No. 85-167 INTHE SUPREI4E COURT OF THE STATEOF MONTANA 1985

THE DEPARTMENT OF REVENUE OF THE STATE OF MONTANA, PetitionerandAppellant,

GROUSE MOUNTAIN DEVELOPMENTAND BRIAN T. GRATTAN, Respondents.

APPEAL FROM: District Court of the Eleventh Judicial District, Inand for the County of Flathead, TheHonorableH. GardnerBrownlee,Judgepresiding.

COUNSELOF RECORD:

ForAppellant: Larry G. Schuster;Dept. of Revenue,Helena,Montana For Respondent: Fisher & Erickson;Leif B. Erickson, Whitefish, Montana

Filed: Submitted on briefs: July 11, 1985 Decided: October 31, 1985



### --- . . .- -- ClerkMr. Justice John C. Sheehy delivered the Opinion of the Court.

The Department of Revenue appeals from the judgment of the District Court, Eleventh Judicial District, County of Flathead, reversing the decision of the State Tax Appeal Board. relating to the method of determining the taxable valuation of respondents' golf course. We affirm inpart and

reverse inpart. Grouse Mountain Development is a limited partnership which d.evelopeda golf course, residential subdivision and resort area near Whitefish, Montana. Brian Grattan was the partner largely responsible for the development project. During 1980, Grouse Mountain Development and Grattan commenced construction of a nine-hole golf course adjoining the residential subdivision. In order to secure financing for the project, Grouse Mountain Developmenthad to encumber all of the property, including the golf course, with a mortgage. Grattan could not develop the residential area unless he convinced the City of Whitefish to annex the area to the City so that the lots would be served by city water and sewage. The City passed ordinance A-333 which required the developer to grant a perpetual use of the golf course to thepublic as a condition to annexation. Grattan determined that he did not wish to operate or manage the golf course. Consequently, he entered into a ?5-year lease with the Whitefish Lake Golf Association whereby the Association would pay a nominal rent of one dollar per year and it would manage and operate the course. A clause in the lease required the Association to pay any ad valorem taxes levied against theqo1.fcourse.For tax year 1981, the Department of Revenue appraised the golf course land at $66,480 a.nd it appraised the golf course improvements at $225,000. Grattan, with the assistance of the Whitefish Lake Golf Association, appealed those appraised values to the Flathead County Tax Appeal Board. That Roard denied any relief and Grouse Mountain Development appealed to the StateTaxAppeal Board. After a lengthyhearing, the StateTaxAppeal Roard reduced thevalue of the land to $46,892 and it sustained the appraised value of the improvements at $225,000. Aggrieved by the decision of the State Tax Appeal Boa.rd, Grouse Mountain sought iudicial review in theDistrictCourt pursuant to S 15-2-303, MCA. TheDistrictCourt reversed the StateTax Appeal Board.. The District Court found that the State Tax Appeal Board acted arbitrarily, capriciously and abused its discretionby adopting a method of valuation which failed to consider the public use restriction placed on the golf course. The District Court further ordered the State TaxAppeal Board to accept respondentsmethod of valuation and to enter itsorder reducing the value of theproperty to an amount not in excess of $50,000. The only issue raised by the Department of Revenue on review is whether a District Court may reverse a State Tax Appeal Board valuation determination if there is substantial evidence in the record to support the State Tax Appeal Board's decision. The District Court as a reviewing courtmay reverse or modify the decisions of the StateTaxAppeal Board and.remand the case for furtherproceedings if substantial rightsof the appellant have been prejudiced because the administrative findings, inferences, conclusions, or decisions are clearlyerroneous in view of the reliable, probative and substantial evidence of the whole record or are arbitrary,capricious or characterized by an abuse of discretion. Section 2-4-704, MCA

# . This Court, however, has stated that it is not a judicial function to act as an authorityon taxation matters. Tax appeal boards are particularly suited for settling disputes over the appropriate valuation of a given piece of property, and the judiciary cannot properly interfere with that function. Northwest Land v. State Tax Appeal Board

(Mont. 1983), 661 P.2d 44, 47, 40 St.Rep. 470, 473;Larsonv. State (1975),166Mont. 449, 457, 534 P.2d 854, 858;Blair v. Potter (1957), 132 Mont. 176, 183, 315 P.2d 177, 180. Assessment formul-ationsare within the expertise of the State Tax Appeal Board and we will uphold their decisions unless there is a clear showing of an abuse of discretion. Northwest Land, 661P.2d at 47, 40 St.Rep. at 473. In the instantcase,the StateTaxAppeal Board rejected the appraisal of Roger D. Jacobson, respondents1 fee appraiser, who valued the land and improvements at $50,000. The methodology used by the appraiserwas primarily a market data approach based on comparable sales. He found four golf

