The Montana State Capitol

A state tax exemption for certain tribal-owned lands has emerged from the Legislature unchanged.

Since 2011, the temporary tribal property tax exemption has covered tribal property under consideration for federal trust status, for a maximum of five years. It’s become a point of contention between the Lake County Commissioners and the Confederated Salish and Kootenai Tribes.

The tribes maintain that this policy prevents funds from being inefficiently transferred out of their coffers during the lengthy trust application process. But the commissioners have held that its impact has far exceeded expectations, and that it’s been poorly managed by the Montana Department of Revenue, at a cost to other local governments.

This debate flared up in Helena this session. With the Lake County Commissioners’ backing, House Speaker Greg Hertz, R-Polson, introduced a bill that would have repealed the exemption. At its first hearing, it drew support from county governments, but strong opposition from tribal officials and others.

That proposal got tabled, and Hertz soon brought forward a new one. Rather than repeal the exemption, it would have allowed county governments to appeal exemptions to the state tax appeal board; required the department to certify an exempt property’s application status; subjected property whose trust application was denied to a “recapture” of property taxes; and required the department to keep appraising exempt property to calculate that exemption.

That bill passed the House Taxation Committee in March on a straight party-line vote. But it hit headwinds at its Senate Taxation Committee hearing on April 10.

During that hearing, Hertz told the committee members that the blame lay with the federal government for taking years to process trust applications. “There is a big problem here,” he said. “It’s the Department of the Interior in the processing of these applications … it’s just more federal bureaucracy. It shouldn’t take that long.”

But Sen. Mike Phillips, D-Bozeman, questioned whether Hertz’s bill would punish tribes for federal delay.

“You just suggested this is all about [the Department of the Interior], or a big part of it, and yet the essence of your bill would penalize a petitioner" — the tribes seeking trust status — "for DoI’s tardiness. Have I got that logic right?”

“To a certain extent, yes,” Hertz acknowledged. “We were told in 2011 that there was very few properties that were going to be impacted by this and all of a sudden there’s hundreds of properties that are going to be impacted by this and counties and school districts are suffering from the lack of taxes.”

The Montana Department of Revenue estimated that in 2018, the exemption covered about $167,000 worth of property, the bulk of it in Lake County.

The next day, April 11, the Senate Committee voted 10-2 to table the bill, with only Sens. Mark Blasdel, R-Kalispell, and Roger Webb, R-Billings, voting not to table it. It was not revived before the end of the session.

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“Of course we were disappointed,” Commissioner Decker said Tuesday. “We knew that it was going to be a close call whether it was going to make it out of the committees.”

Hertz, too, voiced disappointment. "I think it was unfair for the taxpayers of Lake County and other reservations across the state."

This isn’t the end of the dispute. Lake County also has a lawsuit against the Department of Revenue, seeking an injunction keeping it from placing more properties under the exemption. It’s currently in discovery, said Lake County attorney Wally Congdon. Once that ends, he said the two sides will attempt to reach an administrative agreement resolving their dispute.

“The collection of prior year taxes on properties that timed out for us is pretty important, so that’s one of the things that we’re going to take a look at,” Decker said. “The other part of it is [that] it is so difficult to track these exemptions; it’s been very difficulty for the county to know how much property is being exempted and what the tax loss is.”

In an email, tribal spokesperson Rob McDonald wrote that "we have repeatedly said that we stand ready to engage in discussions with Lake County officials over their perceived problems."

"As neighbors, we remain hopeful of the possibility of improved cooperation and communication, with mutual respect for the needs and limitations of each government."

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