Title: DEPT OF REVENUE v STATE TAX APPEA

State: montana

Issuer: Montana Supreme Court

Document:

No. 14960 IN THE SUPREME COURT OF THE STATE OF MONTANA 1980 THE DEPARTMENT OF REVENUE OF THE STATE OF MONTANA, Petitioner and Appellant, STATE TAX APPEAL BOARD, COUNTRYSIDE VILLAGE, INC., et al., Respondents and Respondents. Appeal from: District Court of the Eighth Judicial District, In and For the County of Cascade, Honorable H . William Coder, Judge presiding. Counsel of Record: For Appellant: R. Bruce McGinnis, Dept. of Revenue, Helena, Montana Randall Swanberg argued, Great Falls, Montana Swanberg, Koby, Swanberg & Matteucci, Great Falls, Montana For Respondents: Church, Harris, Johnson & Williams, Great Falls, Montana Robert P. Goff argued, Great Falls, Montana Crowley, Haughey, Hanson, Toole & Dietrich, Billings, Montana Mark D. Safty argued, Billings, Montana Church, Harris, Johnson & Williams, Great Falls, Montana Milton Wordal argued, Great Falls, Montana James R. Paul, Great Falls, Montana Bottomly and Gabriel, Great Falls, Montana James, Gray & McCafferty, Great Falls, Montana Jardine, Stephenson, Blewett & Weaver, Great Falls, Montana For Amicus Curiae: Scott, Linnell & Newhall, Great Falls, Montana Submitted: February 26, 1980 Decided: J,uN 2 4 ]9& Filed: fVlJ : , : f$? Honorable Gordon R. Bennett, D i s t r i c t Judge, delivered t h e Opinion of t h e Court. This is an appeal by t h e Department of Revenue from a d e c i s i o n of t h e D i s t r i c t Court of t h e Eighth J u d i c i a l D i s t r i c t , i n and f o r Cascade County, affirming a d e c i s i o n of t h e S t a t e Tax Appeal Board provided f o r a blanket 34 percent reduction i n t h e Department's a p p r a i s a l of t h e improvements on c e r t a i n p a r c e l s of commercial r e a l property i n Cascade County. The Board i s joined by t h i r t y - e i g h t taxpayers a s respondents. B r i e f s amicae have been received from taxpayers of s e v e r a l o t h e r counties. The d e c i s i o n of t h e D i s t r i c t Court is reversed. Respondent taxpayers applied t o t h e Cascade County Tax Appeal Board f o r reduction of t h e v a l u a t i o n of t h e i r cornrner- c i a 1 property improvements pursuant t o s e c t i o n 15-15-102, MCA, a f t e r a p p r a i s a l by t h e county a s s e s s o r f o r t h e Department of Revenue. After hearing, t h e county t a x appeal board denied r e l i e f and appeal w a s taken t o t h e S t a t e Tax Appeal Board ( h e r e i n a f t e r r e f e r r e d t o a s " t h e Board") under s e c t i o n 15-2- 301, MCA. The Board overruled t h e county appeal board and ordered t h e Department t o reduce a l l of t h e contested valua- t i o n s by 34 percent. The Department p e t i t i o n e d f o r j u d i c i a l review under s e c t i o n 15-2-303, MCA, seeking r e v e r s a l of t h e Board d e c i s i o n and reinstatement of its valuations o r , i n t h e a l t e r n a t i v e , remand t o t h e Board f o r determination as t o whe- t h e r s e c t i o n 42-2.22(1)-S2200 of t h e Administrative Rules of Montana ( r e f e r r e d t o h e r e a f t e r a s A.R.M.) i s a r b i t r a r y , c a p r i - cious o r unlawful. The D i s t r i c t Court denied r e l i e f , affirm- i n g t h e Board determination. By s e p a r a t e order, t h e Court denied the Department's motion t o p r e s e n t a d d i t i o n a l evidence under s e c t i o n s 15-2-303(4) and 2-4-703, MCA, on t h e ground t h e Department had an opportunity t o p r e s e n t such evidence a t the county and state appeal board hearings and declined to do so as a "deliberate tactical decision." Both orders were appealed. The uncontested central facts in the case include the following: The Department in its 1978 appraisal procedures used replacement cost less depreciation as the basis for deter- mining values of all real property improvements. In deter- mining the replacement cost itused statistics contained in two manuals adopted under A.R.M. Section 42-2.22(1)-S2200. The Montana Appraisal Manual was used for appraising residen- tail property improvements and the Marshall Swift Valuation Service Manual was used for appraising commercial property improvements. The statistics in the Montana Appraisal Manual reflected 1971 replacement costs, while those in the Marshall Swift Manual reflected 1976 replacement costs. At the county appeal board hearing