No. 13418 INTHE SUPREME COURT OF THE STATE OF MONTANA 1976

JOHN F. PATTERSON, JR.

## ,as Trustee of the Estate of John F. Patterson, etal., Plaintiffs and Respondents,

THE STATE OF MONTANA, DEPARTMENT OF REVENUE, and WILLIAM A.GBOFF, Acting Director Thereof, and DOUGLAS W. CAMPBET,T,, COUNTY ASSESSOR FOR MISSOULA COUNTY, Defendants and Appellants.

Appeal from: District Court of the Fourth Judicial District, Honorable Jack L. Green, Judge presiding. Counsel of Record: For Appellants: Randall Swanberg argued, Great Falls, Montana 

### ReBruce McGinnis, Helena, Montana For Respondents: Turnage and McNeil, Polson, Montana JeanA. Turnage argued, Polson, Montana Boone, Karlberg and Haddon, Missoula, Montana Sam Haddon argued, Missoula, Montana For b.micus Curiae: Cure, Borer and Lynch, Great Falls, Montana Orin Cure argued, Great Falls, Montana Thomas Clary argued, Great Falls, Montana Robert P. Goff argued, Great Falls, Montana Richard McCann, Billings, Montana

Submitted: September 8, 1976

Decided: 

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Filed:

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### Mr. Justice Frank 

### I. Haswell delivered the Opinion of the Court.

TheMontana Department of Revenue and two tax officials appeal from a judgment of the district court,Missoula County, holding the current statewide property appraisal program unconstitutional and illegal and permanently enjoining its implementation and use inMissoula County. The background of the present controversywill furnish

an overview of the situationon appeal and place the issues in perspective. Prior to the effective date of the newMontana Constitution on July 1, 1973, the process of appraisal,assessment and taxation of real property in Montana was largely in the hands of county officials subject to supervision, appeal and equalizationby the State Board of Equalization, Although property valuationswere by law subject to a continuous process of keeping valuations current, there was a considerable variation in performance among the 56 counties in Montana in keeping appraisalvaluations up-to-date. Some idea of this situation statewide canbe gleaned from these cases: Yellowstone Pipeline Co. v. StateBoard of Equalization, 138Mont. 603, 358 P.2d 55; StateBoard of Equalizationv. Vanderwood, 146Mont. 276, 405 P.2d 652. When the 1972Montana Constitution became effective, the State Department of Revenue assumed jurisdiction over the property taxation system inMontana pursuant to Art,VIII, Section 3, 1972Montana Constitution and implementing legislation. Between July 1, 1973 and July 1, 1975 the Department of Revenue

was engaged in information gathering, standardizing appraisal

### procedures,hiring and training appraisal staffs in the various counties,and similar activities as well as reappraising property. In early 1975 the Montana Legislature enacted a statute directing the Department of Revenue to administer and supervise



### a program for the revaluation of all taxableproperty in Montana at least every 5 years; to promulgate a comprehensive written plan of rotation fixing the order of revaluation in each county on the basis of the last revaluation of taxable property in each county prior to July 1, 1974 to adjust disparities between counties;and to provide that all property in each countybe revalued at least every 5 years or that 20% thereof be revalued each year. Section 1,Ch. 294, Laws of 1975, codified as section 84-429.14, R.C.M. 1947. The legislation also provided that the samemethod of appraisal and assessment be used in each county so that at the end of each cyclical revaluationprogram comparablepropertywith similar market values would have substantially equal taxable values. Section 2, Ch. 294, Laws of 1975, codified as section 84-429.15, R.C.M. 1947. InApril 1975, this Court held the Department of Revenue's implementationof a county-financed reappraisal of property in Lewis and Clark Countyby a private appraisal firmwas unconstitutional inviolation of equal protection, due process and uniformity requirements. Larsonv. State Department of Revenue, 166 

### Mont. 449, 534 P.2d 854. The thrust of Larsonwas that the StateDepartment of Revenue had no statewideplan of reappraisal and accordingly implementation of the county-financedplan resulted in an unconstitutionaland disproportionate tax burden

on Lewis and Clark County taxpayers as compared to taxpayers of other counties.

