Title: KELLER SELSTAD v DEPT OF REVENU

State: montana

Issuer: Montana Supreme Court

Document:

No. 14539 I N THE S U P R E M J 3 COUHT O F THE STATE O F ICNTANA 1979 M. F. KELT;ER, T O M SEXSTAD, J I M WODAHL, AKI' WENZEK, GEORGE BUZZAS et a1 . , Petitionersand Appellants, IlEPARRBW O F F ! E W t W E O F THE STATE O F M X T A N A , an official agency of the State of Wntana; CASCADE COUNTY, M X T A N A , a political subdivision of t h e State of Wntana; and THE CITY O F GREAT FALLS, PINTANA, a municipal corporation of the State of Wntana, Respondents and Respondents. @pal from: D i s t r i c t Court of the Eighth Judicial D i s t r i c t , Honorable Joel G. Mth, Judge presiding. Counsel of Record: For Appellants: Graybill, Ostrem, Warner & Crotty, G r e a t Falls, Wntana Donald O s t r e m argued, Great Falls, Wntana For Respondents: R. Bruce MSinnis argued, Dept. of Revenue, Helena, mntana J. Fred Bou~deau, County Attorney, Great Falls, Wntana David V. G l i k o , City Attorney, G r e a t Falls, Wntana Suhitted: June 12, 1979 m i d & : J U L 1 1 1373 3 . - r ; , s t Filed: 7 - . . - . M r . J u s t i c e John Conway Harrison d e l i v e r e d t h e Opinion of t h e Court. This appeal i s brought by taxpayers i n t h e C i t y of Great F a l l s from an order of t h e D i s t r i c t Court, Cascade County, dismissing t h e i r a c t i o n f o r d e c l a r a t o r y judgment. P l a i n t i f f s - a p p e l l a n t s sought a d e c l a r a t i o n t h a t t h e defen- d a n t S t a t e Department of Revenue had i l l e g a l l y denied them t h e t a x a t i o n a p p r a i s a l and assessment b e n e f i t s of t h e Mon- tana Economic and Land Development Act (MELDA), which became e f f e c t i v e on January 1, 1976. Chapter 549, Laws of Montana 1975. The D i s t r i c t Court r u l e d t h a t p l a i n t i f f s had n o t exhausted t h e i r a d m i n i s t r a t i v e remedies and w e r e t h e r e f o r e n o t e n t i t l e d t o j u d i c i a l review. A b r i e f review of M E L D A assists an understanding of t h e p a r t i e s ' contentions. A s o r i g i n a l l y enacted, M E L D A provided f o r c l a s s i f i c a t i o n of various types of land according t o t h e l a n d ' s d e s i r a b l e use and c r e a t e d a system of t a x a t i o n de- signed t o encourage such d e s i r a b l e use. Chapter 549, Sec- t i o n s 7 through 20, Laws of Montana 1975, c o d i f i e d as sec- t i o n s 84-7507 through-7520, R.C.M. 1947, repealed Chapter 582, Section 20, Laws of Montana 1977. One element of t h e Act w a s a provision f o r review and approval of a l o c a l governing body's own plan f o r c l a s s i f i c a t i o n of land within i t s j u r i s d i c t i o n . Section 84-7505, R.C.M. 1947, repealed Chapter 582, Section 20, Laws of Montana 1977. Section 84- 7505(5) f u r t h e r provided t h a t i f a c i t y o r county governing body had f a i l e d t o submit a s u i t a b l e land use c l a s s i f i c a t i o n p l a n by January 2 , 1978, t h e S t a t e Department of Community A f f a i r s would prepare t h e plan. The C i t y of Great F a l l s adopted a plan f o r land u s e c l a s s i f i c a t i o n under M E L D A on A p r i l 26, 1977, by C i t y Com- mission Resolution No. 6941. O n August 17, 1977, t h e S t a t e Department of Revenue n o t i f i e d t h e C i t y t h a t t h e p l a n d i d n o t conform t o MELDA's p r o v i s i o n s , and t h u s persons a c t i n g i n r e l i a n c e upon t h e C i t y ' s land