mtproptax.org - Latest News

April 2, 2011 – Letter to Governor Schweitzer
RE: Money for university and schools (101 mills)

From: Dud Mahler
Sent: Saturday, April 02, 2011 5:17 PM
To: Mark Blasdel; Bruce Tutvedt; Janna Taylor; Jeff Essmann; Bill Beck; Scott Reichner; Keith Regier; Steve Lavin; Derek Skees; Jerry O'Neil; Jon Sonju; Randy Brodehl; Representative Pat Ingraham; Senator Ryan Zinke; Verdell Jackson
Subject: Money for university and schools (101 mills)

I know all of you are aware that we are double taxing ourselves and ignoring a source of revenue without additional taxes with HB 658. Attached is a letter I wrote to Governor Schweitzer with copies to Bucks and Bullock showing how we could increase school funding 101 mills and a little for the locals. The increase is real and conservative because I cannot determine the real increase because not everyone gets 3% for the full 6 years. I deliberately left out commercial and ag so I think the numbers will be higher when a full increase in value is analyzed by the DOR. (I will send you my spreadsheet if you’re interested in what I did.) I think we can get away without reappraisal in 2012 because even if properties decrease in value 25 or 30%, it has no impact on the amount of tax paid.

Even if the Governor does not get involved, couldn’t you join together and use the additional money to help our budget problem?? Sure makes sense to me and it does not cost the taxpayers anything. Let me know what you think, please. Dud

View the letter to Governor Schweitzer by clicking here...

March 20, 2011 – Article for Gallatin, Beaverhead, Park, Madison Counties

The Legislature has refused to consider property tax reform or reappraisal in the current legislative session. Bills sponsored by Flathead and Lake County senators and representatives have been blocked and the legislature is ignoring the basic tax inequities of HB 658: 1.) The over-appraised values in 2008 reappraisal, 2.) Unnecessary tax liability increases for about half of the residential owners just to offset tax liability decreases of the remainder, 3) Tax burden shift to growth areas and a small group of owners called “outliers” and, 4) large, unnecessary tax increases that force long time Montana residents to sell their homes. Our governor has distanced himself from our plight and the Legislature shows no compassion for our people and continues to ignore the Constitution requirement to provide equal protection for all Montanans.

Residents in Flathead, Lake, and Missoula Counties have decided “Enough is enough!!”. We have organized , Montana Residents for Fair Property Tax (MRFPT), retained the law firm of Kalvig and LeDuc and plan to bring suit against the Legislature after it is definite no meaningful changes to the Montana property tax system are forthcoming.

Gallatin, Beaverhead, Madison and Park Counties have above state average increases in both residential and commercial properties, so your owners are in the same boat as we are. We invite you to join with us to end the unjust treatment of our owners and give all Montana a simple, predictable property tax system. Please go to Montana Residents for Fair property Tax, http://mtproptax.org/, sign up for updates and send your contribution to MRFPT, P.O. Box 4404, Whitefish, Mt 59937. Any Questions? Call Dud Mahler at 406-862-9785 or email DMahler@centurytel.net.

One last item, the refusal to reappraise is going to seriously affect Beaver, Gallatin, Madison and Park County (Montana Economic Area 85 of the Almy, Gloudemans, Jacobs and Denne Ratio Study Analysis). This analysis shows that Economic Area 85 has experienced a decrease in residential property value of 22.4% from July 07 –June 10. I suggest that this number will increase significantly over the next four years and means that your property owners will be paying more tax than is required because of the latency of the phased in market values.

March 6, 2011 – Is the Property Tax Reform Bill proposed by Representative Mark Blasdel and Senator Verdell Jackson constitutional?

Montana Residents for Fair Property Taxation designed the proposed bill to conform to the Montana Constitution requirement to “appraise, assess, and equalize the valuation of all property which is to be taxed in the manner provided by law.”

We relied on MCA 15-10-401 Declaration of Policy to prescribe an alternative to the market value standard of assessment so that all properties with the same assessed value have equal taxable value, i.e. equalized.

Property values are reappraised every two years so 100% market value is known and current at the time of sale.

Back- up Information

Constitution of Montana -- Article VIII -- REVENUE AND FINANCE

Section 3. Property tax administration. The state shall appraise, assess, and equalize the valuation of all property which is to be taxed in the manner provided by law.

Pertinent Montana Laws

15-10-401. Declaration of policy.

(1) The state of Montana's reliance on the taxation of property to support education and local government has placed an unreasonable burden on the owners of all classes of property described in Title 15, chapter 6, part 1.
(2) Except as provided in 15-10-420, the people of the state of Montana declare that it is the policy of the state of Montana that no further property tax increases be imposed on property. In order to reduce volatility in property taxation and in order to reduce taxpayer uncertainty, it is the policy of the legislature to develop alternatives to market value for purposes of taxation.

15-7-111. Periodic revaluation of certain taxable property

15-7-112. Equalization of valuations

15-8-111. Assessment—market value standard—exceptions

Proposal Parameters

Application – Class 3 and 4

Reappraisal – Biannually commencing in 2012, effective 2013

Assessment

Properties in 15-6-133, under Class 3 are assessed at 100% of the productive capacity of the lands when valued for agricultural purposes or the productive capacity of the land on December 31, 2008 increased by three (3) percent per year, whichever is less until the property is sold; then the property will be assessed at 100% productive capacity.

Properties in 15-6-134, under Class 4, are assessed at market value minus any portion of market value that is exempt from taxation or market value minus any portion of market value that is exempt from taxation on December 31, 2008 increased by three (3) percent per year, whichever is less until the property is sold; then the property will be assessed at 100% market value minus exemptions.

Exemptions – Class 4 Residential: 34% of Market Value, Class 4 Commercial: 15% of Market Value

Tax Rate, Class 3 and 4: 3.01%

Constitutionality Concerns

Alternative to Market Value Standard

15-8-111. Assessment—market value standard – (1) All taxable property must be assessed at 100% of market value except as otherwise provided…

HB 658 - Class 3 Agriculture assessed at 100% Production Value, Class 4 residential and commercial assessed at market value minus exemptions (taxable market value)

Class 3 and 4 phased in market value at 16.7% of the difference in value per year after reappraisal

Tax Rates and Exemption values also phased in

Equalization

Proposed assessed value of December 31, 2008 increased 3% per year, with constant exemptions and tax rate is equalized since all properties in the state with the same assessed value have identical taxable values.

Equal Protection

Disparity of taxes paid on similar properties with different market/assessed values depending on when the property was sold.

U.S. Supreme Court ruled in Nordlinger v. Hahn (1992) ruled this circumstance did not violate equal protection laws if there is a defined state interest reason. Montana has the same reason as California, to provide neighborhood stability by not forcing people to move because of increasing property valuations, protecting the long time owners from assuming an unreasonable share of the local tax burden etc.

Every State that has the problem of growth in value with the corresponding uncontrolled increase of revenue has used the basic mechanization of the MRFPT proposal.

California and Oregon use essentially “acquisition value” and neither has a planned reappraisal process. Montana has mirrored Michigan which uses biannual reappraisal to track the full market value increases/decreases as well as a current Sales Assessment Ratio for quality assurance.