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### In early June 1975 the Department of Revenue distributed a document known as the "Montana Appraisal Plan" which is the focalpoint of this appeal. 

### It purported to be a general and uniform statewideplan for a 

### 5 year cyclical revaluation of all taxable property inMontana in compliancewith Ch. 294, Laws of 1975 and in conformity with our decision in Larson. Itwas noticed for hearing, a hearing was held, and the plan

as adopted as a rule of the Department of Revenue, purportedly pursuant to the provisions of the Montana Administrative Procedure Act, section 82-4201,et.seq., R.C.M. 1947. The instant casewas filed in the district court of Missoula County inApril 1975 by a number of individual taxpayers and a taxpayers' association fromMissoula County against the Department of Revenue, its director, and the Missoula County

assessor. Ingeneral, this action challenges the constitutionality and legality of the Montana Appraisal Plan, its implementing legislationand the property appraisal program inMissoula County. It seeksboth declaratoryand injunctive relief. At the time the complaintwas filed, the district court issued a temporary restraining order preventing the use of the reappraisals on the 1975 tax rolls. After hearing, an injunction pendente litewas issued to the

same end resulting in the use of 1974assessment rollvaluations for 1975 taxes. Approximately 20 

### similar actionswere filed in the district courts of otherMontana counties. Injunctive relief during the pendency of the actionswas granted in some cases and denied 

### in others preventing uniformity of application of the "Montana Appraisal Plan" and its revaluations on a statewide basis. Faced with thisthe Governor of Montana directed the Department of Revenue to

use the same appraisals inthe tax year 1975 aswere used in the 1974 tax year. Trial of the instant case was commenced on January 26, 1976, in the district court of Missoula County before the Hon. Jack L. Green, districtjudge, sittingwithout a jury. On May 20, 1976, the district court entered findings of fact, conclusions of law, and judgment. The gist of thejudgment was that theMontana Appraisal Plan was never legally adopted and isvoid; that the appraisal program carried on by the Department of Revenue in Missoula County violated the taxpayers' rights touniformity of taxation and denied them due process and equal protection of the laws under theMontana and United States Constitutions; and permanently enjoined the use of the reappraisals and implementation of the reappraisal program inMissoula County. The district courts of Flathead and Cascade Counties in similar suitshave held theMontana Appraisal Plan and the revaluation program of the Department of Revenue thereunder constitutional. The Department of Revenue has appealed from thejudgment of the Missoula County district court inthe instant case. Various taxpayers and taxpayer groups have appeared as amicus curiaeby brief and oralargument inthis appeal. The underlying issues on appea1,as we understand them, can be summarized in thismanner: 1) Is theMontana Appraisal Plan and its implementing legislation constitutional? 2) Was the Montana Appraisal Plan legally adopted? 

### 3) Is the Department of Revenue proceeding legally and constitutionallyunder theMontana Appraisal Plan?

### Directing our attention to the first issue,we note that the basic attack of respondent taxpayers on the constitutionality of the Montana Appraisal Plan and its implementing legislation is that it does not provide a general and uniform statewide plan of revaluation of all taxable property in the state,but

on the contrary is simply 

### 56 separate county plans, each of which is different from the others, resulting in an unreasonable, discriminatory and disproportionate taxburden upon the taxpayers of Missoula County and the state ofMontana. The taxpayers also contend there is no provision for the appraisal of timberlands in the pbnwhich are required to be appraised at fullvalue. Additionally, they claim the property classifications in the Plan fail to treat all taxable properties of similar nature and-usethe same. As a result, the taxpayers assert that the plan and its implementing legislationdo not conform to the legal requirement of uniformity of taxation and violate the due process and equal protection clauses of the Montana Constitution (Art. 11,Sections 

### 4and 17, 1972Montana Constitution) and the Fifth and Fourteenth Amendments to the United States Constitution. Initially,we note the provisions ofArt. VIII, Section 

### 3, 1972Montana Constitution: "The state shall appraise, assess, and equalize the valuation of all property which is to be taxed in the manner provided by law." Themanner of appraisal of property for tax purposes is set out in section 84-429.12, R.C.M. 1947: "It is hereby made the duty of the state department of revenue to implement the provisions of this act by providing""2. For a general and uniform method of appraising cityand town lots. "3. For a general and uniform method of appraising rural and urban improvements. "4. For a general and uniform method of appraising timberlands

# ." Prior to 1975Montana statutes required that alltaxable property (other than agricultural lands) be assessed atfull cash value. Section 84-401, R.C.M. 1947. The 1975 legislature amended this statute toprovide for assessment of allproperty for taxpurposes (other than agricultural lands) at40%of full cash value. The 1975 legislaturealsoenacted section 84-429.14, R. 