u s e p l a n would n o t r e c e i v e M E L D A t a x treatment. P l a i n t i f f s a r e c i t i z e n s of Great F a l l s who expended money f o r c o n s t r u c t i o n and improvement i n r e l i a n c e upon t h e C i t y ' s M E L D A plan. A f t e r l e a r n i n g of t h e Department of Revenue's determination t h a t t h e plan d i d n o t conform, they sought d i r e c t r e l i e f from t h e Department by r e q u e s t i n g M E L D A treatment of t h e i r investments. The Department r e f u s e d t o implement M E L D A treatment, and p l a i n t i f f s f i l e d t h e i r a c t i o n b e f o r e t h e D i s t r i c t Court. The p e t i t i o n b e f o r e t h e D i s t r i c t Court requested a d e c l a r a t i o n t h a t t h e Department of Revenue had a c t e d i l l e g a l l y i n r e f u s i n g t o implement t h e C i t y ' s M E L D A p l a n , and f u r t h e r t h a t p l a i n t i f f s were e n t i t l e d t o M E L D A t a x treatment d e s p i t e t h e r e p e a l of t h e Act by t h e 1977 L e g i s l a t u r e . Paragraphs X I , X I I I , and X I V of p l a i n - t i f f s ' complaint. A s noted above, t h e D i s t r i c t Court dismissed t h e com- p l a i n t , r u l i n g t h a t p l a i n t i f f s w e r e f i r s t r e q u i r e d t o seek a d m i n i s t r a t i v e review of t h e Department of Revenue's d e t e r - mination b e f o r e t h e S t a t e Tax Appeal Board: "The p r o v i s i o n s of t h e s a i d s t a t u t e a r e anything b u t simple and r e q u i r e s a g r e a t d e a l of knowledge and experience i n land u s e and development, l a n d c l a s s i f i c a t i o n , zoning, a p p r a i s a l s , assessments and t a x a t i o n , i n o r d e r f o r t h e reader t o f u l l y understand and comprehend t h e l e g i s l a t i v e i n t e n t . . . I t i s t o be noted i n t h i s connection t h a t t h e S t a t e Tax Appeal Board has j u r i s d i c t i o n t o review d e c i s i o n s of t h e Department of Revenue i n regard t o p r o p e r t y assessments, t a x e s and penal- ties. S e c t i o n 84-708(3), R.C.M. 1947, as amended. "Because of t h e complexity of t h e s t a t u t e and t h e n e c e s s i t y of bringing s t a t e agency a d m i n i s t r a t i v e e x p e r t i s e and knowledge t o bear on t h e implement- i n g of such a comprehensive land development and t a x i n c e n t i v e program, t h i s case i s an example of t h e reason f o r t h e r u l e r e q u i r i n g exhaustion of administrative remedies before c o u r t s w i l l i n t e r f e r e with a d m i n i s t r a t i v e proceedings." P l a i n t i f f s bring two i s s u e s on appeal: 1. Whether taxpayers have an a d m i n i s t r a t i v e remedy before t h e S t a t e Tax Appeal Board concerning a d e c i s i o n by t h e S t a t e Department of Revenue which declared a c i t y land use plan n o t t o be i n compliance with M E L D A . 2. Whether, i f such a remedy e x i s t s , t h e taxpayers were required t o pursue t h a t remedy before bringing an a c t i o n i n D i s t r i c t Court t o o b t a i n a d e c l a r a t i o n of t h e meaning of l e g i s l a t i o n . Under t h e f i r s t i s s u e p l a i n t i f f s argue t h a t t h e Depart- ment of Revenue d i d not i s s u e any order from which they could appeal. They contend t h a t t h e C i t y of Great F a l l s was t h e only e n t i t y capable of pursuing an appeal on t h e Depart- ment's r e f u s a l t o implement t h e Great F a l l