Questions? Contact Dud Mahler (DMahler@centurytel.net)

Property Tax Reform Ignored Again

Property owners in Montana are entitled to a property tax system that is understandable, equitable for all, and provides stable, predictable tax revenue to fund our schools and public services. The property tax system prescribed in our current law HB658 fails in every respect HB 658 is not understood by taxpayers, and forces the tax burden to shift to about 50% of property owners under the guise of “mitigation of abnormal increases due to reappraisal.” Approximately 15,000 owners called “outliers” have taxable value increases greater than 50% over the six year reappraisal cycle and some, primarily people who have owned their property for generations, are forced to sell their property.

The inequity of HB 658 is that “mitigation” by increasing exemptions and decreasing tax rates actually decreases the taxable value of properties with market value increases less than the state aveage increase; 54% for residential owners. Since the statewide taxable value is not allowed to increase or decrease, the owners with market value increases pay the amount of lost revenue from owners benefitting from reduced taxable value. (The amount of taxable value exempted from tax was $715M or $353M in revenue.)

The irony of theis situation is that none of this crisis fighting etc is necessary. Other states have property tax systems designed to control the increase in taxable value limit the increase in taxable value to inflation or an affordable amount for all. The Montana Legislature has refused to even consider other solutions because they believe the slow//no growth areas should benefit in some way from the west’s success. (The east does benefit from the shifting of the State tax burden to the West and probably receives a greater portion of the state 95mill revenue because of the lowered tax base vs. guaranteed tax base. Other than the state portion of east taxes being reduced, however, the east counties and local districts do not get a property tax reduction. They have to be revenue neutral so mills are increased to get the same revenue over the prior year. Commercial and Agriculture contribute through mills so commercial and ag take some of the tax burden off of residential.

February 26, 2011 – Montana Residents for Fair Property Taxes

View the Montana Residents for Fair Property Taxes Power Point Presentation by clicking here...

February 16, 2011 – Letter to the Editor
No Property Tax Reform in 2011

Property owners in northwest Montana had a high anticipation of an interim reappraisal and meaningful property tax reform at the beginning of the 62nd Session of our Legislature. Our representatives listened, heard our plight and were motivated to help Montana have a property tax system that is simple to understand, predictable and fair for all residential, commercial and agriculture property owners.

Property owners primarily in Flathead, Lake, Gallatin, Missoula, Lewis and Clark, Yellowstone, Cascade and Ravalli counties were over appraised in 2008 and are experiencing property tax increases to the point property that has been in Montana families for generations is having to be sold. Our champions, despite concerns that the majority of the legislators and the Department of Revenue have continued to ignore Montana property owners who are suffering because of increased taxes, submitted a comprehensive property tax reform bill for drafting on January 3, 2011.

The drafting of the tax reform bill stopped almost immediately, the reason being Legal Services deemed the bill unconstitutional. Although supporters of tax reform have provided information to overturn the unconstitutional decision, there may not be enough time to process the bill through the House to meet the transmittal from the House to Senate, or so we have been told. Our representatives will try to amend a bill that has already been introduced but Montana Residents for Fair Property Taxation believes the handwriting is on the wall, and our only alternative is to take our case to court.

Our plan is to wait until the Legislature fails to remedy our situation. Then, we will file in court showing the reappraisal cycle of six years, phase-in, and creation of a separate class of “outliers” are unconstitutional. We intend to file for reimbursement of over paid taxes.

We have a law firm under contract and of course, litigation will be expensive. We have already started accepting contributions (non deductible), so if are a victim or want to join in with us, go to http://mtproptax.org/ read the articles under “Latest News” to learn who we are, and sign up to contribute. It is unfortunate that we have lost confidence in our system and have to sue the people who have sworn to honor our constitution and laws to protect us.

Dud Mahler
Montana Residents for Fair Property Taxation
Phone: 406-862-9785
E-mail: DMahler@centurytel.net

February 14, 2010 – Email: Property Tax Reform – Let’s go on the offensive!!

From: Dud Mahler
Sent: Sunday, February 13, 2011 1:37 PM
To: Mark Blasdel; Verdell Jackson; Wayne Stahl; Bruce Tutvedt; Senator Ryan Zinke
Subject: Property Tax Reform - Let's go on the offensive!!
Importance: High

Gentlemen,

In my view this administration is using the “constitutionality card” to prevent any meaningful property tax reform bill from reaching the committees. It is time for us to go on offense using the same rationale to show the governor and Director Bucks what their scheme will cost the state if tax reform is not successful.

If we have to, we are prepared to sue the state showing that HB 658 is unconstitutional in at least three areas:

1. Phase-in is unconstitutional in that a) Equalization is never achieved, b) Owners with a decrease in Taxable Value during phase-in pay more tax than they would without phase-in, while owners with increases in taxable value, pay much less, and c) Properties that have decreases in market value during the 6 year cycle pay more tax than they should because the decreases are not tracked. Reference – DOR paper “An Alternative Approach to Cyclic Reappraisal, Part 1, Part 2., Roosevelt v. Montana Department of Revenue.

2. Mitigation of abnormal property value increase by mitigating the average i.e., adjusting tax rates, market value exemptions and mills is unconstitutional because a relatively small class of owners (outliers) pay a higher percent of the tax burden, while others pay less at the expense of the outliers. This situation violates equal protection and anti discrimination guaranteed by the U.S. and Montana Constitutions.

3. Extended Property Tax Assistance Program is an example discrimination because of income, unequal protection against large tax increases, different tax rates in the same class and causes an increase in mills (tax) for all owners in class 3 and 4. We also claim that forcing a mill increase to offset a decrease in revenue mandated by the state without voter approval is a violation of 15-10-420 and 15-10-425.

We are not considering any refund of unlawful taxes paid since 1999. However if we are forced to sue to get real tax reform we intend to claim damages.

If you can get Legal to explain why they think our bill is unconstitutional, or anyone else’s bill especially the refusal to reappraise, I will talk to our attorneys for an opinion. Knocking out phase-in will force a reappraisal and justified by the illegality of phase-in.

Would you please give this to Legal and break out the tax reform bills. Time is short and we don’t want to cause a special session after the court rules in our favor. Note: These words are mine. The attorneys are preparing the correct arguments with all the references, most of which are in Roosevelt and the DOR response/claims.

Dud

From: Bruce Tutvedt
Sent: Sunday, February 13, 2011 2:45 PM
To: 'Dud Mahler'; 'Mark Blasdel'; 'Verdell Jackson'; 'Wayne Stahl'; 'Senator Ryan Zinke'
Subject: RE: Property Tax Reform - Let's go on the offensive!!

Dud

The ETAP program was put in for you and others with big tax increases. The phase-in is complicated but saved the folks in high growth areas lots of property tax expenditures. All of the mitigation was put in for those areas that had experienced large increases in their taxable value.

If you sue and get your way and the court could go back and make all tax payer’s whole with increases and decreases to their property tax bill your tax increase would take your breath away. The three things you seem to hate greatly lessened your property tax bill. My first goal on property tax reform is to do no harm. Your suit will be very harmful to the northwest and greatly increase our property taxes.

Bruce

From: Dud Mahler
Sent: Monday, February 14, 2011 10:52 AM
To: 'Bruce Tutvedt'; 'Mark Blasdel'; 'Verdell Jackson'; 'Wayne Stahl'; 'Senator Ryan Zinke'
Cc: Janna Taylor; Representative Pat Ingraham; Scott Reichner
Subject: RE: Property Tax Reform - Let's go on the offensive!!

