Department of Revenue v. Grouse Mountain Development

No. 85-167
IN THE SUPREI4E COURT OF THE STATE OF MONTANA
1985

THE DEPARTMENT OF REVENUE OF THE
STATE OF MONTANA,
Petitioner and Appellant,

GROUSE MOUNTAIN DEVELOPMENT AND
BRIAN T. GRATTAN,
Respondents.

APPEAL FROM: District Court of the Eleventh Judicial District,
In and for the County of Flathead,
The Honorable H. Gardner Brownlee, Judge presiding.

COUNSEL OF RECORD:

For Appellant:
Larry G. Schuster; Dept. of Revenue, Helena, Montana
For Respondent:
Fisher & Erickson; Leif B. Erickson, Whitefish,
Montana

Submitted on briefs: July 11, 1985
Decided: October 31, 1985

Filed:

- -
- . . .- --
Clerk
Mr. Justice John C. Sheehy delivered the Opinion of the
Court.

The Department of Revenue appeals from the judgment of
the District Court, Eleventh Judicial District, County of
Flathead, reversing the decision of the State Tax Appeal
Board. relating to the method of determining the taxable
valuation of respondents' golf course. We affirm in part and
reverse in part.
Grouse Mountain Development is a limited partnership
which d.eveloped a golf course, residential subdivision and
resort area near Whitefish, Montana. Brian Grattan was the
partner largely responsible for the development project.
During 1980, Grouse Mountain Development and Grattan
commenced construction of a nine-hole golf course adjoining
the residential subdivision. In order to secure financing
for the project, Grouse Mountain Development had to encumber
all of the property, including the golf course, with a
mortgage. Grattan could not develop the residential area
unless he convinced the City of Whitefish to annex the area
to the City so that the lots would be served by city water
and sewage. The City passed ordinance A - 3 3 3 which required
the developer to grant a perpetual use of the golf course to
the public as a condition to annexation.
Grattan determined that he did not wish to operate or
manage the golf course. Consequently, he entered into a
?5-year lease with the Whitefish Lake Golf Association
whereby the Association would pay a nominal rent of one
dollar per year and it would manage and operate the course.
A clause in the lease required the Association to pay any ad
valorem taxes levied against the qo1.f course.
 For tax year 1981, the Department of Revenue appraised
the golf course land at $66,480 a.nd it appraised the golf
course improvements at $225,000. Grattan, with the
assistance of the Whitefish Lake Golf Association, appealed
those appraised values to the Flathead County Tax Appeal
Board. That Roard denied any relief and Grouse Mountain
Development appealed to the State Tax Appeal Board. After a
lengthy hearing, the State Tax Appeal Roard reduced the value
of the land to $46,892 and it sustained the appraised value
of the improvements at $225,000. Aggrieved by the decision
of the State Tax Appeal Boa.rd, Grouse Mountain sought
iudicial review in the District Court pursuant to S 15-2-303,
MCA. The District Court reversed the State Tax Appeal Board..
The District Court found that the State Tax Appeal Board
acted arbitrarily, capriciously and abused its discretion by
adopting a method of valuation which failed to consider the
public use restriction placed on the golf course. The
District Court further ordered the State Tax Appeal Board to
accept respondents method of valuation and to enter its order
reducing the value of the property to an amount not in excess
of $50,000.
The only issue raised by the Department of Revenue on
review is whether a District Court may reverse a State Tax
Appeal Board valuation determination if there is substantial
evidence in the record to support the State Tax Appeal
Board's decision.
The District Court as a reviewing court may reverse or
modify the decisions of the State Tax Appeal Board and. remand
the case for further proceedings if substantial rights of the
appellant have been prejudiced because the administrative
findings, inferences, conclusions, or decisions are clearly
erroneous in view of the reliable, probative and substantial
evidence of the whole record or are arbitrary, capricious or
characterized by an abuse of discretion. Section 2-4-704,
MCA . This Court, however, 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. Northwest Land v. State Tax Appeal Board
(Mont. 1983), 661 P.2d 44, 47, 40 St.Rep. 470, 473; Larson v.
State (1975), 166 Mont. 449, 457, 534 P.2d 854, 858; Blair v.
Potter (1957), 132 Mont. 176, 183, 315 P.2d 177, 180.
Assessment formul-ations 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.
Northwest Land, 661 P.2d at 47, 40 St.Rep. at 473.
In the instant case, the State Tax Appeal Board rejected
the appraisal of Roger D. Jacobson, respondents1 fee
appraiser, who valued the land and improvements at $50,000.
The methodology used by the appraiser was primarily a market
data approach based on comparable sales. He found four golf
courses that had sold in northwestern Montana in the years
1977 and 1978. Allocations were made for the value of such
things as liquor licenses, clubhouses, motels, swimming pools
and additional land available for subdivision. He also took
into account the age of the courses and the time factor
involved and arrived at a value of $20,000 per hole.
The appraiser then considered the effect of the public
use restriction on the value of the property. The appraiser
found that this limitation on use greatly decreased its value
to a willing buyer. He then sought sales of land likewise
restricted in use to determine the effect of such use
restriction on the value of land. The appraiser found that
the use restriction on the subject property reduced its value
to 20 to 30% of its value had no restriction existed.
The State Tax Appeal Board accepted the testimony of
Mantz Hutchinson, appraisal supervisor for Flathead County.
His methodology of appraisal was to consult the 1976 version
of the Marshall-Swift Valuation Manual to determine
replacement cost for various types of golf courses. Rased on
the Marshall Manual, Hutchinson valued the golf course
improvements at $25,000 per hole or $225,000 for the full
nine holes. Hutchinson did not make any adjustment in val-ue
for the public use restriction on the property with regard to
the land or improvement.
The District Court found the State Tax Appeal Board
abused its discretion in arriving at a value based on the
appraisal of Hutchinson because his appraisal was based on a
cost of replacement approach which failed to take into
account the effect on value of the public use restriction.
Other courts have dealt with the effect of use
restrictions on the value of golf course property. In Twin
Lakes Golf and Country Club v. King County (Wash. 1976) , 548
P. 2d 538, an eighteen-hole golf course was built as part of