s M E L D A plan. P l a i n t i f f s w e r e n o t p a r t i e s t o any proceedings before t h e Department of Revenue, and d i d not submit any plan t o it. Therefore, they argue, they have no standing t o appeal t o t h e S t a t e Tax Appeal Board. The Department of Revenue responds t h a t it had issued two r u l i n g s , both of which p l a i n t i f f s could have appealed t o t h e Tax Appeal Board. The f i r s t i s a letter of August 17, 1977, by which t h e Department informed t h e C i t y t h a t i t s land use plan d i d n o t comply with MELDA. The second i s a letter dated December 19, 1977, which w a s a d i r e c t response t o t h e p l a i n t i f f s 1 a t t o r n e y . The Department contends t h a t t h e s e c o n s t i t u t e d f i n a l decisions which a f f e c t e d t h e tax- payers, and t h e taxpayers could have appealed t o t h e Tax Appeal Board under s e c t i o n 84-708(3), R.C.M. 1947. The scope of d e c i s i o n s by t h e Department of Revenue which a r e appealable t o t h e S t a t e Tax Appeal Board i s set f o r t h i n s e c t i o n 84-708(3), R.C.M. 1947: "To hear a p p e a l s from d e c i s i o n s of t h e Department i n regard t o business l i c e n s e s , p r o p e r t y a s s e s s - ments, t a x e s and p e n a l t i e s . " Thus, when p r o p e r t y assessment d e c i s i o n s a r e rendered by t h e Department of Revenue, t h e p r o p e r t y owner a f f e c t e d must o r d i n a r i l y f i r s t seek review b e f o r e t h e Tax Appeal Board. Two exceptions t o t h i s r u l e , however, have been recognized by t h i s Court i n previous d e c i s i o n s , t h e f i r s t of which i s r e l e v a n t t o t h i s i s s u e , t h e second t o p l a i n t i f f s ' second i s s u e . I n S l e t t e n Construction Company v. C i t y of Great F a l l s (1973), 163 Mont. 307, 516 P.2d 1149, a Montana c o n s t r u c t i o n c o r p o r a t i o n , S l e t t e n , brought a mandamus a c t i o n b e f o r e t h i s Court i n a n o r i g i n a l proceeding. S l e t t e n sought t o have set a s i d e a c e r t i f i c a t e of residency which t h e Department of Revenue had i s s u e d t o an o u t - o f - s t a t e c o r p o r a t i o n , Acton, and t o o b t a i n a w r i t of mandamus d i r e c t i n g t h e c i t y t o a c c e p t i t s b i d f o r a p u b l i c works p r o j e c t r a t h e r than Acton's. The Supreme Court g r a n t e d t h e requested r e l i e f d e s p i t e t h e Department's o b j e c t i o n t h a t S l e t t e n had f a i l e d t o exhaust i t s a d m i n i s t r a t i v e remedy before t h e Tax Appeal Board. S l e t t e n , it h e l d , was n o t bound by t h e r u l e because it had n o t p a r t i c i p a t e d i n t h e proceedings by which t h e Department had determined t h a t Acton q u a l i f i e d f o r a c e r t i f i c a t e of residency: "We recognize t h a t g e n e r a l p r i n c i p l e t h a t o r d i - n a r i l y a d m i n i s t r a t i v e remedies must be exhausted b e f o r e applying f o r j u d i c i a l review. However, t h i s p r i n c i p l e has no a p p l i c a t i o n t o t h e i n s t a n t case. S l e t t e n was n o t a p a r t y t o t h e administra- t i v e proceedings awarding t h e c e r t i f i c a t e of residency t o Acton, had no n o t i c e t h e r e o f , and could hardly be s a i d t o have a n a d m i n i s t r a t i v e remedy under such circumstances." 