### C.M. 1947, providing: "The department of revenue shalladminister and supervise a program for the revaluation of alltaxable property within the stateof Montana at least every five (5) years. A comprehensive written plan of rotation shallbe promulgated by the department of revenue fixing the order of revaluation of property ineach county on thebasis of the lastrevaluation of taxable property ineach county prior toJuly 1, 1974, inorder to adjust the disparities thereinbetween the counties. The plan of rotation so adopted shallprovide that allproperty ineach county shallbe revalued atleast every five (5) years or thatno less than twenty per cent (20%)of the property ineach county shallbe revalued ineach year. The department of revenue shall furnish a copy of the plan and allamendments thereto to each county assessor and theboard of county commissioners ineach county." The 1975 legislature inthe same billenacted section 84-429.15, providing: 

### he same method of appraisal and assessment shall be used ineach county of the stateto the end that comparable property with similar truemarket values and subject to taxation inMontana shallhave substantially equal taxablevalues atthe end of each cyclical revaluation program hereinbefore provided."

### According to the Department of Revenue, the Montana Appraisal Plan was promulgated pursuant to sections 84-429.14 and 84-429.15 and in compliance to our decision in Larson. In general the Elan classifiesproperty for tax purposes in eleven categories and provides a schedule for reappraisal of such and property in each countyby year,percentage amount,/classification in each year of the 

### 5year cycle so that at the end of the cycle all property in the entire statewillhave been reappraised. The Planprovides a separate schedule and rotation of reappraisal in each countywith property most remotely appraised timewise deemed themost deviant from current value and scheduled for reappraisal first. ThePlanprovides that all property is to be appraisedby a uniformmethod based on a designated appraisalmanual. We hold that the Montana Appraisal Plan and its implementing legislation is constitutional. Initiallywe recognize that violation of statutory uniformity requirements generally results inviolation of constitutional equal protection and due process requirements. Larsonv. State Department of Revenue, supra. However,we findno violation of statutory uniformity requirements in the plan. All like property is appraisedby a uniform standard under the Plan according to uniformvaluation procedures set forth in the same designated appraisalmanual. The appraisal rotation is fixed by a uniform rule requiring the property that has gone longest since appraisal and is deemed to be most deviant from current values to be appraised first. All property in the state is required to be appraised by the end of the 

### 5year cycle.Respondent taxpayers apparently contend that the Plan isnot general and uniform because it consists of 56 separate county plans, each different from any other, rather than one homogeneous statewide plan. They point out ineach county there is a different reappraisal schedule, different classifications of property indifferent amounts are reappraised in each year of the 5year cycle in each county, and the sequence of reappraisal varies from county to county. However, they overlook the fact that each county presents a different situationwith respect to recency of the last appraisal, the type of property that has gone the longest since appraisal, and the amount and classification of the property most deviant from current values. Where,

as here, a uniform rule is provided for statewide application to determine the reappraisal rotation, the type and amount of property tobe reappraised ineach year in each county there isno violation of uniformity requirements. It must be recognized that in any cyclical revaluation plan temporary disparitieswithin the cycle between individual property valuations both within the county and between counties

are inevitable. Nonetheless such cyclical plans have been uniformly upheld against uniformity and equal protection attacks under stateand federal constitutional provisions in the absence of intentional, systematic, arbitrary or fraudulent discrimination. Recanzone v. Nevada Tax Commission (1976), Nev. 