Bruce,

Our reason for the suit is that Montana has needed major property tax reform since 1996 and the tax system initiated in 1999 is an unlawful method of mitigating abnormal increases in property values. So far our Legislature has refused to do anything but band aid the 1999 solution and ignore the real problem.

Montana is the only state that “mitigates the average” and punishes its residents for living in the high growth areas while supposedly benefitting owners in normal or slow growth areas. Every other state that has problems similar to ours, has used caps or limits on the growth which benefit everyone equally and does not put anyone in a position of having to sell their property because of increased values due to reappraisal. I think every candidate for our Legislature has, at one time or another (primarily before election), promised property tax reform and that is exactly what we are proposing.

All I have proposed is a clone of a very successful property tax system in Michigan that guarantees residents an affordable, predictable and easy to understand in comparison to Montana’s system which is described very well in the DOR’s document An Alternative Approach to Cyclic Reappraisal.

Regarding tax increases if we lose phase-in and stop changing rates and exemption, I believe you are thinking that the Legislature will just eliminate phase-in and go for frequent reappraisal without the protection of caps or limits. Frankly, I agree with you that is their intent for 2016 based on the Alternatives document. You will note that the DOR says they will continue to “mitigate” using rates/exemptions, but if you think, the effective tax rates are already so low as to make our system mechanically unsound. You could change mills for some relief, but the effect on individuals would not help those with large increases.

I feel the department is stalling on a reappraisal thinking that after 2016 we will be in a normal mode and mitigation for large increases may no longer be required. We have to prevent that from occurring and that’s precisely why we must have our proposal or something like it to cap the increases and roll back to 2008 as the basis. (Some our people want to roll back to 2002, but I think that is unreasonable.) My thoughts are that we can break–in in 2011 with a roll back to 2008, reappraise in 2012 with the values effective in 2013. There would be no reimbursement for the excess taxes paid, and in 2011 the revenue would be the same as 2010.

I have researched our problem for seven years and concluded that if we adopt the Michigan System and make our model something close to what happens normally instead of based on inflation, we can adjust mills (decrease) to remain revenue neutral and, by doing so have the best property tax system in the country. All of the anguish the Legislature endures every 6 years goes away and all of the problems of taxpayer regarding tax increases due to reappraisal are minimized.

I refuse to believe the majority of the legislature is willing to continue with our current abominable property tax system in light of the anarchy you and the other Legislators experienced in the “town hall” meetings. We really need a system that is equitable, predictable, stable, and understandable by the public.

I pulled a couple of paragraphs out of the DOR document. The DOR says it better than I. By the way, thanks for your honest opinion and giving me a chance to vent. I apologize for being such a pain, but rest assured that my intentions are for a better Montana.

Please do not accept the DOR’s contention that our proposal is unconstitutional. I have proven to you that it is not. We do not need an amendment to the Montana Constitution. D

Introduction

The recently completed 2009 reappraisal of property for tax purposes resulted in statewide average increases in values for improved residential properties, commercial and industrial properties, agricultural land, and forest land of 55%, 34%, 29%, and 52%, respectively. Depending on location across the state, changes in value for individual properties could have been much higher or lower than these average increases.

These significant increases in value stem in large part from the current policy of revaluing properties subject to cyclical reappraisal just once every six years. In times of relatively rapid growth in market values many taxpayers, particularly homeowners, inevitably experience some degree of “sticker shock” when presented with their newly reappraised values for tax purposes. And in some cases, the resulting sudden growth in property tax liabilities can greatly outpace growth in taxpayers’ incomes.

Some legislators have expressed concerns with a general disconnect between taxpayer perceptions of value and what properties are actually selling for. Even though two separate sales-assessment ratio studies have shown that appraised values for property for tax purposes relative to actual market values (selling prices) are well within general guidelines for reappraisal practices, this disconnect continues.

The lengthy time between revaluations is one factor that underlies the disconnect between the public’s perception of value and the actual market. The prohibition on public disclosure of sales price information may also contribute to taxpayers not understanding the connection between actual market prices and the appraised values used for property tax purposes.

The current complex system of mitigating the impact of cyclical reappraisal also makes it more difficult for taxpayers to understand the property tax system. The mitigation measures—changing rates and exemptions and the incremental phase-in of increases in value—both substantively change and cloud the link between appraised values and final property tax liabilities.

In addition to these concerns, the current system of reappraisal does not appear to comport with equity standards adopted by the International Association of Assessing Officers, and may further be perceived as being inequitable because some properties are reappraised just once every six years while many other properties are reappraised every year. Properties reappraised every year are paying property taxes based on their full market value in each year, but certain properties subject to cyclical reappraisal (certain Class 4 residential and commercial properties, e.g.) never pay property taxes based on their full market value.

Finally, while arguably less significant than the issues of taxpayer understanding and tax equity, the complexity of the current tax system decreases the efficiency of and increases the costs to the public of the administration of the property tax system.

Part 2 Introduction

· In some cases the resulting sudden growth in property tax liabilities stemming from new appraisals can outpace growth in taxpayers’ incomes.

· Many taxpayers experience a general disconnect between individual perceptions of value and what properties may actually be selling for.

The current highly complex system used to mitigate the impact of cyclical reappraisal – which includes phasing in increases in value, gradual reductions in taxable valuation rates, and gradual increases in homestead and comstead exemptions – makes it very difficult for taxpayers to understand the property tax system, and clouds the link between appraised values and final property tax liabilities.

· The complexity of the current system also significantly decreases the efficiency of and increases the costs to the public of the administration of the property tax system

The current approach to reappraisal raises serious concerns with respect to equity among different taxpayers and different taxpayer groups, particularly among homeowners.

· Regarding the relationship between assessed values for tax purposes and true market values of residential properties, waiting six years to re-establish assessed values inevitably results in a continual decrease in the ratio of assessed to market value (level of reappraisal) and a continual increase in the dispersion of these values from the median (uniformity in reappraisal) resulting in equity measures far outside the standards established by the International Association of Assessing Officers (IAAO).

· This erosion in equity standards is more pronounced the longer the period between reappraisals, the faster that property values grow over time, and the more divergent the rates of growth in property values across different regions of the state.

· Because property values grow at widely divergent rates across the state the amount of taxes being paid per $1,000 of true market value under the current approach varies significantly from property to property, with faster growing properties paying a significantly smaller amount of taxes per $1,000 of value than properties whose values have grown slowly or declined.

· The current feature of phasing in increases in market values at the beginning of each reappraisal cycle acts to exacerbate equity concerns as this approach acts to perpetuate the inequities inherent in the final year of the previous cycle.

· Many taxpayers may perceive the current system to be inequitable because properties that are reappraised every year (e.g., electric and telecom utility property, business equipment, railroad and airline property) pay taxes based on their full market value every year whereas certain properties subject to cyclical reappraisal (e.g., certain residential and commercial properties) may never pay property taxes based on their full market value.

Therefore, regarding the current approach to cyclical reappraisal we can conclude that:

· Given general, overall growth in market values at widely varying rates across the state, equity in appraisal is likely to erode in each year of a reappraisal cycle, with equity continuing to erode the longer the cycle.

