### 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 TAXAPPEAL 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: 

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## ]9& Filed: 

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# f$?Honorable Gordon R. Bennett, DistrictJudge, delivered the Opinion of the Court. This 

### is an appeal by the Department of Revenue from 

### a decision of the DistrictCourt of the Eighth Judicial District, inand for Cascade County, affirming a decision of the State Tax Appeal Board provided for 

### a blanket 34 percent reduction inthe Department's appraisal of the improvements on certain parcels of commercial real property inCascade County. The Board 

### isjoined by thirty-eight taxpayers asrespondents. Briefs amicae have been received from taxpayers of several other counties. The decision of the DistrictCourt 

### isreversed. Respondent taxpayers applied to the Cascade County Tax Appeal Board forreduction of the valuation of their cornrnercia1property improvements pursuant to section 15-15-102, MCA, after appraisal by the county assessor for the Department of Revenue. After hearing, the county tax appeal board denied relief and appeal 

### was taken tothe StateTax Appeal Board (hereinafter referred to as "the Board") under section 15-2- 301, MCA. The Board overruled the county appeal board and ordered the Department toreduce allof the contested valuations by 34 percent. The Department petitioned forjudicial review under section 15-2-303, MCA, seeking reversal of the Board decision and reinstatement of 

### itsvaluations or, inthe alternative, remand to the Board for determination 

### as towhether section 42-2.22(1)-S2200 of the Administrative Rules of Montana (referredto hereafter asA.R.M.) 

### is arbitrary, capricious or unlawful. The District Court denied relief, affirming the Board determination. By separate order, the Court denied the Department's motion topresent additional evidence under sections 15-2-303(4) and 2-4-703, MCA, on the ground the Department had an opportunity topresent such evidence at

### 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 determining values of all real property improvements. Indetermining the replacement cost itusedstatistics contained in two manuals adopted under A.R.M. Section 42-2.22(1)-S2200. The Montana Appraisal Manual was used for appraising residentail 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 SwiftManual reflected 1976 replacement costs. At the county appeal board hearing several witnesses testified the 1971 replacementcost figures contained in the Montana Appraisal Manual were only 66 percent of the 1976 replacement cost figures contained in the Marshall SwiftManual. The Cascade County appraiser testified that impiementation of the regulation resulted generally in valuation of residential impro7aernents at 60percent of market value and valuation of commercial improvements at 100percent of market value. A preliminary issue iswhether the Board has authority to reviewand determine the legal pro2riety of the ~epartment's appraisalmethods. This gives us little pause. ArticleVIII, Section 7 of the 1972Constitution calls for legislatureprovision of

# ".

. . independentappeal procedures for taxpayer grievances about appraisals 

# . . ." Pursuant to that requirement, section 15-2-201(1)(c) MCA, was enacted to give the Board general authority to hear appeals from the ~epartmentwith regard toproperty assessments, and section 15-7-102(5), MCA, gives the Board specific power to determine appeals of appraisals. Certainly the power to hear apprsisal appeals includes thepower topass judgment on appraisalmethods, and

we so hold. The next question 

### iswhether using differentcost data for appraising differenttypes of property within the 

### same statutory classification constituted unlawful discrmination and violation of the requirement for uniformity in taxation. We startwith the factual premise that such disparate cost data

### was infactused inassessment of respondent taxpayers' property improvements, as found by the Board and the District Court. The legal premise 

### is thatboth residential and commercial improvements toreal property areinthe same legislative classification. Section 15-6-134, MCA. The constitutional and statutoryrequirements for equalization or uniformity within a legislativeclassification cannot be questioned. See ArticleVIII, Sections 3 and 7, 1972Montana Constitution; 

### section 15-7-103(1), MCA; section 15-9-101(1), MCA; Larson v. Stateand Dept. of Revenue (1975), 166Mont. 449, 454-455, 534 P.2d 854, 857; State ex 

### rel. Schultz-Lindsay Constr. Co. v. Board of Equalization (1965), 145Mmt. 380, 393, 403 P.2d 635, 641-642. Failure toadhere to the uniformity rule also offends due process and equal protection principles. Larson, supra, 166 Mont. at455, 534 P.2d at857. Given the legal and factual premises noted, the method used by the Department inthese cases would seem, on its face, tohave violated uniformity, equal protection and due process requirements. I£ differentvaluation statisticsareapplied to different pieces of property inthe same legal classification, an illegal disparity invaluation 

### is likely toresult. We cannot,however, reach such 

### a conclusion asto any particular propertiesevaluated inthis case because there 

### is inadequate evidence inthe record todo so. No evidence of comparable evaluations, asbetween particular commercial and residen

### tial improvements, under the Department's system, appears in the record. The Department contends, however, that even if the valuation did not meet equalization and due process/equal protection requirements, the assessments were part of a "rolling" or "cyclical" reappraisal system and 

### were, therefore, an exception to these requirements. Such a system contemplates reappraisal of 

### a portion of the property in

### a particular classification each year under 

### a plan that 

### is aimed atuniformity within the classification of the conclusion of allreappraisal. See discussion inErnest W. Hahn, Inc. 

