRUST,
Petitioners and Respondents,
v.
THE DEPARTMENT OF REVENUE,
STATE OF MONTANA,
Respondent and Appellant.
APPEAL FROM: District Court of the Second Judicial District,
In and for the County of Silver Bow,
The Honorable James E. Purcell, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Daniel J. Whyte, Tax Counsel, Montana Department of Revenue,
Helena, Montana
For Respondents:
Mollie A. Maffei, Maffei Law Firm, Butte, Montana
Submitted on Briefs: August 16, 2001
Decided: June 18, 2002
Filed:
__________________________________________
Clerk
Justice Patricia O. Cotter delivered the Opinion of the Court.
¶1 The Department of Revenue (DOR or Department) appraised three properties owned by
Daniel and Sheila O'Neill and assessed a value to each property. The O'Neills claimed the properties
had been overvalued and challenged the values through appropriate administrative procedures and
then to the Montana Second Judicial District Court. The District Court agreed with the O'Neills and
assigned significantly lower values to the subject properties. The DOR appeals the District Court's
ruling. We reverse.
¶2 The issue before this Court is whether the District Court erred in overturning the State Tax
Appeal Board and substituting its assessment of value in place of the Department of Revenue's.
FACTUAL AND PROCEDURAL BACKGROUND
¶3 At issue are two parcels of property, designated for purposes of this decision as the
Dental Clinic and Vacant Land. In the original administrative proceeding, the value of a
third parcel known as Big A was also disputed. This parcel was subsequently sold and will
not be addressed here.
¶4 In 1989, the O'Neills purchased over twenty-five contiguous and non-contiguous lots in
Block Number 11 of the Atherton Place on the Lakes Addition in Butte, Montana, for $85,000. Six
contiguous lots were subsequently used in 1991 for construction of the Dental Clinic at a completed
construction cost of $177,762. The remaining undeveloped lots constitute the Vacant Land parcel.
At the time of the District Court proceedings, the O'Neills were attempting to sell the Vacant Land
for approximately $179,000.
¶5 In 1993, the DOR performed an original assessment of the properties and assigned market
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values to the Dental Clinic land, the Dental Clinic itself, designated the "Dental Clinic
improvements," and the Vacant Land. The O'Neills, believing that the properties had been
overvalued, requested that the DOR review and revise its original assessments. After review in
1994, the Department reduced the land values for both parcels but did not change the assessed value
of the Dental Clinic improvements.
¶6 The O'Neills continued to maintain that the properties had been overvalued and appealed to
the Silver Bow County Tax Appeal Board (CTAB). CTAB denied their appeal.
¶7 The O'Neills then appealed to the State Tax Appeal Board (STAB) which granted further
reductions to the land values and ordered that the properties be entered into the Silver Bow County
tax rolls.
¶8 Dissatisfied with the reductions assessed by STAB, the O'Neills, in accordance with § 15-2-
303, MCA, appealed STAB's ruling to the Montana Second Judicial District Court. The District
Court conducted a hearing in November 1996 during which additional evidence was presented in the
form of the testimony of appraiser Jack McLeod, who testified on behalf of the O'Neills. McLeod,
who had appraised the Dental Clinic in 1990 but had not appraised the Vacant Land, testified that
the DOR had overvalued the O'Neills' properties and that comparable sales in the area proved a
lower value should have been applied. The District Court vacated STAB's values and assigned
significantly lower values to the O'Neills' properties. DOR appeals.
¶9 The table below reflects the various values assigned to these two parcels and the Dental
Clinic improvements from the time of purchase to June 2000 when the District Court issued its
ruling.
Dental Clinic- Dental Clinic - Vacant Land
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land improvements
Purchase/construction Included in price 177,762 85,000
price of Vacant Land
DOR 1993 62,790 220,200 357,750
DOR Review 1994 45,450 220,200 289,350
CTAB denied appeal - no reassessment
STAB 1995 44,250 220,200 246,000
Requested by O'Neills 21,617 175,975 81,066
District Court $190,000 85,000
June 26, 2000
STANDARD OF REVIEW
¶10 A district court reviews an administrative decision in a contested case to determine whether
the findings of fact are clearly erroneous and whether the agency correctly interpreted the law.
Laudert v. Richland County Sheriff's Dept., 2000 MT 218, ¶14, 301 Mont. 114, ¶14, 7 P.3d. 386,
¶14. We employ the same standards when reviewing a district court order affirming or
reversing an administrative decision. Laudert, ¶14 (citing Langager v. Crazy Creek
Products, Inc., 1998 MT 44, ¶13, 287 Mont. 445, ¶13, 954 P.2d 1169, ¶13.)
