Montana Revenue Department breaks down appraisal spikes; rising taxes a concern

Martin Kidston

(Missoula Current) The state's latest appraisal of home values across Montana and the potential tax implications brought several hundred people to Missoula on Wednesday afternoon to gain better insight on how the process plays out and why values have skyrocketed over the last two years.

Boil it down to the simplest terms and Montana Department or Revenue Director Brendan Beatty said his agency is doing what the Legislature has mandated, and it's playing by the rules set by elected state officials.

“My people don't get to use discretion in determining what they can and cannot do in arriving at what the Legislature tells them to do,” Beatty said. “Call the governor. Call your legislators.”

Deputy Division Administrator Robin Rude said the Department of Revenue is charged by the Legislature to both classify and value every parcel of property across the state every two years. As part of that process, the agency is also required by law to set the valuation of property at 100% of the market value.

She admitted the process can be frustrating and confusing, and it's just one aspect of how taxes are applied both by the state, schools and local jurisdictions.

“Your taxes are levied in proportion to your property value,” she said. “In Montana, the Revenue Department determines a property's assessed value. The Legislature then determines the tax rates and local governments determine the mill rates.”

To assess a property's value, the state applies a mass appraisal process that includes the sales price of comparable homes and other property characteristics.

Montana is a non-disclosure state, meaning sales prices aren't public information. But when a sales deed is recorded in the state, a Realty Transfer Certificate accompanies that deed and the information goes to the state.

“We build the models based off that sales database,” said Rude. “We arrive at the best three to five comparables for your property and then the market valuation.”

Other factors also come into play, such as property improvements and replacement costs.

“You may not have done anything to your property from 2021 to 2023, but because what the market did in 2020 and 2021, and what construction costs did in 2020 and 2021, we're all seeing that increase in our valuations. It's statewide. It's not just Missoula County,” she said.

A complicated process

Montana has 16 different tax classes such as residential, commercial and industrial, and each has its own individual tax rate set by the Legislature. Currently, according to Rude, the residential tax rate is 1.35% and commercial properties are 1.89%.

After the state has appraised all properties, it sends a total of the latest values to local cities and counties on the first Monday in August. That's when the city and county of Missoula will have a clearer picture of what revenue they have to work with and what their budgeting needs are for that fiscal year.

It's also when the city and county set their latest mill rates. Because the state has boosted the value of properties, and because state law caps local mill increases to half the rate of inflation plus the value of new construction, the city and county will be forced to “float down” their mills.

“It's a very complicated process,” said Rude. “City and counties have a mill cap. Because our valuations have gone up so much across the state, there will have to be a float-down in mill costs. We can't continue at that high of a mill rate.”

But while local jurisdictions are capped by state law on mill increases, the state is not. Missoula City Council President Gwen Jones posed the question to Beatty on Wednesday.

“Even though these mills are going to come in at a much higher value, the city and county will revise down their mills to accommodate state law,” Jones said. “But the state mills that are on our taxes are not being revised down. They're going to be at the full valuation. This has a huge impact on tax bills. That's not being mitigated in any way.”

Beatty said the so-called “state mills” go to universities, community colleges and the School Equalization Fund. He said the state doesn't “keep a dime.” He added that Jones was correct in that the state mills “don't float” the same way city and county mills do.

“Everything else being equal, the tax bill will go up because of those mills,” Beatty said. “The Legislature chose not to float those mills. It's one of the things we have to work through.

Taxation and representation

When it comes to taxation, those in the room on Wednesday expressed a wide range of opinions and concerns. But many agreed that the ever-rising value of homes and the tax implications that follow can't go on unchecked in perpetuity.

Many property owners don't care what their home is valued at. Rather, they just want to keep it.

“Why can't we get some kind of legislative action for grandfathering in people who live in their houses for X amount of time, so our taxes don't go up so much,” asked one man. “We're spending a lot of money on your assessment of how much our houses are worth when we plan on just digging a hole in the backyard and being buried there. I'd like to see the Legislature try in some way to keep taxes level.”

Others cast accusations at the state, saying it was money hungry. Others blamed the city and county of Missoula for steadily raising taxes year after year. Some also blamed the Legislature for not taking action during the 2023 session, even when the Montana Department of Revenue warned the Legislature and the governor that property values were set to see significant increases.

“The Legislature opted to give significant income-tax cuts to our wealthiest Montanans. It doesn't seem fair for the wealthiest people to get big income-tax cuts when folks are getting reamed over poles on their property taxes,” said one woman.

Several members of Missoula's legislative delegation attended Wednesday's event, including Sen. Shannon O'Brien and Rep. Mark Thane. Both sit on the interim revenue committee, where taxes and appraisal values are expected to be a hot topic this summer.

“These things will be on the report we'll be getting,” said O'Brien. “We are the people. We are it. Help us fix this problem – and it is a problem. I was one who requested a special session to fix this problem. If we do it together and put our heads together, we can fix it.”

Gov. Greg Gianforte hasn't yet agreed to call a special session on taxation. Beatty added that the process isn't perfect, but it's the process the state has given the Department of Revenue to work with.

“This is far from perfect, and top it off with this mass appraisal,” Beatty said. “We have to appraise every single piece of property in the fourth largest state in the country. You have to look at your appraisal. That's why we're here.”