### v. County Assessor for Bernalillo County (1978), 92 N.M. 609, 592 P.2d 965, 969; Maricopa County v. North Central Development Co. (1977), 115 Ariz. 540, 566 P.2d 688, 691-692; Patterson v. Stateand Department of Revenue (1976), 171Mont. 168, 176, 557 P.2d 798; Larson, supra, 166 Mont. at455; Annot., 76 A.L.R.2d 1077 (1961). In Larson, supra, 

### we recognized this exceptionwhzre the inequalities are temporary, but there 

### is no evidence inthe record that the Department ever intended, much 

### less planned, that the system be temporary, or that 

### it

### waspart of an overallplan thatwould eventually result inequalization. The DistrictCourt found there was no rolling or cyclical reappraisal system working thatwould permit an exception to the uniformity, equal protection,/due process requirements, and 

### we agree. Thus, the Board had the authority toadjust and equalize these appraisals and had determined they

### wereunequal. What should it have done? It apparently followed 

### a 1923 rul-ing ofthe United States Supreme Court inSioux CityBridgeCompany v. Dakota County (1923), 260 U.S. 

### 441, 43 S.Ct. 190, 67 L.Ed. 340, and reduced the commercial improvement appraisals by 34 percent across the board inan attempt to equalize them with residential improvement appraisals. The key holding inSioux City Bridge, supra, was stated



### as follows: "This Court holds that the right of the taxpayer whose property alone 

### is taxed 

### at 100 per cent of 

### its true value 

### is tohave his assessment reduced to the percentage of that value atwhich others aretaxed even though this 

### is a departure from the requirement of statute. This conclusion 

### isbased on the principle thatwhere 

### ----- it 

### is impossible to se- cure both the standard of the true value, 

# and --- ---- the uniformity and equality required 

## & law, 

### -- - - the latter requirement ---. 

### is tobe -preferred

~ 

### - as the just and ultimate purpose of the 

### law." 

### --- --- (Emphasis added.) Sioux City Bridge, 260 U.S. at446, 43 S.Ct. 

### at 192, 67 L.Ed. 343. This disposes of the Department's argument thatthe appraisals could not be reduced, even though unequal, if they resulted in an assessment attruemarket value, or 100percent of market value asrequired by section 15-8-111(1), MCA. Reduction 

### is required where it 

### is satisfactorily shown thatunder the system



### as applied 

### it 

### is impossible tomeet both the true value and equality standards. It could have been concluded, asthe Board and the DistrictCourt concluded, that application of the Department's system would work an inequality of assessment and that 

### it would be impossible tohave both fullvalue assessment and equality under that system. If 

### it were to be so concluded, reduction would be required and the remaining questionwould be, how much? The evidence presented to the county and stateboards and to the District Court provides an inadequate basis for any 

### reduction that 

### isnot conjectural or speculative. The burden

### is on the taxpayer toremove this determination from the 

### realm of conjecture or speculation. Skinner v. N. M. State Tax Comm. (1959), 66 N.M. 221, 345 P.2d 750, 752. It 

### is not sufficient to show the possibility or even the probability of

an appraisal of commercial improvements thatwould be, generally, 34 percent or 40 percent higher than appraisals of residential improvements, aswas shown here. Workable criteria for con

### crete determination of discrepancy have been delineated by the Iowa Supreme Court: "Inorder toobtain relief upon the ground thathisproperty is assessed inequitably, 

### it 

### isessential that the taxpayer prove (1)that there are several other properties within 

### a reasonable area 

### similar and comparable tohis; (2) the amount of the assessments on these properties; (3) the actual value of the comparable properties; (4) the actual value of his property; (5) the assessment complained of; (6) thatby a comparison his property is assessed ata higher proportion of 

### its actual value than the ratioexistingbetween the assessed and actual valuations of the 

### similar and comparable properties, thus creating discriminations." Maxwell v. Shivers (1965), 257 Iowa 575, 133N.W.2d 709, 711. Wewould adopt these 

### criteria as atleast

### a startingplace for actual comparison of true value toassessed value ratios. They, and other reasonable 

### criteria thatmight be devised by the Department or the Board, should 

### set the standard forproof in each case. See alsoBynu!n t.. Alto Independent School Dist. (Tex. 1975), 521 S.W.2d 656, 660. Because no such criteria



### were followed, and because there was no comparison of actual true and assessed value ratios asbetween the commercial 

### improvements of the respondent taxpayers and residential improvements of other taxpayers inthe county, the decision of the DistrictCourt must be reversed and the StateTax Appeal Board's blanket reduction of 34 percent on commerical improvement appraisalsmust be 

### set aside.

### In reversing we do not, however, hold that the appraisals of the Department are confirmed. We only hold that the taxpayers have not introduced sufficient evidence to justify a finding that the appraisalmethod employed by the Department violates uniformity, equal protection and due process requirements 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 hearing atwhich evidence of the true and assessed values of commercial 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 appraisalmethod adopted by the Department. The Board might find on such hearing that the Department's appraisal method is arbitrary, capricious or otherwise unlawful, but itmay not amend or repeal the appraisal regulation. Section 15-2-301(4), MCA. 

### Itmay, 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 Department's appraisal procedure arbitrary, capricious or unlawful and that a reduction in the appraisals of commercialproperty 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 establish the amount of reduction the taxpayer is entitled to. This does notmean each taxpayer seeking relief must introduce evidence as to the value of all improvements to real propertyina county. The taxpayer must, however, introduce evidence of enough property located near the taxpayer's property and inthe same legislativeclassification so the Board can establish the proper true value to assessed value ratio for the property without speculation or conjecture. Skinner, supra, 345 P.2d at752. Once the proper ratiohas been established, the Board can determine the proper amount to reduce an individual taxpayer's property by applying the ratio to theproperty. Resolution of other issuesraised on the appeal is not essential to thisdecision or 

### its implementation and they, therefore, arenot considered here. The cause isremanded to the District Court, which 

### isdirected toreturn 

### it to the StateTax Appeals Board for further proceedings inaccord with thisopinion.

I \ -r //a- ; 

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# '21 - Honorable ~or$on R. Bennett, DistrictJudge, sitting inplace of Mr. Justice Harrison

Weconcur: 

## 4A Chief Justice



# QdW 

# L. Justices

Mr. Justice Gene B. Daly agrees with this Opinion but is unavailable to sign.