163 Mont. a t 311, 516 P.2d a t 1151. The Department seeks t o d i s t i n g u i s h S l e t t e n by arguing t h a t while t h e p l a i n t i f f i n t h a t c a s e d i d n o t p a r t i c i p a t e i n t h e proceedings by which Acton was granted a c e r t i f i c a t e of residency, p l a i n t i f f s i n t h e p r e s e n t case w e r e very much involved i n t h e determination of whether t h e Department of Revenue would implement t h e C i t y ' s M E L D A plan. The Depart- ment r e l i e s on two f a c t s t o support t h i s argument. F i r s t , it states t h a t various i n d i v i d u a l s who a r e among t h e p l a i n - t i f f s appeared before t h e Department i n an a d m i n i s t r a t i v e hearing on June 9, 1977, before t h e Department's d e t e r - mination of whether t o implement t h e plan w a s made. Second, t h e Department s t a t e s t h a t p l a i n t i f f s brought themselves within t h e a d m i n i s t r a t i v e process by requesting a recon- s i d e r a t i o n of t h e r u l i n g of December 6, 1977. Without f u r t h e r a n a l y s i s , t h e Department concludes t h a t t h e s e f a c t s bring p l a i n t i f f s squarely within t h e provisions of Matter of DeWar (1976), 169 Mont. 437, 548 P.2d 149. DeWar is a c a s e involving t h e j u r i s d i c t i o n of t h e c i t y p o l i c e commission of Great F a l l s and makes mention n e i t h e r of t h e Tax Appeal Board's j u r i s d i c t i o n nor of t h e S l e t t e n decision. I t does r u l e , however, t h a t a d e c l a r a t o r y judgment a c t i o n is n o t t h e proper v e h i c l e f o r obtaining r e l i e f from an a d m i n i s t r a t i v e r u l i n g "within t h e j u r i s d i c t i o n of a d m i n i s t r a t i v e bodies o r commissions i n t h e process of exercising t h e i r quasi-judi- c i a 1 functions and/or power." 169 Mont. a t 445, 548 P.2d a t I t is not c l e a r why t h e Department r e l i e s on D e W a r , o t h e r than f o r i t s general statement t h a t a p a r t y aggrieved by administrative a c t i o n must f i r s t exhaust i t s administra- t i v e remedies. The case does not discuss t h e s i t u a t i o n of a nonparty. Nothing within M E L D A appears t o confer p a r t y s t a t u s t o a taxpayer who l i v e s within t h e j u r i s d i c t i o n of a governing body which seeks t o have i t s M E L D A plan imple- mented by t h e Department of Revenue. There i s no b a s i s suggested i n t h e Department's brief f o r conferring t h a t s t a t u s on a l l persons who e i t h e r appear a t a public hearing on t h e proposed plan o r who request a reconsideration of t h e Department's decision a f t e r it has already been made. There appears no reason then, t o take t h e present case o u t of t h e S l e t t e n r u l e by declaring t h a t p l a i n t i f f s had sua sponte made themselves p a r t i e s t o t h e C i t y ' s application. P l a i n t i f f s ' second i s s u e i s d i r e c t e d t o t h e exhaustion of administrative remedies. Having found they a r e n o t proper p a r t i e s f o r purposes of appeal t o t h e Tax Appeal Board, t h e City being t h a t party, w e w i l l examine t h e i s s u e as t o t h e a c t i o n taken by t h e Department of Revenue a s being one done under t h e "fundamentally wrong p r i n c i p l e s of appraisal." P l a i n t i f f s argue t h a t t h e determination made by t h e Department of Revenue was not an assessment decision such a s contemplated by s e c t i o n 84-708(3) t o be within t h e Appeal Board's j u r i s d