several witnesses testified the 1971 replacement cost figures contained in the Montana Appraisal Manual were only 66 percent of the 1976 replacement cost figures contained in the Marshall Swift Manual. The Cascade County appraiser testified that impiementation of the regulation resulted generally in valuation of residential impro7aernents at 60 percent of market value and valuation of commercial improvements at 100 percent of market value. A preliminary issue is whether the Board has authority to review and determine the legal pro2riety of the ~epartment's appraisal methods. This gives us little pause. Article VIII, Section 7 of the 1972 Constitution calls for legislature pro- vision of ". . . independent appeal procedures for taxpayer grievances about appraisals . . ." Pursuant to that require- ment, section 15-2-201 (1) (c) MCA, was enacted to give the Board general authority to hear appeals from the ~epartment with regard t o property assessments, and s e c t i o n 15-7-102(5), MCA, gives t h e Board s p e c i f i c power t o determine appeals of a p p r a i s a l s . Certainly t h e power t o hear a p p r s i s a l appeals includes t h e power t o pass judgment on a p p r a i s a l methods, and we s o hold. The next question i s whether using d i f f e r e n t c o s t d a t a f o r appraising d i f f e r e n t types of property within t h e same s t a t u t o r y c l a s s i f i c a t i o n c o n s t i t u t e d unlawful discrmination and v i o l a t i o n of t h e requirement f o r uniformity i n t a x a t i o n . W e s t a r t with t h e f a c t u a l premise t h a t such d i s p a r a t e c o s t d a t a w a s i n f a c t used i n assessment of respondent taxpayers' property improvements, as found by t h e Board and t h e D i s t r i c t Court. The l e g a l premise i s t h a t both r e s i d e n t i a l and com- mercial improvements t o r e a l property a r e i n t h e same l e g i s - l a t i v e c l a s s i f i c a t i o n . Section 15-6-134, MCA. The c o n s t i t u - t i o n a l and s t a t u t o r y requirements f o r e q u a l i z a t i o n o r uniformity within a l e g i s l a t i v e c l a s s i f i c a t i o n cannot be questioned. See A r t i c l e V I I I , Sections 3 and 7, 1972 Montana Constitution; sec- t i o n 15-7-103(1), MCA; s e c t i o n 15-9-101(1), MCA; Larson v. S t a t e and Dept. of Revenue (1975), 166 Mont. 449, 454-455, 534 P.2d 854, 857; S t a t e ex rel. Schultz-Lindsay Constr. Co. v. Board of Equalization (1965), 145 M m t . 380, 393, 403 P.2d 635, 641-642. F a i l u r e t o adhere t o t h e uniformity r u l e a l s o offends due process and equal p r o t e c t i o n p r i n c i p l e s . Larson, supra, 166 Mont. a t 455, 534 P.2d a t 857. Given t h e l e g a l and f a c t u a l premises noted, t h e method used by the Department in t h e s e cases would s e e m , on i t s f a c e , t o have v i o l a t e d uni- formity, equal p r o t e c t i o n and due process requirements. I£ d i f f e r e n t valuation s t a t i s t i c s a r e applied t o d i f f e r e n t p i e c e s of property i n t h e same l e g a l c l a s s i f i c a t i o n , an il- l e g a l d i s p a r i t y i n v a l u a t i o n i s l i k e l y t o r e s u l t . W e cannot, however, reach such a conclusion a s t o any p a r t i c u l a r prop- e r t i e s evaluated i n t h i s case because t h e r e i s inadequate evidence i n t h e record t o do so. N o evidence of comparable evaluations, a s between p a r t i c u l a r commercial and residen- t i a l improvements, under t h e Department's system, appears i n t h e record. The Department contends, however, t h a t even i f t h e valua- t i o n d i d n o t meet e q u a l i z a t i o n and due process/equal p r o t e c t i o n requirements, t h e assessments were p a r t of a " r o l l i n g " o r " c y c l i c a l " r e a p p r a i s a l system and were, t h e r e f o r e , an excep- t i o n t o t h e s e requirements. Such a system contemplates reap- p r a i s a l of a p o r t i o n of t h e property i n a p a r t i c u l a r c l a s s i f i - c a t i o n each year under a plan t h a t i s aimed a t uniformity w i t h i n t h e c l a s s i f i c a t i o n of t h e conclusion of a l l r e a p p r a i s a l . See discussion i n Ernest W. Hahn, Inc. v. County Assessor f o r B e r n a l i l l o County (1978), 92 N.M. 609, 592 P.2d 965, 969; Maricopa County v. North Central Development Co. (1977), 115 A r i z . 