· In contrast to the previous approach to reappraisal, phasing in increases in market values perpetuates the inequities inherent in the final year of the previous cycle precluding the likelihood of a high degree of equity in taxation in any year of the cycle (provided that growth dynamics remain relatively constant, for which proposition there is considerable evidence).

· The faster the market value of a property grows, the greater the percentage reduction in tax liability per $1,000 of true market value by the end of the cycle.

· Phasing in values may abate some of the sticker shock that otherwise might occur (though data for property taxpayer valuation appeals still indicate a major spike in the first year of the phased-in 6-year cycle), but does so at a loss of equity and simplicity.

And furthermore:

· The perpetuation of inequities from the end of one cycle to the beginning of another cycle under the current approach to reappraisal is not unlike the perpetuation of inequities found when applying a single sales/assessment ratio within an area to the value of all properties to improve the overall level of appraisal. The latter approach, which improves overall level of appraisal, does little to improve pre-existing problems with uniformity (horizontal inequity), and generally has not met favor with the courts.

January 25, 2011 - MRFPT Update of Legal Issues and Legislation

MRFPT has defined four specific issues regarding HB-658 and the Montana and/or U.S. Constitution. These issues and supporting information are being evaluated by Kalvig & LeDuc with results available mid February.

· Six-year reappraisal does not provide the equalization of values or the equal treatment/equity required in the Montana Constitution.

Changes in value during the interim between reappraisals are not identified, so people with decreases in value pay more tax than they should, while the owners with increases in value are paying less.

· Phase-in violates equal treatment and equity in those owners who have decreases in tax liability pay more tax than they have would without phase-in, while owners with increases in tax liability, pay less.

· Mitigation (change of tax rates and exemptions) creates a distinct class of owners within Class 4 Residential and Commercial. This class coined “outliers”, is the object of discrimination in that extraordinary Market Value increases are not “mitigated” to make the increase due to reappraisal affordable or reasonable. The object of the discrimination is the long-time Montana residents who are forced to move or pay property tax on property they could never afford to buy.

· There is an Extended Property Tax Assistance Program (EPTAP) targeting property owners with household incomes below $75,000 that reduces the tax rate and limits the annual increase in Taxable Value to 6% per year for qualified individuals.

Lowering the tax rate also lowers the revenue budgeted for State, County and Districts. The Legislature, in setting the rates and exemptions to maintain revenue neutral, allowed the residential Taxable Value to increase to provide revenue to the State 101 mills and current law allows Counties, Cities and Districts to increase mills to offset shortfalls in revenue.

The result is residential neighbors, Commercial and Agriculture are paying more tax to allow the State to cap increases from reappraisal and residential property owners are paying more tax than their neighbor based on income. MRFPT has a 2003 opinion from Frank Morrison, former Chief Justice of Montana Supreme Court challenging this “circuit breaker” approach.

The State will contend that many states use circuit breakers. The catch is that in 2003, the State made up for the shortfall at the state level from the General Fund and growth compensated at the lower level. This time the taxpayers have to pick up the whole tab, significantly more than 2003 because of the number of owners that qualify. Note: Loss of revenue with Circuit Breaker is compensated for by tax credits that is, by the State.

There is a fifth catch all challenge we are considering: “Montana Legislature has refused to provide a property reappraisal and tax system that is fair for all, simple to understand, predictable and does not allow economic abnormalities to cause owners of property in this state severe hardship.

Several people have asked what our confidence level is to be successful in our suit. The following is a quote from a Department of Revenue document: An Alternative Approach to Cyclical Reappraisal to Promote Simplicity and Administrative Efficiency, and Enhance Taxpayer Understanding and Equity in Montana Property Taxation Part 2 of 2, which was presented to the Revenue and Transportation Interim Committee and a Joint Taxation Committee earlier this month. This document is the first time the DOR has admitted that a six-year reappraisal cycle with phase-in of values is unconstitutional and for the same reasons we have been trying to cause a change for over eight years now. I think you will agree that the basis of our suit is sound.

“Some of the concerns and reasons that have been discussed by the Revenue and Transportation Interim Committee for moving to annual revaluations in lieu of the current 6-year reappraisal process include the following:

Waiting six years to provide taxpayers, particularly homeowners, with updated market values during periods of relatively rapid growth inevitably results in a high degree of “sticker shock” for many taxpayers.

· In some cases the resulting sudden growth in property tax liabilities stemming from new appraisals can outpace growth in taxpayers’ incomes.

· Many taxpayers experience a general disconnect between individual perceptions of value and what properties may actually be selling for.

· The complexity of the current system also significantly decreases the efficiency of and increases the costs to the public of the administration of the property tax system

The current approach to reappraisal raises serious concerns with respect to equity among different taxpayers and different taxpayer groups, particularly among homeowners.

· Fixing reappraisal values for six years does not allow valuation to track the housing market; values used to determine tax liabilities (phase-in values) could be increasing at the same time that market values are decreasing.”

I have concerns regarding legislation that is being and will be considered in this Legislative session. I am preparing a “What if” matrix on the impact to our case. We are confident that the DOR wants to let HB658 run its course through the reappraisal in 2014. Their purpose, I believe, is to vindicate the DOR in reference to a questionable and challenged 2008 reappraisal by not having interim reappraisals with the assumption that the reappraisal can be mitigated using exemptions or mills without anyone having abnormal increases. I will share the matrix and perhaps some of you can help decide the strategy, timing, and priority of the suit.

E-mail me if you have questions or something to add or consider.

P.S. I know that some people are concerned that it took a long time to find a lawyer to even consider our case. The implication is that we must not have a good case if the lawyers refuse the business. The fact is that none of the 4 or 5 firms contacted even reviewed the merits of our case before they made their decision and gave the rationale that they were too busy to be tied up for a couple of years. A businessman on Flathead who had experience in property rights complaints recommended Kalvig.

If you are serious about getting something done about your tax increases, please do not withhold your contribution. I asked for your support a couple of weeks ago in part to give us confidence that we can at least get through State Court with the people we have already signed up. If you have decided you do not want to participate, please let me know right away with your reasoning. Dud

January 10, 2011 – E-mail to Supporters

We have affirmation that the firm of Kalvig & LeDuc of Kalispell will handle our case against the Stateof Montana. We exhausted all of our options to avoid the suit, but a meeting with the Chairmen of Senateand House Taxation Committees plus a local senator confirmed that there is very low probability that thisLegislature will pass a tax reform bill, so we have no choice but to sue. (They maintain the Legislature’spremise that they help 90% of the owners, so who cares about the 10% or the fact that some are forced tosell their homes and communities with Montana character are being destroyed!)

I will update you on our legal challenges via our web site as soon as I can get to it. I think all of you areup to date on the content of our Bill and what we want to accomplish but that will be on the site http://mtproptax.org soon.

We have $6,000 in our bank account today, $3,000 of which is my contribution to handle the retainer,which will be used up in a matter of days. We are now asking for your financial help! If you want tohelp us kill the current property tax reappraisal law and have predictable, fair and reasonable increases inproperty tax, please send a check to Montana Residents for Fair Property Taxation (MRFPT), P O Box4404, Whitefish, MT 59937.

