NO. 93-193

IN THE SUPREME COURT OF THE STATE OF MONTANA

1993

THE MONTANA DEPARTMENT OF REVENUE,

Petitioner and Appellant,

v.

JOHN C. and RITA ANN SHEEHY,

Respondents and Respondents.

APPEAL FROM: District Court of the First Judicial District,

In and for the County of Lewis and Clark,

The Honorable Jeffrey Sherlock, Judge presiding.

COUNSEL OF RECORD:

For Appellant:

David W. Woodgerd, Chief Legal Counsel:

Lawrence G. Allen, Tax Counsel, Department

of Revenue, Helena, Montana

For Respondents:

John C. Sheehy, Pro Se, Helena, Montana

Filed:

Submitted: October 5, 1993

Decided: November 18, 1993
Justice William E. Hunt, Sr., delivered the opinion of the Court.

This is an appeal from an order of the First Judicial District

Court affirming the decision of the State Tax Appeal Board (STAB).

The STAB ruled that DOR's use of a stratified sales assessment

ratio study to determine a value multiplier, as applied to the

respondents' (Sheehys) home, caused the same disparity of treatment

of taxpayers within a specified area as that determined by this

Court in Department of Revenue v. Barron (1990), 245 Mont. 100, 799

P.2d 533.

We affirm.

Both parties raise several issues. However, we find the

following issue dispositive:

Is Senate Bill 412, Chapter 680, 1991 Mont. Session Laws

(S.B. 412) unconstitutional?

During the 1991 Session, the Legislature enacted S.B. 412 to

address the constitutional problems identified in Barron, 799 P.2d

533. Senate Bill 412 authorized DOR to use a specific stratified

sales ratio study to adjust property values in a given district

during an appraisal cycle. The DOR divided the State into 48

areas. In each area, DOR determines a ratio. The DOR established

a ratio by comparing the assessed value of various pieces of

property in the district to the actual sales price of each property

sold.

Sheehys live in Urban Helena Area 5.1, where they are joint

tenant owners of a home. In 1982, DOR appraised the property at a

value of $10,500 for the land and $66,007 for the improvements, for

2
a total of $76,507. In 1991, DOR increased those values to $10,920

for the land and $68,647 for the improvements, for a total of

$79,567.

In the area, there were 20,535 pieces of property. Prom

November 1989 to November 1990, 249 of those properties were sold.

The stratified sales assessment ratio study conducted in Area 5.1

found that 19.3 percent of the properties were within the 95 to 105

percent of their true market value: 65.1 percent were appraised

under 95 percent of their true market value; while 15.6 percent

were appraised in excess of 105 percent of their market value. A

ratio of 0.9138 was found for Urban Helena Area 5.1. The inverse

ratio is 1.09433 (1 divided by 0.9138). DOR subtracted 5 percent

from this inverse to bring it closer to 0.95, resulting in an

adjustment multiplier of 1.04 percent, or 4 percent. As a result,

DOR raised 1990 appraised value of all properties in Area 5.1 by

4 percent.

Prior to the application of the adjustment multiplier, of the

249 properties sold, 39 were considered over-appraised, 162

properties were considered under-appraised, and 48 fell between the

95 percent to 105 percent range. After the application of the

adjustment multiplier, 58 properties were considered as

over-appraised, 123 properties remained under-appraised, and 68

fell into the 95 percent to 105 percent range. Expanded to the

entire population of 20,535 parcels, this would mean that 49.4

percent or 10,144 parcels remain under-appraised.

3
Sheehys purchased the property in 1979 for $69,000. In 1990,

the DOR appraised value was 10.8 percent over the purchase price.

The revised 1991 appraised value and assessment would increase the

DOR appraised value to 15.3 percent over the 1979 purchase price.

Sheehys accept the 1990 DOR appraised value, which is the same as

the 1982 appraisal.

