Montana property tax cycles. In Part 1 of this article, we reviewed the property taxation assessment cycles in Montana. Property tax is assessed every two years on most properties. For the 2019-2020 property cycle, the Montana Department of Revenue uses the value of the property as of January 1, 2018. The Montana Department of Revenue can only reassess property mid-cycle when there is new construction or destruction.
What happens when property sells mid-cycle. The Montana Tax Appeal Board (“MTAB”) was recently faced with this issue in Department of Revenue v. Stanley R. & Annette C. Bayley Trusts.[1] In the case, taxpayers purchased the property in the middle of the 2019-2020 property tax cycle, in September 2019. The Montana Department of Revenue raised the assessed value for tax year 2020, the second year of the property tax cycle, and the taxpayer appealed stating the value should have been based on property value in 2018, and not changed by recent property sales.
The Montana Department of Revenue set forth its position as to when it reviews a property for potential reappraisal: “DOR appraisers visit a property if a property is sold, a building permit is pulled or if a DOR appraiser discovered something new while in the area.”[2] For the house in the case, the DOR claimed it was not aware that the basement had been improved. Further, DOR’s assessor stated that “DOR is tasked with valuing every property at its market value based on January 1st of the current year.”[3] Thus, DOR raised the value of the entire property. The MTAB set the Department of Revenue’s position on mid-cycle reappraisal as:
When asked what Montana Code Annotation section allows the DOR to reappraise a property which had been purchased within a valuation cycle, Ms. Gilbert [of the Department of Revenue] stated Mont. Code Ann. 15-7-111(2), which allows the DOR to “adopt rules for determining the assessed valuation of new or remodeled property.” MTAB Hrg. Transcr. 58:9-59:2. Ms. Gilbert and Ms. Haeker did not cite any DOR rules for revaluating property during a valuation cycle.[4]
MTAB did not appear to accept the argument that DOR could change value mid-cycle based on the sale of the house. Instead, MTAB resolved the case by concluding that the basement had been only partially completed during the assessment date of January 1, 2018, and had been finished at some point during the property tax cycle as of January 1, 2020. Thus, the Department of Revenue could change the value based on new construction to the property. MTAB valued the property as of January 1, 2020, using as the value the amount the taxpayer had recently paid for the property. This amount was higher than the taxpayer wanted but lower than the DOR wanted, and reflects the application of law that if there is new construction, value can change mid-cycle and the sale of the property itself is a good indicator of value.
Practice Point: Be on the lookout for the Montana Department of Revenue trying to change the property value based on a mid-cycle sale. The Montana Department of Revenue does not have statutory or regulatory authority to change the value mid-cycle due to change of ownership or value.
Taxpayers with property tax valuation issues may contact Jared Le Fevre to discuss whether the taxpayer has good grounds to contest increases in value.
About the Author. Jared M. Le Fevre is a 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, 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] State of Montana, Department of Revenue, v. Stanley R. & Annette C. Bayley Trusts, 2021 WL 2498877, at *4.
[2] Id.
[3] Id. at *5.
[4] Id.