We will have a Community meeting in the next couple of weeks to organize to collect help from otherareas of the state. In the meantime spread the word and remember….there are only about 10,000 ownersin the whole state who are adversely affected by this punitive, discriminatory law, and we need at least$100,000 over the next several months, so give what you think will be a decent return on investment bynot paying tax on unrealized capital gains. Dud

Any Questions? Call or e-mail me at 406-862-9785, DMahler@centurytel.net.

October 10, 2010 – Letter to the Editor
No Property Tax Reform in 2011

The Revenue and Transportation Interim Committee (RTIC) has the charter to recommend legislation to correct thedeficiencies in the reappraisal process and results of the 2008 reappraisal of Residential, Commercial and Agricultureproperties. The Committee’s final report and recommendations for legislation are critical to the voters in the November 2election since candidates from both parties are listing property tax reform as priority; however, the report will not bereleased until after November 19th.

My observation, based on the last two meetings, is that the RTIC main body and the Commercial and Residential ReappraisalSub- committee have decided to do little to alleviate our common concern that we are paying too much property taxbecause of the inaccuracy of the 2008 reappraisal and the lag of value caused by the 6 year phase-in. There will be nointerim reappraisal and the only way an owner can get a one-time reduction in market value is to hire a professional appraiserand submit the data to the DOR for approval. If a reduction is granted, the tax rate of the complaining owner will be adjustedfor the remainder of the cycle.

The impact of “do nothing” is that everyone’s taxes, commercial, residential and agriculture in the county and districts willgo up because of the mill increase required to compensate for the shortfall of planned revenue due to the errors in reappraisedMarket Value, AB26 corrections, and approved private reappraisal reductions, i.e., any taxable value decrease from the 2009Legislature budget has to be compensated for by mill increase.

You should know that the Extended Property Tax Assistance Program (EPTAP) works the same way, i.e. the decrease intaxable value caused by the reduction of tax rate to limit the taxable value increase to six percent is offset by an increase inmills, so everybody pays more tax and the state pays nothing for their generosity. Obviously this policy is a violation of theConstitutional requirement for everyone to be treated equally.

The committee considered going to an annual reappraisal but, on the recommendation of the Department of Revenue (DOR)decided not to consider that approach until after the 2014 scheduled reappraisal. This decision was made after the DORpresented an analysis showing that equalization never occurs during phase-in and demonstrates that phase-in violates theMontana Constitution requirement for equalization of assessed value. (There is also a contention of Montana Residents forFair Property Tax that shows phase-in of properties that reduce in taxable value is also unconstitutional, a fact known, butignored by the DOR).

The people of Flathead and Lake County cannot any longer accept this “don’t care” about the reappraisal problems ofFlathead Valley or the residents of the other four “resort areas”! MRFPT intends to file a lawsuit, but it will be about twoyears before it is settled and in the meantime, unless we force a change through the 2011 Legislature, we will be paying taxesthat are unnecessarily high because of an out of date property tax system.

What can you do? We are all aware our local Legislators have listened to our plight in Town Meetings and all have promisedto promote legislation to remedy our situation. We should hold them to that commitment; but in order to do that, they mustbe in office. MRFPT is endorsing the legislators that participated in the Town Hall, have a thorough understanding ofthe property tax system and its impact on individuals: Verdell Jackson (Big Fork, Somers, Lakeside, and Lower Valley),Jon Sonju (Kalispell and Evergreen), Scott Reichner (Big Fork and East Shore FH Lake), Mark Blasdel (Somers,Lakeside Lower Valley), Janna Taylor (Polson, West Shore, Kila, and Southwest Flathead County), Bill Beck (WestValley, Whitefish), Keith Regier (North of Kalispell), Jerry O’Neil (Columbia Falls, Canyon).

MRFPT also recommends: Derek Skees (Whitefish), Randy Brodehl (Evergreen, North Kalispell), and Steve Lavin(Downtown Kalispell). All of these candidates have promised reappraisal property tax reform. Let us give them achance to prove themselves.

Dud Mahler
Montana Residents for Fair Property Tax
Whitefish, MT Phone 862-9785

Travesty of 2008 Reapprisal – Where are we?

Montana Residents for Fair Property Taxation is convinced that the Interim Revenue and Transportation Committee will not recommend areplacement bill or significant change to HB 658 to the 2011 Legislature. They have not even considered relief for the “outliers” other than theExtended Property Tax Assistance Program (EPTAP). The only Committee Bill being given due consideration is to allow owners who have paidfor a professional appraisal to request a reappraisal or market value adjustment from the Department of Revenue once during the cycle. Thissounds good except for the requirement to pay a professional to do what we have already paid the Department of Revenue for. The Catch 22 hereis any reduction in taxable value will have to be made up by increasing mills for you as well as your neighbors especially if we all jump at theopportunity to have a fair, accurate reappraisal.

The 2008 reappraisal of Commercial, Residential and Agriculture (Class 4 and 3) property has been challenged regarding accuracy and fairness. The result is that the Revenue and Transportation Committee knows that the assessed values for many residential properties are grossly overstatedbut still less than the value used to calculate rate and exemptions, and a significant number of properties have had decreases in value due to theAB-26 process and law suit settlements. This means that the total taxable value of residential property times current mills will not provide thestate and some county and local governments with the revenue promised in the revenue neutral budget. (Note: If the Legislature doesauthorize a full reappraisal with the intent of state revenue neutral phase in, the problem we have now will be exacerbated because any reduction inmarket value below the current phase-in market value cannot be phased in. The committee also knows that reappraisal is the best way to addressthis situation and, as required in HB 658, is considering annual reappraisal which obviates phase in of market value.

However, the Department of Revenue presented a study report on annual reappraisals in August but recommended that the committee not changeuntil 2015. If the committee supports this recommendation the only solution we are aware of is to simply increase the mill levy as required to berevenue neutral to the prior year as allowed by law which implies a tax increase for Agriculture, Commercial and Residential owners withindistricts, cities or counties with a tax base shortfall. Those of us with already extraordinary tax increases will be hit again, but perhaps the fact thatCommercial and Agriculture owners are paying for residential value shortfall is some consolation. You should also be aware that all of us arepaying for the loss of local revenue due to the Extended Property Tax Assistance Program (EPTAP) in the same manner (mill increase). If youconsider the mill/tax impact of theAB-26 adjustments, EPTAP, and paid reappraisals, we are only making this 6 year cycle worse for a lot ofMontana residents.

Further, if HB 658 stands, MRFPT predicts a second disaster even if Montana goes to an annual or biannual reappraisal.

Montana Property Tax System – The means whereby Politics and in-state East/West envy are helping change the basic culture of Montana

The trigger to set off the call for Montana residential property owners to finally revolt is the 2009 reappraisal in a declining real estate marketwhich caused property Market Value to be overstated with a statewide average increase due to reappraisal of 50% or 8.3% per year.

Our Governor had declared in his state of the State address, “…. not one dollar increase in State Tax due to reappraisal.” This statement wasdirection to the Legislature and Department of Revenue the required new property tax mitigation bill should parallel the bill passed in 2003, SB461, and to comply with Montana law to maintain the Taxable Value base at 1996 level plus real growth.

There was undeclared approval between Democrats and Republicans on the Interim Property Tax Committee chartered with recommending thenew bill. The Department of Revenue anticipated the increases would be similar to the 2003 number of 20% and had educated the committee onthe prior law and what changes were necessary to hold the Taxable Value Base to year end 2008 values.

