HELENA – The Montana Supreme Court has unanimously reversed a district judge and upheld the legality of the state’s six-year reappraisal cycle for residential property, even when property values decline during the period.

By law, the state Revenue Department revalues residential property every six years. These values are multiplied by local and state mill levies to determine the property taxes owed on a parcel.

In a major 5-0 decision last week, the court overturned a decision by District Judge Holly Brown of Bozeman.

Brown had found in favor of Covenant Investments Inc., which owns property for a residential subdivision development in Gallatin County.

She had ruled that the state law providing for the six-year reappraisal cycle for residential property violated the company’s right to equal protection when the value of its property declined by several million dollars during the period from the initial reappraisal.

Brown had held that the department’s failure to conduct a midterm re-evaluation of property values during the six-year cycle resulted in disparate treatment for taxpayers. As a result, some taxpayers like Covenant paid a disproportionate share of taxes because of their overvalued property, she said, while others paid less than their fair share because of their undervalued property.

The Supreme Court disagreed in a decision that could affect similar court challenges by other taxpayers.

Writing for the court, Justice Brian Morris said, cited court precedent, saying, “The court recognized any cyclical valuation plan inevitably would create temporary disparities between individual property valuations.”

The Montana Constitution, he said, requires “only periodic attainment of equality in tax treatment.”

The justice, again citing precedent, said the equal protection clause does not require immediate general adjustments of property values, based on the latest market trends.

“The department treated Covenant like other similarly situated property owners when it assessed Covenant’s property value,” Morris wrote. “The fact that Covenant’s property may have declined in value during the six-year cycle, and that Covenant may pay taxes, for some portion of the remainder of the six-year cycle, on a valuation greater than 100 percent of its property value, does not violate Covenant’s right to equal protection.”

He also said the Montana Constitution prohibits courts from exercising legislative power.

Brown “effectively inserted a provision into the statute” to require the Revenue Department to conduct a mid-cycle reappraisal on Covenant’s property, Morris said. That amounted to an improper exercise of legislative power, he said.


Revenue Director Mike Kadas called the Supreme Court decision “positive.”

“It upholds what we’ve been doing,” he said. “It allows us the flexibility of continuing to utilize the six-year cycle. It certainly doesn’t prohibit us from moving to a shorter cycle, which we believe would be a positive change. Ultimately, that is a decision for the Legislature and governor.”

The department supported a bill at the 2013 Legislature to shorten the reappraisal cycle to two years, but it died in committee.

“We think, regardless of the litigation, a two-year cycle would be more timely, provide a higher level of accuracy and be less complicated to taxpayers,” Kadas said. “What we appreciate about the decision is it allows us to take on that other issue of the length of the cycle on our own terms and reserves that decision to the legislative process.”

About a half-dozen other lawsuits have been filed against the department, mostly from Gallatin and Flathead counties, raising legal arguments similar to Covenant’s, said C A Daw, the Revenue Department’s chief legal counsel.

The department is asking these attorneys in these cases whether they intend to drop those challenges after the Supreme Court decision, Daw said. If not, he said the department will seek dismissal of the cases.

Covenant’s attorney, Mike Green of Helena, was traveling and unavailable for comment Wednesday.

The Revenue Department valued Covenant’s property at $17.6 million in 2008, but the Gallatin County Tax Appeal Board reduced it to $13.7 million.

The State Tax Appeal Board further lowered the value by 35 percent, concurring with Covenant’s objections that the Revenue Department had added 35 percent to the value of the property based on the sale prices of the first four parcels sold. Testimony before the state board established that the parcels were sold to close friends and families of Covenant’s principals at artificially high prices to establish a higher market value for the subdivision.

Covenant also presented evidence from a private appraiser that the value of its property had declined from 2008 to 2010.

Chuck Johnson is chief of the Lee Newspapers State Bureau in Helena. He can be reached by email at: chuck.johnson@lee.net or by phone at (406) 447-4066 or (800) 525-4920.

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