DISCUSSION
¶11 The Legislature has mandated that the DOR assess all property subject to taxation at 100% of
its "market value," except under certain circumstances that do not apply to this case. Sections 15-8-
101 and 15-8-111, MCA. "Market value" is statutorily defined as "the value at which
property would change hands between a willing buyer and a willing seller, neither being
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under any compulsion to buy or to sell and both having reasonable knowledge of
relevant facts." Section 15-8-111(2)(a), MCA. In addition to defining "market value,"
the Legislature also addressed approaches to be used to determine market value:
(b) If the department uses construction cost as one approximation of
market value, the department shall fully consider reduction in
value caused by depreciation, whether through physical
depreciation, functional obsolescence, or economic obsolescence.
(c) If the department uses the capitalization of net income method as
one approximation of market value and sufficient, relevant
information on comparable sales and construction cost exists, the
department shall rely upon the two methods that provide a similar
market value as the better indicators of market value. (Emphasis
provided) Sections 15-8-111(2)(b) and (c), MCA.
¶12 The DOR explained that it consistently utilizes, as it did in this case, one of the three
approaches specified by the Legislature when appraising property to determine market value,
i.e., the cost approach (§ 15-8-111(2)(b), MCA), the market data approach (i.e., comparable
sales, § 15-8-111(2)(c), MCA), and the income capitalization approach (§ 15-8-111(2)(c),
MCA). The DOR maintained that this Court has specifically accepted these appraisal
approaches in Albright v. Montana Dept. of Revenue (1997), 281 Mont. 196, 933 P.2d 815.
¶13 The Department explained that it appraised the Vacant Land as well as the land on
which the Dental Clinic is located at $500 per foot of Monroe Avenue street frontage, and a
significantly lesser per foot figure for lots not facing Monroe Avenue. The DOR claimed
that its "per foot land values" were appropriately derived from market data acquired from the
sales of comparable property between 1988 and 1992. Using this market data, the DOR then
utilized the Computer Assisted Land Pricing program and derived the square foot land
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values.
¶14 For the Dental Clinic improvements, the DOR had no comparable sales available. Therefore,
the Department used the cost approach which took the estimated value of the land, based on
market data, and added to it the current construction or replacement costs of the
improvements. The Department then subtracted the amount of depreciation from the
improvements. This method is known as "Replacement Cost New Less Depreciation."
¶15 The O'Neills argued that the Dental Clinic improvements should have been assessed at the
same value as the neighboring veterinary clinic's improvements. Both clinics had been built at
approximately the same time, on the same size parcel of land, for approximately the same
construction costs, and were similarly structured. The DOR contended, however, that while
similarities did exist, the clinics were not comparable for several reasons, including but not limited
to, major differences in construction, interior finish, layout, roof structure, partitions, type of
plumbing, the existence of Dental Clinic outbuildings, as well as paving and landscaping
differences.
¶16 The O'Neills presented the DOR with various "comparable properties" in an effort to show
that their parcels had been overvalued compared to these other properties. The DOR concluded,
however, that the presented properties were not "comparable sales" nor were they similar enough in
size or property class; for example, some of the presented comparables were agricultural and
residential properties.
¶17 During the District Court hearing, authorized pursuant to § 15-2-303(5), MCA, Jack
McLeod, an experienced real estate broker, developer and appraiser, testified on behalf of the
O'Neills. Mr. McLeod offered testimony that based upon comparable sales figures with
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which he was familiar, the DOR had overvalued the O'Neills' property. He also stated that
the Dental Clinic and the veterinary clinic should have comparable assessments based on
construction costs and the other similarities of the buildings. The DOR countered that Mr.
McLeod had never appraised the value of the veterinary clinic and had appraised the Dental
Clinic six years earlier, making that appraisal, by Mr. McLeod's admission, stale. The DOR
further argued that Mr. McLeod was testifying to values of other properties for which he had
not performed assessments, lacked awareness of zoning, and was missing other pertinent
information necessary to form reliable appraisals and assessments.
¶18 In its Findings of Fact/Conclusions of Law issued pursuant to Rule 52(a), M.R.Civ.P.,
the District Court concluded that the DOR's approach was "theoretical" and adopted instead
an "acquisition value" approach, stating that "true market value can only be determined when
the property is eventually sold, and until it is sold, the purchase price of the property should
be uses [sic] as the market value."