No other method of mitigation was seriously considered even though the committee knew that the current law had caused unreasonable assessedvalue increases for about 10% (~ 36,000) residential property owners (“outliers”) and a major recession was looming.

When the results of the reappraisal started to come in extremely high throughout the state but especially in the resort areas the committee becameconcerned because they had recognized earlier that market values were declining, with a peak in 2005 to 2007.

The Department agreed to extend the cut-off date from January 2008 to July in order to validate the reappraised values with more current data. This delayed the availability of reappraisal data until late December. In the interim at least four alternatives, including circuit breakers wereconsidered, but when HB 658 was sent from the House Taxation Committee to the Senate Taxation Committee, it was different from SB 461 andthe Senate modified it to mirror the model except that the Taxable Value for residential properties was increased to generate funds to offset thedecrease in value due to the extended Property Tax Assistance Program and it was accepted by the House Committee. HB 658 passed eventually,since it was the only bill presented to the house or Senate, so the Governor got his way and except for some individual legislators, everyone washappy.

The cat got out of the bag when the reappraised Market and Taxable Values were mailed to the property owners. Owners had been misled by theinformation from the Department of Revenue based on averages, the Legislators had been also misled about the number of constituents with verylarge increases in their districts, and to cap it off, the Department of Revenue declared some of the information used in the deliberations wasincomplete and wrong.

The Republicans asked the Governor for a special session to sort out the discrepancies, but he distanced himself by saying he didn’t sign the billand the Republicans should fix it in the next session.

THE MONTANA PROPERTY TAX SYSTEM

In Montana, Residential, Commercial (small business) and Agriculture are reappraised every six years. The resulting Market Values are phased inat 16.7% of the total increase per year for the next six years so that the increases in assessed value are seen as annual percentage increases ratherthan the “sticker shock” of the full increase of Taxable Value. Phase-in also lowers the total tax paid over the six years. Decreases are not phasedin.

Montana has a law that, within specified exception, the amount of taxes levied for residential, commercial and agricultural property for any taxingjurisdiction may not exceed the amount levied for the tax year 1996. The law has been complied with in 1999, 2003, and again in 2009, at thestate level by lowering the tax rate (assessed or taxable value as a percent of market value) so the statewide total taxable value is the same as theyear before reappraisal, 2008 in current terms. Counties, cities, districts are allowed to either increase or decrease mills to maintain revenue at thesame level as the prior year.

Since market value is phased-in, the new tax rate has to also be phased in so that the state taxable value remains revenue neutral on an annualbasis.

The law and policy were implemented into HB 658 as a means to “mitigate the effects of the 2008 reappraisal”; however, due to a reappraisedstatewide average increase of over 50% in Market Value (Flathead County 74%), and the number of owners with Market Value increases over100%, a class of owners was created that is not protected from staggering Taxable Value increases and the inherent inequities between individualproperty owners regarding equal treatment were exaggerated.

Every property owner that has a decrease or increase in market value below the state average will have a decrease in taxable value, while ownerswith increases in market value greater than the average will have increases in taxable value, the sum of which offsets the amount of decrease forthe other property owners. In terms of tax, at the state level, owners with a decrease or increase in taxable value have a direct tax reduction orincrease because the state mills do not float; however at the county, city, district levels, mills may be increased to maintain revenue the same as theprior year so a decrease in taxable value does not necessarily correlate to a decrease in tax. It is a common perception among property ownersthat a reduction in taxable value always causes a reduction in tax, and the Montana Department of Revenue continues to mislead individuals byhaving the mitigation impact analyses show only the increase/decrease in tax liability (taxable value) and shows tax impact only at the averageincrease of the level being analyzed.

Chart 1 shows the Taxable Value change of a property as a percent of reappraised Market Value increase. Notes: 1) The curve shows MarketValue and the tax rate change fully phased –in, 2014. 2) Different Taxable Value increase as percent of Market Value increase is due to differentTax Rates for Residential, Commercial and Agriculture. 3) A residential property with 50% increase in Market Value has zero increase in TaxableValue due to reappraisal. 4) A new owner showing no increase in reappraised value will have a 34% decrease in Taxable Value i.e., the TaxableValue as a percent of Market Value drops 34% (1.987% to 1.309%) while a Montana resident with ~ 125% increase in Market Value has a ~50%increase in Taxable Value.

How does all this summarize the affects to individuals and the community?

Owners who have owned property for many years in what is now the “high rent district” are forced to decide on a change in life-style or to selltheir property

Families that own property now cannot afford to live in the area, and typical Montanans cannot afford to buy or live where they work.

The Montana character in our area has been transformed from rugged independence, love of land, nature and hard work and play, to a playgroundfor visitors and part time residents. (Whitefish has changed from a Montana “railroad town” to a resort town over just the past 10 years.)

The Eastern Area of the state gets a tax reduction of state tax and increased state school aid because of increasing the Taxable Value of the Westand decreasing the base of the East. Since the state tax burden is shifted to the West, West pays a higher percentage of the total tax, while the Eastpays less. The rural residents pay less state tax, but get more state aid, while the growth areas pay more and receive less state aid.

Recent purchasers of property which pay inflated prices for their property generally will not have large increase in value from reappraisal. Theseowners benefit from Montana’s mitigation law in that they will have a reduction in Taxable Value compensated for by the neighbors experiencinglarge increases in value caused by their purchase.

Revised December 29, 2010
Property Tax Reform Bill for 2011 Legislature
Purpose/Legislative Intent

DEFINE A PERMANENT SOLUTION TO MITIGATE THE EFFECTS OF ABNORMAL INCREASES IN PROPERTY VALUE DUE TO REAPPRAISAL

PROVIDE PROTECTION, PREDICTABILITY AND EQUITY TO TAXPAYERS FOR TAX INCREASES FROM REAPPRAISAL

PROMOTE STABILITY IN NEIGHBORHOODS AND DISTRICTS EXPERIENCING ABNORMAL GROWTH IN PROPERTY MARKET VALUE

AN ACT TO MITIGATE THE INEQUITABLE EFFECTS OF THE PERIODIC PROPERTY TAX REVALUATION CYCLE OF HB 658 FOR CLASS 3,4, and 10 THAT IS EFFECTIVE IN CALENDAR; ELIMINATES SIX YEAR REAPPRAISAL CYCLE AND PHASE-IN; EXTENDED PROPERTY TAX ASSISTANCE PROGRAM NO LONGER REQUIRED (MCA 15-6-193): ELIMINATED EXEMPTIONS CLASS 4 (MCA 115-6-222); ESTABLISHES COMMON FIXED TAX RATE OF 2.152% FOR CLASS 3 AND 4 (MCA 15-6-133,134); CLASS 10 TAX RATE FIXED AT .35% (MCA 15-6-143); REAPPRAISES BIANNUALLY COMMENCING IN 2012(MCA 15-7-111); CHANGES THE BASIS FOR PROPERTY ASSESSMENT FROM TAXABLE MARKET VALUE TO MARKET VALUE OF 2008 INCREASED BY 3% PER ANNUM OR THE FULL MARKET VALUE WHICHEVER IS LESS (MCA15-8-111) UNTIL THE PROPERTY IS SOLD; SETS A MAXIMUM MARKET VALUE; IS REVENUE NEUTRAL; INCLUDES A HERITAGE CLAUSE AND ALLOWS FOR TRANSFER OF MARKET VALUE OF A PRINCIPLE RESIDENCE FOR OWNERS 65 OR OLDER.