i c t i o n , b u t r a t h e r an i n t e r p r e t a t i o n of law which must be determined by t h e judiciary. A s discussed above, t h e r e a r e two exceptions which t h i s Court has previously announced t o t h e r u l e of exhaustion of t a x appeal board remedies. The second a p p l i e s t o t h i s i s s u e . I n Larson v . S t a t e (1975), 166 Mont. 449, 534 P.2d 854, t h e Court held t h a t a p l a i n t i f f need n o t exhaust administra- t i v e remedies b e f o r e t h e Tax Appeal Board i f t h e q u e s t i o n t o be determined involved a n a l l e g a t i o n t h a t t h e Department of Revenue had used a "fundamentally wrong p r i n c i p l e " of ap- p r a i s a l : "'The s t a t u t e s having made ample p r o v i s i o n whereby a taxpayer may have any a l l e g e d e x c e s s i v e o r er- - - roneous assessment o r v a l u a t i o n of h i s p r o p e r t y reviewed by t h e county and s t a t e boards of equa- l i z a t i o n , t h i s remedy- i s e x c l u s i v e e x c e p t i n c a s e s where f r a u d -- o r tg adoption of - - a funda- mentally wrong p r i n c i p l e of assessment i s shown.' (Emphasis s u p p l i e d . ) " 1 6 6 ~ o n t . a t 456,534 P.2d a t 858, quoting Belknap Realty Co. v. Simineo (1923), 67 Mont. 359, 365, 215 P. 659, 661. I n Larson t h e p l a i n t i f f s challenged a l o c a l a p p r a i s a l system which had been u t i l i z e d p r i o r t o t h e s t a t e w i d e ap- p r a i s a l r e q u i r e d under t h e 1972 Montana C o n s t i t u t i o n . The Court h e l d t h a t t h i s came w i t h i n t h e Belknap Realty r u l e because such a l o c a l a p p r a i s a l w a s a l l e g e d t o be a "funda- mentally wrong p r i n c i p l e " of assessment, thereby r e q u i r i n g a l e g a l , n o t a n a d m i n i s t r a t i v e determination: "The S t a t e ' s u s e of an u n c o n s t i t u t i o n a l and il- l e g a l a p p r a i s a l h e r e i s t h e type of 'fundamentally wrong p r i n c i p l e ' of a p p r a i s a l f o r which s p e c i f i c exception was made i n Belknap. Were it otherwise, w e would have t h e anomalous s i t u a t i o n of an ad- m i n i s t r a t i v e , q u a s i - j u d i c i a l board passing on con- s t i t u t i o n a l and s t a t u t o r y q u e s t i o n s presented by t h i s appeal." 166 Mont. a t 456-57, 534 P.2d a t 858. I n t h e p r e s e n t case, t h e same "anomaly" would a r i s e i f t h e Tax Appeal Board w e r e f i r s t r e q u i r e d t o hear and d e t e r - mine p l a i n t i f f s ' complaint. P l a i n t i f f s do n o t challenge any p a r t i c u l a r a p p r a i s a l o r assessment b u t do challenge t h e Department's d e c i s i o n n o t t o u t i l i z e MELDA. A d d i t i o n a l l y , they seek a determination of t h e e f f e c t of MELDA's r e p e a l , c l e a r l y n o t a n a d m i n i s t r a t i v e question. These i s s u e s a r e of equal l e g a l s i g n i f i c a n c e t o those r a i s e d i n Larson because they involve t h e "fundamental p r i n c i p l e s " t o be u t i l i z e d i n a n a p p r a i s a l of and assessment on p l a i n t i f f s ' property. P l a i n t i f f s should n o t be r e q u i r e d t o p r e s e n t t h e i r c a s e t o t h e Tax Appeals Board. The judgment of t h e D i s t r i c t Court is reversed with d i r e c t i o n s t o hear and determine p l a i n t i f f s ' a c t i o n f o r d e c l a r a t o r y judgment. W e concur: 4 ' A - U . % A A ) e , Chief J u s t i c e