the Twin Lakes Development. Before approving the project,
the county required the developer to construct a golf course
on the realty and reserve it for common open space and golf
course area. The assessor in Twin Lakes used a cost of
replacement approach in arriving at a value. The assessor,
however, did not take into account the restriction placed on
the property. In construing R.C.W. 84.40.030, the Washington
state equivalent to S 15-8-111, MCA, the Washington Supreme
Court stated that the market value of realty is to be
measured. by considering benefits to be garnered from the use
of the property and the burdens placed upon it. Burdens are
restrictions which may arise from zoning ordinances or other
legal limitations on the use of land. Twin Lakes, 548 P . 2 d
at 540. We hold that the public use restriction is a burden
on the property that must be taken into consideration i n
.
determining the property's market value under S 15-8-111,
MCA .
Appellant contends that the State Tax Appeal Roard
considered the public use restriction and cites the Court to
the following language in the Board's decision in support of
its contention:

The restriction on use, as set forth in the City of
Whitefish, Ordinance A-333 applies to the land
involved. Under this ordinance the owner has given
up an important right--the right to determine the
use of the land. He has, however, retained two
rights which are also of great importance, the
right to mortgage and the right of reversion.
Section 15-7-1.03, states in part: . .
. ( 2 ) All
lands shall be classified. according to their use or
uses . . .. Although this section appears to
relate to agricultural land, it is the opinion of
the Roard. that land. use must be considered in
setting a value, and since no other use can be made
of the subject land, it should be appraised at a
value comparable to other golf courses in Flathead
County. The two courses on which the Board. has
information are appraised at $800 per acre and.
$1,000 per acre. The Board - - information as
has no
to whether - - -
- or not use restrictions apply to the=
courses. It heretofore appears reasonable70 this
Board to assign the lower figure, $800 per acre to
the land occupied by the golf course. (Emphasis
added..)

The above langua-ge, however, refers only to the Board's
determination of the value of respondents' land and not the
value of the improvements thereon. The discussion also makes
it abundantly clear that the Roard chose not to take the
public use restriction into consideration in its valuation
methodology.
Although we do not hold that the cost of replacement
approach is an improper method in valuing this property, we
do hold that the State Tax Appeal Board must use a method
which properly takes the use restriction into consideration.
For that reason we affirm that portion of the District Court
order which found that the State Tax Appeal Board abused its
discretion for failing to take into account the public use
restriction on the golf course.
The District Court also remanded this cause to the State
Tax Appeal Board with directions to enter an order reducing
the value of the property, including improvements, to an
amount not in excess of $50,000. We cannot say as a matter
of law that the administrative bodies, charged with setting
the taxable valuations, were bound to accept either the
taxpayer's theory or the taxpayer's figures for tax
reductions. The District Court clearly overstepped its
bounds when it usurped the function of the administrative
bodies charged with the responsibility of finding the facts
and arriving at the proper taxable valuation. Department of
Revenue v. Paxson (Mont. 1983), 666 P.2d 768, 769, 40 St.Rep.
1210, 1211. We reverse that part of the order which
determined that the value of the property, including
improvements, should not exceed $50,000.
We affirm in part and reverse in part, with directions
that the District Court remand this cause to the State Tax
Appeal Board for further proceedings in accordance with this
opinion.
We Concur:

Chief Justice

Justices