540, 566 P.2d 688, 691-692; P a t t e r s o n v. S t a t e and De- partment of Revenue (1976), 171 Mont. 168, 176, 557 P.2d 798; Larson, supra, 166 Mont. a t 455; Annot., 76 A.L.R.2d 1077 (1961). I n Larson, supra, w e recognized t h i s exception whzre t h e in- e q u a l i t i e s a r e temporary, b u t t h e r e is no evidence i n t h e record t h a t the Department ever intended, much less planned, t h a t t h e system be temporary, o r t h a t it w a s p a r t of an over- a l l plan t h a t would eventually r e s u l t i n e q u a l i z a t i o n . The D i s t r i c t Court found t h e r e was no r o l l i n g o r c y c l i c a l r e a p p r a i s a l system working t h a t would permit an exception t o t h e uniformity, equal protection,/due process requirements, and w e agree. Thus, t h e Board had t h e a u t h o r i t y t o a d j u s t and e q u a l i z e t h e s e a p p r a i s a l s and had determined they w e r e unequal. What should it have done? I t apparently followed a 1923 rul-ing of t h e United S t a t e s Supreme Court i n Sioux CityBridgeCompany v. Dakota County (1923), 260 U.S. 4 4 1 , 43 S.Ct. 190, 67 L.Ed. 340, and reduced t h e commercial improvement a p p r a i s a l s by 34 percent a c r o s s t h e board i n an attempt t o equalize them with r e s i d e n t i a l improvement a p p r a i s a l s . The key holding i n Sioux City Bridge, supra, was s t a t e d as follows: "This Court holds t h a t t h e r i g h t of t h e tax- payer whose property alone is taxed a t 100 per c e n t of i t s t r u e value i s t o have h i s assessment reduced t o t h e percentage of t h a t value a t which o t h e r s a r e taxed even though t h i s is a departure from t h e requirement of s t a t u t e . This conclusion i s based on t h e p r i n c i p l e t h a t where ----- it i s impossible t o se- cure both t h e standard of t h e t r u e value, and --- ---- t h e uniformity and e q u a l i t y required & law, -- - - t h e l a t t e r requirement - - - . i s t o be - p r e f e r r e d ~ - a s t h e j u s t and u l t i m a t e purpose of t h e l a w . " --- --- (Emphasis added.) Sioux City Bridge, 260 U.S. a t 446, 43 S.Ct. a t 192, 67 L.Ed. 343. This disposes of t h e Department's argument t h a t t h e a p p r a i s a l s could n o t be reduced, even though unequal, i f they r e s u l t e d i n an assessment a t t r u e market value, o r 100 percent of market value a s required by s e c t i o n 15-8-111(1), MCA. Reduction i s required where it i s s a t i s f a c t o r i l y shown t h a t under t h e system as applied it i s impossible t o meet both t h e t r u e value and e q u a l i t y standards. It could have been concluded, a s t h e Board and t h e D i s t r i c t Court concluded, t h a t a p p l i c a t i o n of t h e Department's system would work an i n e q u a l i t y of assessment and t h a t it would be impossible t o have both f u l l value assess- ment and e q u a l i t y under t h a t system. I f it were t o be so con- cluded, reduction would be required and t h e remaining ques- t i o n would be, how much? The evidence presented t o t h e county and s t a t e boards and t o t h e D i s t r i c t Court provides an inadequate b a s i s f o r any re- duction t h a t is n o t c o n j e c t u r a l o r speculative. The burden i s on t h e taxpayer t o remove t h i s determination from t h e realm of conjecture o r speculation. Skinner v. N. M. S t a t e Tax Comm. (1959), 66 N.M. 221, 345 P.2d 750, 752. I t i s not s u f f i c i e n t t o show t h e p o s s i b i l i t y o r even t h e p r o b a b i l i t y of an a p p r a i s a l of commercial improvements t h a t would be, generally, 34 percent o r 40 percent higher than a p p r a i s a l s of r e s i d e n t i a l improvements, a s was shown here. Workable c r i t e r i a f o r con- crete determination of discrepancy have been delineated by t h e Iowa Supreme Court: " I n order t o o b t a i n r e l i e f upon t h e ground t h a t h i s property is assessed inequitably, it i s e s s e n t i a l t h a t t h e taxpayer prove (1) t h a t t h e r e a r e s e v e r a l o t h e r p r o p e r t i e s within a reasonable a r e a s i m i l a r and comparable t o h i s ; (2) t h e amount of t h e assessments on t h e s e p r o p e r t i e s ; ( 3 ) t h e a c t u a l value of t h e com- parable p r o p e r t i e s ; ( 4 ) the a c t u a l value of h i s property; (5) t