courses that had sold in northwestern Montana in the years 1977 and 1978. Allocations were made for the value of such things as liquor licenses,clubhouses, motels, swimming pools and additional land available for subdivision. He also took into account the age of the courses and the time factor involved and arrived at a value of $20,000per hole. The appraiser then considered the effect of the public

use restriction on the value of the property. The appraiser found that this limitation on use greatly decreased itsvalue to a willing buyer. He then sought sales of land likewiserestricted in use to determine the effect of such use restriction on the value of land. The appraiser found that the use restrictionon the subjectproperty reduced itsvalue to 20 to 30%of itsvaluehad no restriction existed. The State Tax Appeal Board accepted the testimony of Mantz Hutchinson, appraisal supervisor for Flathead County. His methodology of appraisal was to consult the 1976 version of the Marshall-Swift Valuation Manual to determine replacementcost forvarious types of golf courses. Rased on the Marshall Manual, Hutchinson valued the golf course improvements at $25,000 per hole or $225,000 for the full nine holes. Hutchinsondid notmake any adjustment inval-ue for the public use restriction on thepropertywith regard to the land or improvement. The District Court found the State Tax Appeal Board abused its discretion in arriving at a value based on the appraisal of Hutchinson because his appraisalwas based on a cost of replacement approach which failed to take into account the effect on value of the public use restriction. Other courts have dealt with the effect of use restrictions on the value of golf course property. In Twin Lakes Golf and Country Clubv. King County (Wash. 1976)

## , 548 P.2d 538, an eighteen-hole golf coursewas built as part of the Twin Lakes Development. Before approving the project, the county required the developer to construct a golf course

on the realty and reserve it for common open space and golf

course area. The assessor in Twin Lakes used a cost of replacement approach in arriving at a value. The assessor, however, did not take into account the restrictionplaced on theproperty. In construingR.C.W. 84.40.030, theWashington state equivalent to S 15-8-111,MCA, the Washington SupremeCourt stated that the market value of realty is to be measured.by considering benefits to be garnered from the use of the property and the burdens placed upon it. Burdens are restrictions which may arise from zoning ordinances or other legal limitations on the use of land. Twin Lakes, 548 P.2d at 540. We hold that the public use restriction is a burden on the property that must be taken into consideration i.n determining the property's market value under S 15-8-111, MCA

# .Appellant contends that the State Tax Appeal Roard considered the public use restriction and cites the Court to the following language in the Board's decision in support of its contention:

The restrictionon use,as set forth in the City of Whitefish, Ordinance A-333 applies to the land involved. Under thisordinance the ownerhas given up an important right--the right to determine the use of the land. He has, however, retained two rights which are also of great importance, the right tomortgage and the rightof reversion. Section 15-7-1.03, states in part: 

# ..

# . (2) All lands shallbe classified.according to their use or uses 

# . . .. Although this section appears to relate to agricultural land, it is the opinion of the Roard. that land. use must be considered in settinga value,and since no otheruse can bemade of the subject land, it should be appraised at a value comparable to other golf courses in Flathead County. The two courses on which the Board.has information are appraised at $800 per acre and. $1,000 per acre. The Board 

### -- has no information as to whether or not use restrictions apply to the= 

### - --- courses. It heretofore appears reasonable70 this Board to assign the lower figure, $800 per acre to the land occupied by the golf course. (Emphasis added.. ) The above langua-ge,however, refers only to the Board's determination of the value of respondents' land and not the value of the improvements thereon. Thediscussionalsomakes it abundantly clear that the Roard chose not to take thepublic use restriction into consideration in its valuation methodology. Although we do not hold that the cost of replacement approach is an improper method in valuing this property,we do hold that the State Tax Appeal Board must use a method which properly takes the use restriction into consideration. For that reasonwe affirm thatportion of the District Court order which found that the StateTaxAppeal Board abused its discretion for failing to take into account the public use restriction on the golf course. The District Court also remanded this cause to the State Tax Appeal Board with directions to enter an order reducing the value of the property, including improvements, to an amount not in excess of $50,000. We cannot say as a matter of law that the administrative bodies, charged with setting the taxable valuations, were bound to accept either the taxpayer's theory or the taxpayer's figures for tax reductions. The District Court clearly overstepped its bounds when it usurped the function of the administrative bodies charged with the responsibility of finding the facts and arriving at the proper taxable valuation. Departmentof Revenuev. Paxson (Mont. 1983), 666P.2d 768, 769, 40 St.Rep. 1210, 1211. We reverse that part of the order which determined that the value of the property, including improvements, should not exceed $50,000. We affirm in part and reverse in part, with directions that the District Court remand this cause to the State Tax Appeal Board for further proceedings in accordance with this opinion.We Concur:

Chief Justice

Justices