Montana property tax statutes authorize county commissioners to grant a refund of property taxes that are “paid more than once or erroneously or illegally collected if an appeal pursuant to 15-1-402 was not available.”[1] Under Montana’s system of property taxation, the Montana Department of Revenue determines the valuation of property for tax purposes while the county treasurer handles the collection of property taxes.
The question arises: can the commissioner’s refund statute be used to obtain a refund for past errors in property values? The answer to that question may be no, as the Montana Supreme Court recently addressed.
In K & J Investments, LLC v. Flathead County Board of County Commissioners[2], the Montana Supreme Court ruled that the commissioner’s refund statute, Mont. Code Ann. § 15-16-603(a)(1), cannot be used to obtain a property tax refund based upon an erroneous property value. In K & J Investments, the taxpayer acquired real property via a tax deed. The Montana tax deed process requires the person acquiring the tax deed to pay the outstanding property tax.
Upon obtaining ownership and performing a property survey, the taxpayer discovered that the property was not suitable for building, lacked access, and did not contain structures that the Montana Department of Revenue had previously assessed to the property. The effect of these land issues was to reduce the value of the property from $230,000 to $30,000. This lower value, had it been in place at the time the property taxes were paid, would have substantially decreased the amount of property tax assessed.
Taxpayer petitioned the county commissioners of the county where the property was located to refund past property tax payments on grounds of mistake in property tax assessment. The commissioners refused to issue the refund and the Montana Supreme Court affirmed. The Court explained the two parts to Montana property assessment, and ruled that the commissioner’s refund statute applies to errors in collection of tax and not to errors in assessment of tax.
Although the entire process … is often referred to as ‘taxation,’ there are distinct stages. ‘Assessment is the process by which persons subject to taxation are listed, their property described, and its value ascertained and stated. Taxation consists in determining the rate of the levy and imposing it.’ Under current law, assessment is entirely the responsibility of the Department. Collection and enforcement are the responsibility of county treasurers.[3]
Thus, the Montana Department of Revenue was responsible for assessing the value for property taxation, not the county. According to the Montana Supreme Court, errors in valuation are not an error in collection under the commissioner’s refund statute. Therefore, the Court ruled, “The District Court correctly concluded that § 15-16-603(1)(a), MCA, ‘does not support the argument that a board of county commissioners can substitute its valuation of real property for that of the DOR, and such an interpretation would run afoul of the centralization of the appraisal power in the hands of the DOR.’”[4]
As such, the Montana Supreme Court then refused to allow the commissioner’s property tax refund statute to correct errors in property tax assessment.
Part 2 of this article will examine how a taxpayer typically may challenge errors in property tax assessment. I encourage taxpayers who are concerned about errors to any facet of property taxation to contact Jared Le Fevre to discuss their property tax.
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] Mont. Code Ann. § 15-16-603(a)(1).
[2] K & J Investments, LLC v. Flathead Cty. Bd. of Cty. Commissioners, 2020 MT 277, 2020 WL 6481683.
[3] Id. at ¶ 12
[4] Id. at ¶ 19.