When is assessing Montana property for property tax purposes like valuing a cup of coffee? The Montana Tax Appeal Board explained when it recently affirmed the property tax assessed value of Montana lake front property.[1] The taxpayer, in arguing for a reduced value to his land, the taxpayer calculated his property value by looking at other property sales in the area. The taxpayer divided the property sales price by its square feet to compute a per foot value. The taxpayer then multiplied this property’s square feet by the average square foot value of the comparable property sales. This, the taxpayer argued would establish a lower property value than the value assessed for property tax purposes.
So what was the problem with this valuation method? According to the Department of Revenue appraiser, large parcels of land have lower per foot values than small parcels of land. The first acre is valued higher than each successive acre. The Montana Department of Revenue asserted, and the Montana Tax Appeal Board sustained, “land is like coffee – the more you order, the less per ounce you are charged.”[2]
Thus, the taxpayer’s smaller parcel of land could not be valued on the same square footage value of larger parcels. Instead, the Montana Tax Appeal Board required that the land be adjusted for economies of scale. The Board stated:
Had [taxpayer’s] comparable properties taken the economies of scale into account or found an identically sized, similar in nature and situated property, his analysis might have been given more credibility. The DOR witness testified credibly that taxpayer’s alternative method skews actual market values and decreases equalization of value required by Montana law. Mont. Code Ann. § 15-9-101(1). If the DOR were to adopt Mr. McLeod’s method of valuation, owners of larger parcels would be valued relatively lower than their neighbors with smaller lots.[3]
Practice point: In valuing property for Montana property tax purposes, the taxpayer must account for different sized parcels of property in analyzing comparable sales, and make appropriate adjustments based on size.
On another point, the taxpayer had previously prevailed in a property tax appeal before the County Tax Appeal Board in the prior two-year property tax cycle, which the Department of Revenue had not appealed. The taxpayer argued that the same value should apply for the next property tax assessment cycle. The Department of Revenue did not use the prior value determined on appeal in valuing the property for the current property tax cycle. The Montana Tax Appeal Board did not address this point and let the Department’s new value stand.
Second Practice point: The taxpayer should be aware that a prior value established at a tax appeal could be wholly disregarded in a later property tax assessment. However, the taxpayer should argue for the precedential value of a tax determination in a previous property tax cycle.
If you have questions about the Montana property taxation, please contact Jared Le Fevre to discuss.
Jared M. Le Fevre is a tax attorney and partner in the Tax, Trusts and Estates Practice Group of Crowley Fleck PLLP. Mr. Le Fevre represents taxpayers before the IRS, IRS Independent Office of Appeals, Tax Court, Federal District Court and state tax agencies throughout Montana, Wyoming, North Dakota, Idaho, and Utah. Mr. Le Fevre is involved in federal and state and local tax audits, appeals, and tax resolution throughout these western states. Mr. Le Fevre also advises clients on the tax effects of business and real estate transactions.
[1] Mcleod Family Trust v. State of Montana, Department of Revenue, 2020 WL 6379609.
[2] Id. at *4.
[3] Id.