¶19 Upon concluding that the acquisition value was the appropriate method to use to determine
the value of the O'Neills' property, the District Court ruled that the assessed value of the Vacant
Land and the land beneath the Dental Clinic should be its purchase price of $85,000. The court
further concluded that the price a taxpayer may be asking for a parcel of property for sale has
nothing to do with the present value, and until the land is sold, the value of the land is a matter of
conjecture. The District Court also concluded that the different uses of the Dental Clinic and
the veterinary clinic "do not justify [a] higher value when the construction costs of both is
[sic] the same." The District Court therefore determined that the assessed value of the Dental
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Clinic should be its 1991 construction cost of $177,000+, plus the cost of paving, resulting in
a total assessment value of $190,000.
¶20 Moreover, the District Court opined in its legal conclusions that:
STAB concludes that the tax payer has not produced sufficient evidence to establish
that any of his proposed land values are true market values. However, STAB uses its
theoretical approach based on appraiser manuals to determine what it concludes is
true market value. True market value can only be determined when the property is
eventually sold, and until it is sold, the purchase price of the property should be uses
[sic] as the market value.
¶21 On appeal, the DOR maintains that it specifically does NOT use the acquisition value as the
market value, defining "acquisition value" as the price at which a parcel of property most recently
sold on the market. It argues that the acquisition value was not a statutorily-authorized method for
determining market value. Moreover, the DOR contends that this Court has specifically held that
"Montana does not have an 'acquisition value' system of taxation." Roosevelt v. Montana Dept. of
Revenue, 1999 MT 30, ¶43, 293 Mont. 240, ¶43, 975 P.2d 295, ¶43. Further, the DOR argues that
the acquisition value system of taxation results in significant disparity among similarly
situated properties, and that the District Court's assessment of the O'Neills' properties based
on acquisition value in Silver Bow County only, contravenes § 15-7-112, MCA, which
requires that the same method of appraisal and assessment be used in each county of the
State.
¶22 In reaching our decision in this matter, we are guided by § 2-4-704, MCA, which provides:
(2) The Court may not substitute its judgment for that of the agency as to
the weight of the evidence on questions of fact. The court may affirm the
decision of the agency or remand the case for further proceedings. The court
may reverse or modify the decision if substantial rights of the appellant have
been prejudiced because:
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(a) The administrative finding, inferences, conclusions or decisions are:
...
(v) clearly erroneous in view of the reliable, probative, and substantial
evidence on the whole record.
Under this statute, the District Court as a reviewing court could have reversed or modified
STAB's decision and remanded the case for further proceedings if it concluded that the
O'Neills' substantial rights had been prejudiced because the administrative findings were
clearly erroneous in view of the reliable evidence of the record. Dept. Of Revenue v. Grouse
Mt. Development (1985), 218 Mont. 353, 707 P.2d 1113. However, the District Court
reached no such conclusion. It simply applied its own analysis in place of that applied by
STAB.
¶23 Section 2-4-704, MCA, does not contemplate a wholesale substitution of the District Court's
opinion for that of the agency. This Court has stated that "it is not a judicial function to act as an
authority on taxation matters. Tax appeal boards are particularly suited for settling disputes over the
appropriate valuation of a given piece of property, and the judiciary cannot properly interfere with
that function." Grouse, 218 Mont. 355, 707 P.2d 1115 (citing Northwest Land v. State Tax Appeal
Board (1983), 203 Mont. 313, 661 P.2d 44, overruled on other grounds by Devoe v. Department Of
Revenue (1993), 263 Mont. 100, 866 P.2d 228). Moreover, we have held that "[a]ssessment
formulations are within the expertise of the State Tax Appeal Board and we will uphold their
decisions unless there is a clear showing of an abuse of discretion." Grouse, 218 Mont. 355-56, 707
P.2d 1115 (citation omitted).
¶24 There was no showing in the District Court that STAB's findings and conclusions were
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clearly erroneous in view of the evidence of record, nor was an abuse of discretion
demonstrated. Rather, the O'Neills simply sought and received the application of a different
analysis more favorable to them. We conclude that, absent the finding required under § 2-4-
704, MCA, STAB's values must be upheld. Grouse, 218 Mont. 355, 707 P.2d 1115 (citation
omitted).
¶25 Accordingly, we reverse and remand for reinstatement of the STAB assessments.
/S/ PATRICIA COTTER
We Concur:
/S/ KARLA M. GRAY
/S/ JAMES C. NELSON
/S/ TERRY N. TRIEWEILER
/S/ W. WILLIAM LEAPHART
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