# - -9 550 P.2d 401 and cases cited therein; Anno. 76 ALR2d 1077. A major contention of the taxpayers focuses on the fact that those properties reappraised in the firstyear of the 5 year cycle and placed on the tax rolls then willpay a higher and disproportionate share of taxes in comparison to those properties reappraised in the last year of the cycle. This isundoubtedly

### true in any cyclical reappraisalplan. However, as long as a taxpayer's property is not overvalued in the reappraisal process, he cannot secure aduction 

### in his own appraisal on the ground that another taxpayer's property isunderappraised. Theplacing of revaluations on the tax rolls annually and sequentially as the reappraisals are completed is generally held not to offend constitutional equal protection and uniformity requirements in the absence of intentional and systematic discrimination,constructive fraud, or arbitrary action. Hillock v. Bade (1974), 22Ariz.App. 46, 523 P.2d 97;Morrison v. Rutherford (1973), 83Wash. App. 153, 516 P.2d 1036;Carkonenv. Williams (1969), 76 Wash.2d 617, 458 P.2d 280; Skinnerv. .New Mexico State Tax Commission (1959), 66N.M. 221, 345 P.2d 750; Rogan v. County Commissioners of Calvert Cdunty (1950), 194Md. 299, 71A.2d 47. Respondent taxpayers also assert that the Plan is defective because it contains no provision for the appraisal of timberlands. The short answer to this is that the Plan in fact contains provisions for reappraisal of "timber" and the Montana Administrative Code contains detailed appraisalprocedures for timberlands according to use, accessibility, and other factors. MAC 42-2.22(1) 

# - 52230 et seq. Further objection is made that timberlands are not assessed at full cash value, i.e. that timberlands are underassessed. Timberlands are assessed differently, it is true,with the land itself given a value as grazing land and the growing timber valued according to accessibility, logging costs, lumber prices and other factors. We findnothing constitutionally objectionable in this method of assessment. The evidence here falls far short of establishing

an intentionaland systematic discrimination, constructive fraud,

or arbitrary action in the appraisal methods and procedures for valuing timberlands. 

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# -Finally, respondent taxpayers contend the property classifications in the Plan do not treat alltaxable properties of similar nature and use the same. This is simply a part and parcel of their previous argument that theplan isnot a general and uniform statewide plan inwhich properties of a similar nature and use arenot treated the same. Theplan contains various property classificationswhich are defined in thePlan and which are tobe applied on a statewidebasis. A uniform rule is applied statewidewhich satisfiesuniformity and equal protection requirements and temporary inequalities within the cyclical period do not render the Plan unconstitutional for the

reasons and under the authorities previously set forth. The second issue on appeal iswhether theMontana Appraisal Plan was legally adopted. The district court held it was not. We agree. The district court entered two findings of fact on this issue: "17. On or about June 6, 1975, DOR [Department of Revenue] promulgated and distributed a document called the 'Montana Appraisal Plan'. The 'Montana Appraisal Plan' was promulgated under legislation enacted by the Montana Legislature in 1975having an effective date of July 1, 1975. Notice of publication of a hearing on the plan to be held on July 16, 1975, was certified to the Secretary of Stateon June 13, 1975, and firstpublished in the Montana Administrative Register on June 25, 1975. The public hearing was held on July 16, 1975. Oral and written protests to the form and substance of the proposed 'Montana Appraisal Plan' were submitted atthe hearing. A specific request for a written statement'of the principal reasons for and against' the plan's adoption 

## 'incorporating therein its.reasons for overruling the considerations urged against' adoption of the plan was made under R.C.M. 1947, Section 82-4204. "18. On August 14, 1975, DOR gave notice of its intention to adopt the plan as an administrative rule of the DOR inthe form originally proposed. Notice of adoption of the plan was published inthe MontanaAdministrative Register on August 25, 1975. None of the persons appearing and protesting the adoption of the plan were given a written statement for the rejectionby DOR of itsreasons for overruling the considerations urged for rejection of the plan. The only effort made by the DOR for compliance with R.C.M. 1947, Section 82-4204, was a letter dated September 15, 1975, from W. A. Groff, Director of Revenue, to the Administrative Code Cdmmittee inHelena. This letter fails to comply with the requirements of R.C.M. 1947, Section 82-4204." On the basis of the findings of fact, the district court entered its Conclusion of Law No. 3: 3 The 'Montana Appraisal Plan' has not been adopted according to law and under the terms of the Administrative Procedure Act, R.C.M. 1947, Sections 82-4201, etseq., and 