h e assessment complained o f ; (6) t h a t by a comparison h i s property i s assessed a t a higher proportion of i t s a c t u a l value than t h e r a t i o e x i s t i n g between t h e assessed and a c t u a l valuations of t h e s i m i l a r and comparable p r o p e r t i e s , thus c r e a t i n g d i s - criminations." Maxwell v. Shivers (1965), 257 Iowa 575, 133 N.W.2d 709, 711. W e would adopt these criteria a s a t l e a s t a s t a r t i n g place f o r a c t u a l comparison of t r u e value t o assessed value r a t i o s . They, and o t h e r reasonable criteria t h a t might be devised by t h e Department o r t h e Board, should set t h e standard f o r proof i n each case. See a l s o Bynu!n t . . Alto Independent School D i s t . (Tex. 1975), 521 S.W.2d 656, 660. Because no such c r i t e r i a w e r e followed, and because t h e r e was no comparison of a c t u a l t r u e and assessed value r a t i o s a s between t h e commercial i m - provements of t h e respondent taxpayers and r e s i d e n t i a l improve- ments of o t h e r taxpayers i n t h e county, t h e decision of t h e D i s t r i c t Court must be reversed and t h e S t a t e Tax Appeal Board's blanket reduction of 34 percent on commerical improve- ment a p p r a i s a l s must be set a s i d e . In reversing we do not, however, hold that the appraisals of the Department are confirmed. We only hold that the tax- payers have not introduced sufficient evidence to justify a finding that the appraisal method employed by the Department violates uniformity, equal protection and due process require- ments and to warrant a blanket 34 percent reduction of the assessments of commercial property. Therefore, the matter must be returned to the Board for its further consideration. On further consideration, the Board should hold a hear- ing at which evidence of the true and assessed values of com- mercial and residential property is introduced pursuant to the criteria adopted above. This will allow it to compare the actual difference in the true value to assessed value ratios between commercial and residential property resulting from the appraisal method adopted by the Department. The Board might find on such hearing that the Department's ap- praisal method is arbitrary, capricious or otherwise unlawful, but it may not amend or repeal the appraisal regulation. Sec- tion 15-2-301(4), MCA. It may, however, modify the appraisals by reducing the appraisals of commercial property to a ratio of true value to assessed value equal to the ratio applied to residential property. Section 15-2-301(4), MCA. If, upon a further hearing, the Board finds the Depart- ment's appraisal procedure arbitrary, capricious or unlawful and that a reduction in the appraisals of commercial property is justified, proof of an excessive appraisal must be made by each taxpayer who seeks relief. Bynum, supra, 521 S.W,2d at 660. Each taxpayer should follow the above criteria to estab- lish the amount of reduction the taxpayer is entitled to. This does not mean each taxpayer seeking relief must introduce evidence as to the value of all improvements to real property i n a county. The taxpayer must, however, introduce evidence of enough property located near t h e taxpayer's property and i n t h e same l e g i s l a t i v e c l a s s i f i c a t i o n s o t h e Board can e s t a b l i s h t h e proper t r u e value t o assessed value r a t i o f o r t h e property without speculation o r conjecture. Skinner, supra, 345 P.2d a t 752. Once the proper r a t i o has been e s t a b l i s h e d , t h e Board can determine t h e proper amount t o reduce an individual taxpayer's property by applying t h e r a t i o t o t h e property. Resolution of o t h e r i s s u e s r a i s e d on t h e appeal i s n o t e s s e n t i a l t o t h i s d e c i s i o n o r its implementation and they, t h e r e f o r e , a r e n o t considered here. The cause i s remanded t o t h e D i s t r i c t Court, which is d i r e c t e d t o r e t u r n it t o t h e S t a t e Tax Appeals Board f o r f u r t h e r proceedings i n accord with t h i s opinion. I \ - r / / a - ; \ - * '21 - Honorable ~ o r $ o n R. Bennett, D i s t r i c t Judge, s i t t i n g i n place of M r . J u s t i c e Harrison W e concur: 4 A Chief J u s t i c e QdW L. J u s t i c e s M r . J u s t i c e Gene B. Daly agrees with t h i s Opinion b u t i s unavailable t o sign.