JUSTIFICATION FOR REFORM

HB 658 was effective January 1, 2009. Due to inherent unconstitutional inequities or perceived discrepancies in the data used to draft HB 658, reappraisal with revised or replacement legislation must be in the 2011 Legislative Session. This document is the basis for proposed legislation to that end.

SUMMARY

· Effective Date – January 1, 2011 Break – in Date

· Application – Class 3 Agriculture and Class 4 Residential and Commercial; Class 10 Forest Land

· Tax Rate – 2.152% (Common Tax Rate, Class 3 and 4) (MCA 15-6-134)

o 0.35% Class 10 (MCA 15-6-143)

· Assessed Value (Tax Basis)–Market Value (MV) December 31, 2008 increased annually by 3% or the Full Market Value (FMV) whichever is less. (MCA 15-8-111)

o Full Market Value equals 100% Market Value

· Taxable Value equals Assessed value times Tax Rate (TV=AV x .02152)

*Note to Drafter: Annual percent should be variable 2% up to a maximum of 5% to allow for Taxable Value decreases from reappraisal and inflation and controlled by DOR....

· Reappraisal - Reappraisal every two years commencing in 2012. (MCA 15-7-111)

· Revenue Neutral - There shall be no increase in revenue (revenue neutral) at local, district, county or state levels due to the annual increase in Market Value of Class 4 and 3 properties on the tax roll of December 31 of the prior year. The Department of Revenue will determine a guaranteed mil for each entity to maintain revenue neutrality over the prior year. Property Tax Limited to 1996 level (MCA 15-10-402) will be maintained by adjusting mills to revenue neutral (MCA 15-10-420). State 95 mills are allowed to “float” and increase for inflation. (Note to Drafter: If “float of state 95 mills is not allowed because it results in a different mill for school taxes, we should have an option to allow the Statewide revenue to increase as a means to compensate for inflation i.e. same as University 6 mills. Also we do accept that other”fixed “mills such as County retirement should not be included in the revenue neutral calculation.

· Changes to Market Value of Property - Market Value of property sold shall be Full Market Value.

· New, remodeled or property damaged by natural disaster or fire shall be appraised to determine the current Market Value

· The Market Value for new property shall be the calculated Full Market Value. The new Market Value for remodeled property shall be the current Full Market Value plus the Market Value of the improvement/addition.

· The Value for property damaged by natural disaster or fire shall be the calculated new Market Value or the Market Value prior to the occurrence, whichever is less.

o The property shall be reappraised if a residence or other improvement is repaired or replaced subsequent to natural disaster or fire. The new Market Value will be the Full Market Value times the ratio of Market Value divided by Full Market Value at the time of the incident.

· Heritage Clause – Montana resident owners may sell or transfer property to family members related by blood or marriage at the current Market Value of the property (includes divorce or property settlement).

· Primary Residence – Montana Resident owners 65 years or older may transport the Market Value of a Primary Residence to a new Primary Residence of less than or equal Full Market Value when the Primary Residence is sold and a new residence purchased within two years.

· Reserve – Reserve is defined as the difference between Market Value and Full Market Value of a property. The 3% annual increase in Market Value will continue until there is no reserve, i.e., the Market Value equals Full Market Value or until the property is sold; then, the property Market Value will be increased to Full Market Value.

Bill Drafter, Legal Services, Legislators Information

Proven System, Risk Free – Experience of Michigan, Oregon, Florida and California property tax systemswere used to design a Montana system that incorporates solutions to the problems encountered by theseusers. This Montana solution is superior to all!

Permanent solution Tax Reform - Prevents owners from being forced to sell property because of theincrease in Market Value due to reappraisal. No more reappraisal “panics” emergency committees etc.

CHANGES/DIFFERENCES - Simplified Mechanization:

· Eliminated Homestead, Comstead Exemptions – No more arguments regarding very large dollarexemptions for high valued properties

· Taxable Value for Class 3 and 4 properties is 2.152% of Market value, easy to understand by all.

· Phase-in of Market Value increases eliminated

Phase-In - There is no phase-in of values required which eliminates the inequities of phase-in. Phase-in isno longer required.

· Phase-in of Taxable Value reductions as well as problems of owners with large increases paying lesstax than they would without phase-in, while owners with a decrease in Taxable Value pay more taxbecause of tax rate phase-in.

· Phase-in also violates Montana Constitution in that “equalization” of value is never achieved with a6-year cycle.

EQUALIZATION – Change MCA 15-8-111. Assessment – market value standard –exceptions. Properties in 15-6-134 under class 3 and 4, are assessed at Market Value year end 2008 increased by 3%per annum or 100% Market Value whichever is less.

Equalization is achieved by changing from a basis of Market Value minus exemptions to MarketValue 2008 YE plus 3% per year (redefined “Taxable Market Value”) or !00% Market Valuewhichever is less. (All properties of the same Market Value are taxed equally.) (MCA 15-6-220)

Established a Common Tax Rate for Class 3 and 4 – Addressed problem of different Tax Rates in thesame Class or Category and a percentage of property tax burden shifted from Commercial andAgriculture to Residential by lowering SB 461 effective Tax Rate of Commercial and Agriculture andincreasing the effective rate of Residential for a common 2.15%.

Note: Common tax rate between Class 3 and 4 is statutory but with the advent of exemptions andTaxable Market Value, the Legislature decided to try to maintain the burden share amongresidential, commercial and agriculture properties fixed by changing the exemptions along withthe rate. This shifted the burden from residential to commercial and agriculture. By using thefixed rate of 2.152% of market value and no exemptions, the burden is corrected and shifted backto residential.

Reducing the burden for commercial (small business) supports most legislators’ promise to attractsmall business and create jobs.

Predictable – All property owners know in advance the maximum property tax increase they willexperience from year to year.

Equitable – All property owners are treated equally. Equal protection for all property owners from largetax increases due to reappraisal. Burden shifts due to increases in Taxable Value are normal. There areno programmed burden shifts.

Stable source of revenue - Reserve concept allows a higher degree of stability during a declining realestate market. This is a very important consideration for the 2012 reappraisal when Market Values willdecline statewide and particularly those areas with very large increases in 2009.

Cost efficient – No Extended Property Tax Assistance Program required! No owner or state fundsrequired to administer and implement EPTAP circuit breaker. ($3M annual savings)

Mill reductions - Changed mitigation strategy from maintaining statewide Taxable Value at 1996 baselineafter reappraisal to a system to allow Market Value/taxable value to increase at a fixed percentage anddecrease mills to be revenue neutral to the prior year.

· Controlled tax base expansion and mill reductions from revenue neutral causes the actual tax increaseto be less than the 3% Market Value increase for most if not all property owners.

· Owners paying tax on Full Market Value get a Tax reduction. Owners with less than 20% six yearincrease in market value benefit most from the mill reductions.

· Tax burden shift from low growth to high growth areas continues, but at a slower rate.