On June 12, 1991, Sheehys appealed their tax assessment to the

County Tax Appeal Board of Lewis and Clark County (CTAB). After a

hearing, CTAB denied the appeal. On July 24, 1991, Sheehys

appealed the CTAB decision to STAB. After conducting a hearing, on

June 5, 1992, STAB ruled in favor of Sheehys.

On August 4, 1992, DOR filed a petition for judicial review in

the First Judicial District Court. On February 2, 1993, the court

issued an order affirming STAB's decision based upon Barron. On

April 5, 1993, DOR appealed the District Court decision to this

Court.

In Barron, we held that the use of the 1990 tax values derived

from the ratio studies and the application of the 30 percent factor

to residential properties in Area 2.1 required certain taxpayers to

bear a disproportionate share of Montana's tax burden in violation

of the equal protection and due process clauses of the United

States and Montana Constitutions. Barron (1990), 799 P.2d at 542.

We also stated that it violated the appraisal provisions of our

statutes which require general and uniform appraisal, assessment,

and equalization of all taxable property in the State. Barron, 799

P.2d at 542. We held that the methodology employed by DOR for

4
yearly equalization between areas unfairly discriminates against

property taxpayers in Area 2.1 whose properties in 1989 where

appraised at or above market value. Barron, 799 P.2d at 540.

In response to Barron, the Legislature passed S.B. 412 in 1991

which provided reappraisal of areas with widely disparate

appraisals, such as existed in Area 2.1 in the Barron case. Senate

Bill 412 provided a right to appeal adjusted values. Finally,

S.B. 412 reduced the appraisal cycle from five to three years, with

no interim adjustments following the completion of the appraisal

cycle in 1993.

Even with these changes, S.B. 412 did not address the central

holding of Barron; that an across-the-board application of the 30

percent factor, without considering other factors relating to

market value, is unconstitutional. We said that the indiscriminate

use of an across-the-board 30 percent factor would "necessarily

exacerbate the values of those properties which are already

assessed at or near market value or in excess thereof." Barron,

799 P.2d at 540. DOE is employing the same methodology used in

Barron, but instead of applying a 30 percent factor, DOE is now

applying a four percent factor. The method may achieve

equalization between areas but not between individual properties

where inequities already exist. Barron, 799 P.2d at 540. The same

disparities exist here as those that occurred in Barron. The DOB

did not include in its study a representative sample relating to

age, condition, size, design, construction materials, location,

5
utilities, city or county services, or other factors that determine

market value.

The DOR contends that the appeal provision of S.B. 412 saves

the entire statute. As we stated in Barron, the non-appeal

provision of § 15-7-102(6), MCA, was not necessarily essential to

our decision. Barron, 799 P.2d at 541. We hold that S.B. 412 is

unconstitutional as it relates to the appeal process as a denial of

equal protection.

We affirm the decision of the District Court.

We concur:
IN THE SUPREME COURT OF THE STATE OF MONTANA

No. 93-193

THE MONTANA DEPARTMENT OF REVENUE,

Petitioner and Appellant,

;

v.

;

JOHN C. and RITA ANN SHEEHY,

;

Respondents and Respondents. )

ORDER

In this Court's opinion dated November 18, 1993, the second to

the last sentence on page six is amended to read as follows:

We hold that S.B. 412 is unconstitutional as it relates

to the appraisal process as a denial of equal protection.

DATED this 2q %& of November, 1993.

&‘

Chief Justic \
November 18, 1993

CERTIFICATE OF SERVICE

I hereby certify that the following order was sent by United States mail, prepaid, to the

following named:

David W. Woodgerd, Chief Legal Counsel

Lawrence G. Allen, Tax Counsel

Dept. of Revenue, P.O. Box 202701

Helena, MT 59620-2701

John C. Sheehy

825 N. Rodney St.

Helena, MT 59601

ED SMITH

CLERK OF THE SUPREME COURT

STATE OF MONTANA