### iswithout legal force and effect as a valid rule of the Department of Revenue. " This same conclusion of law was entered as paragraph number 3 in thejudgment of the district court. The Montana Appraisal Plan was specifically promulgated pursuant to an act of the legislature. The statement of intent contained inthe plan provides: "The Montana Appraisal Plan is promulgated by the Department of Revenue incompliance with Chapter 294, Laws of 1975. 'AN ACT TO PROVIDE A CYCLICAL PROGRAM FOR THE REVALUATION OF TAXABLE PROPERTY 

# . Once this legislationbecame effective the Department of Revenue was required toproceed under theMontana Administrative Procedure Act, section 82-4201, et seq, Under that act itwas required to adopt theMontana Appraisal Plan as a rule of the Department of Revenue. Section 82-4202(2) of the Administrative Procedure Act defines the rules that must be adopted by stateagencies in this language: "(2)'~ule' means each agency regulation, standard or statement of general applicability that implements, interprets, or prescribes law orpolicy or 

# - describes the organization, procedures, orpractice requirements of an agency. 

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# *." (Emphasis added).

### Under the Administrative ProcedureAct prior to the adoption of any such rule, the agency is required to give notice of its intended action,publish the notice in the Montana Administrative Register,give notice by mail to interested persons,hold a public hearing, consider fullywritten and oral submissions respecting such proposed rule, and upon adoption of the rule to issue "a concise statement of the principal reasons for or against its adoption, incorporating therein its reasons for overruling the considerations urged against its adoption" to any interested person upon request. Section 82-4204(1) (a) and (b)

# . Thereafter the agency must refer the proposed rule to the administrative code cormnittee of the legislature. Section 82-4204 (1) (c)

# . The purpose of the public hearing is to provide taxpayer imput to the proposedPlan; to require the Department of Revenue to fully consider the objections to thePlan,alternative proposals, and amendments;and to state to the interested taxpayers the Department's reasons for rejecting the considerations urged by the taxpayers. Thevice of the situationhere is that these objectives became subordinated to bureaucratic justification of theBlan. Here, the taxpayers voiced many objections to the equities and fairness of the Plan as distinguished from its legality and constitutionality. For example, it was pointed out that by adopting a 

### 3year cycle rather than a 

### 5 year cycle the inherent inequities of the Planwould be reduced; that continuation of the same order of reappraisal in each succeeding cycle perpetuates the inequities imposed upon those taxpayers whose property was first reappraised in the initial cycle; that-thelength of thecycleprecludes those taxpayers whose propertywas first reappraised from the benefits of reduced millage that might later flow from a substantial increase in total property valuations in the county; that because of certain fixed and mandatory statewide milllevies, the burden on those taxpayers whose property was firstreappraised would be increased; that the plan is retroactive inoperation because itwas implemented prior to 

### its adoption; that 

### the Plan is so ambiguous and incomplete indesignated respects that a taxpayer of common understanding cannot tellwhether the -Plan isbeing followed

or the law isbeing adhered to; that the higher reappraisals and increased valuations under the Plan should be delayed until the legislature can adjust themilllevies; and many others. There isno evidence that these taxpayer objections, alteratives and considerationswere fully considered by the Department of Revenue prior to adoption of thePlan as required by section 82-4204(1)(b). Indications are tothe contrary. The evidence shows the Plan was put in operation before compliance with the Administrative Procedure Act. The evidence shows the director of the Department characterized the taxpayer objections (with the exception of placing the revaluations on the tax rolls annually as appraised) as "of a negative nature directed atproperty tax in general and not relevant tothe plan." The evidence shows that the#Planas initiallyproposed by the agency

was adopted in totowithout amendment, alterationormodification. Wehold therefore that theMontana Appraisal Plan was

never legally adopted as required by theMontana Administrative Procedure Act and isvoid and without legal force and effect

as a rule of the Department of Revenue. Accordingly, revaluations

### of property made thereunder cannot be placed on the tax rolls

as 

### a basis for taxation. Our ruling on the second issue renders consideration of the third issue unnecessary. The judgment of the district court of Missoula County is modified in conformitywith this opinion and as somodified is affirmed.

Justice 

# / 'Chief Justice