RATIONALE/EXPLANATIONS

Simplified - In order to make the property tax system simple and understandable, we use Market Value asthe tax basis and a common tax rate to make Montana Taxable Value predictable at 2.152% of MarketValue for these classes. (The YE 2008 common tax rate was calculated using 2002 Class 3 and 4 TaxableValue divided by the 2003 total Class 3 and 4 Market Value.) There should be no more complaints abouthaving different tax rates in the same class or category as well as very large Market Value exemptions forhigh valued properties. (Note: We realize that having a common tax rate that is higher than theResidential effective rate will cause the Residential burden to increase because there are more residentialproperties and the increase in Market Value is extraordinarily high compared to Commercial and Ag. There will be some burden shift from Commercial and Ag to Residential due to the fact the exemptionshave been eliminated and effective rate is reduced.)

Taxable Market Value as the basis, increased 3% per year with a rate of 2.152% after 2 years of HB658,causes a Residential TV increase year 2014 of 29% if the Full Market Value has not been exceeded. Thefirst year Residential TV will increase by 8% just due to the rate increase from ~ 1.98% to 2.152% whilecommercial and agriculture will show a decrease in TV because of the lower rate. Since the urban areasare heavily weighted with Residential properties, we expect that the total Taxable Value of cities will behigher and require a first year mill adjustment to be revenue neutral. The rural areas may have to increasemills to be revenue neutral (as they do with HB 658).

No Phase-in - There is no phase-in; each year is stand-alone i.e. no rate or exemption changes, nonecessity for the Extended Property Tax Assistance Program (ETAP) and the inequities inherent in phasein are eliminated.

Eliminating the ETAP will result in a cost savings to the state as well as Class 3 and 4 owners since thecircuit breaker tax reductions are financed from the general fund and by increasing Taxable Value at theState level, and mill increases at county, city and district levels.

Phase-in to Full Market Value over 6 years and maintaining revenue neutral each year as a means to“mitigate the impact of reappraisal”, increases the complexity of the property tax system and is the causeof several inequities. Changing rates and or exemptions to maintain Taxable Value (tax base) at 1996levels owners with reappraised Market Value increases below the state average increase to have decreasedTaxable Value while those with above average Market Value increases have Taxable Value increases butat a level lower than without “mitigation”. Unfortunately, especially because of the 2008 reappraisal,many owners still experience very large increases in Taxable Value, with the tax bills being out of therealm of reason.

Newer owners, who build or buy at very unrealistic prices to cause our increase in reappraised value,benefit from our revenue neutral approach. They will automatically get a decrease in Taxable Value andperhaps tax because their property, if it does not decrease in value, will increase below the state average.

Properties are not “equalized in value as the state Constitution requires owners with large increasespaying less tax than they should because of phase-in, while those who have decreases pay more than theyshould. Phase-in creates a separate class of owners called “outliers” being overtaxed during a recessionwhile owners with below average increases have Taxable Value decreases.

Revenue Neutral - Revenue neutral is an advantage of Montana over other states in that mills arecontrolled to keep Tax as a percent of Market Value low.

The 3% Market Value increase in the first year after reappraisal will compensate for the loss in revenuedue to reductions in Market Value during reappraisal. (It is possible that the rate of increase for year onewill have to be increased during recession, so we must allow the DOR flexibility in the annual increase.)

After year one however, any revenue increases will be offset by a decrease in mills at each level (district,city, county or state). The decrease in mills offsets the 3% increase in Taxable Value, so the Tax increasewill be less than 3% at all levels.

Constitutionality Issues

The following identifies some of the taxpayer concerns regarding and HB 658, fundamental rights of equal protection, non discrimination, similar treatment etc. vs. compelling state interest.

· Phase-in of Market Value – Four classes; Decrease, No increase, Increase below State average, Increase above average. When you consider phase in of tax rate and exemptions, those properties with aboveaverage Market Value increase will have a lower cum Taxable Value increase i.e. less tax liability compared to no phase-in while properties with Market Value increases below average will have an increase in tax liability even though the fully phased in Taxable Value is less than 2008. This is equivalent tophasing in a decrease in Taxable Value and results in taxpayers with below average increases offsetting the decrease for properties with above average Market Value increases. The same can be said for ownerswho have a decrease or no increase in Market Value have Taxable Value reductions phased in causingsome forfeit of Taxable Value reductions annually and contributing to the decrease of Tax Liability forowners with above average Market Value increases.

· Phase-In and Equalization – Montana Supreme Court specifically declined to rule on the constitutionality relating to the class of property owners who are paying taxes based on full market value of their property(no increase, decrease) versus those paying based on less than market value but noted that if the equality iscorrected with a reasonable time (5 years), no constitutional harm occurred. Montana legislature decidedon getting to equal value in 6 years is sufficient. However, the fact is that using phase-in and reappraisingevery 6 years never allows for equalization of values simply because true Market Values are always in arrears and the State knows that the real Market Values are changed before the end of the cycle.

· Multiple Rates in the Same Class – Montana has different Taxable (Assessed) Value as a percent of Market Value rates for Agriculture Class 3, and Commercial and Residential Class 4 but shows an equal tax rate determined by using exemptions so that the Assessed Value is a percent of Taxable Market Value. Why are properties in the same class treated differently?

· Mitigation by Holding Statewide Taxable Value to 1996 plus Growth – Mitigation is required to protect property owners from unaffordable tax increases due to reappraisal when the economy of the State or local areas experience rapid growth. Montana’s mitigation method reduces the tax liability of all property owners below the State average Market Value increase and increases tax liability for only those above average. The impact is that 90% of the owners of class 3, 4, and 10 have a reduction in tax liability or an affordable increase. The 10% are in a discriminated class of their own called “outliers” and within that class is another class qualified for a limit on tax liability increase of 36% depending on income (Extended Property Tax Assistance Program ETAP). This creates a situation where owners with the same presumed wealth but different incomes have different tax liabilities for the properties of the same Market Value.

o Homeowners who do not qualify for EPTAP are not protected against unaffordable property taxincreases. (Equal protection, similar treatment)

o The EPTAP was treated as a “Circuit Breaker” in the 2003 mitigation bill and the State replaced the revenue lost due to ETAP for the fixed State 101 Mils. The inequity was that local revenue loss was by increasing Mils so the home owners were financing the County and District loss. With HB658, the Legislature decided to replace some, or perhaps all, of the EPTAP loss of revenue by increasing the statewide taxable value above the 2008 YE value. HB658, therefore, is not revenue neutral so the basic inequity is exacerbated by all taxpayers contributing to mitigate the increase of a few.

· HB 658 specifies that the market value exemption is applicable to the first $1.5M of a property value. This “mansion” penalty creates a class within Class 3 Residential and assesses these properties at a higher percentage of Taxable Value to Market Value than other residential properties. What is the compelling state’s interest to this discrimination and unequal treatment? Why is the projected increase in revenue not included in the tax rate calculation to mitigate?

April 2010

MRFPT (Montana Residents for Fair Property Taxation) is currently researching the possibility of a legal or constitutional challenge to the current method of reappraisal and property tax mitigation prior to the 2011 Legislative Session. We encourage all concerned Montana property owners –both resident and nonresident– to sign up and provide their contact information so we can keep you informed on this effort.

Montana Residents for Fair Property Taxation