POLSON — For seven years, a scattering of tribally owned lands around Montana have enjoyed a state tax break. That could end if Lake County gets its way.
The County Commissioners have launched two separate campaigns against the Temporary Tribal Property Tax Exemption. They hold that its impact was undersold to the legislators who created it, and that it’s since been mismanaged by the Montana Department of Revenue — all at a cost to county taxpayers.
In recent weeks, they’ve called on state lawmakers to repeal the statute, and sought an injunction to keep the department from placing more Lake County properties under the exemption.
“I think there’s some serious flaws in the process and we’re just hoping that a judge will take an impartial look at it and agree with us,” Lake County Commissioner Gale Decker said of the injunction. “It hasn’t been implemented the way the statute required it to be implemented.”
They’re challenging a young policy that supports a much older one. When state lawmakers created this tax exemption in 2011, they aimed to ease Montana tribes’ placement of land into trust held by the federal government.
Tribes have held this right since 1934, when Congress sought to rectify decades of land appropriation and allotment by passing the Indian Reorganization Act.
The trust land process it created is long. Earlier this year, Darryl LaCounte, acting director of the Bureau of Indian Affairs’ Office of Trust Services, told the Senate Committee on Indian Affairs that “the quickest I have ever seen one [application] done was six months.”
But when it’s complete, “the benefits to tribes are many,” according to Indian Affairs' website, which says holding land in trust can vastly expand tribes’ options for housing, energy and natural resource development, agriculture, hunting and fishing.
There’s another benefit, one at the heart of this dispute: Trust lands are exempted from state and local property taxes.
The 2011 Montana Legislature created a similar tax break for property whose trust applications were pending.
The legislation "facilitates those transfers by easing those costs,” Dan Bucks, then director of the Montana Department of Revenue, told the Senate Taxation Committee in testimony included with Lake County’s complaint.
The exemption “was adopted with overwhelming bipartisan support,” noted tribal spokesperson Rob McDonald, “recognizing that one government didn’t want to tax another government while the wheels of the federal government slowly turned.”
Prior to the exemption's creation, McDonald wrote, tribes had paid property taxes “from funds that would otherwise provide essential government services to reservation residents and relieve financial obligations of local governments.”
“The 2011 Legislature recognized the significant contribution of Indian tribes towards providing these essential services and elected to improve efficiency by eliminating the costs of reallocating money from one government to another,” he wrote in an email.
Commissioner Decker has a different take on it.
"When you take everything away and get right down to the nuts and bolts of it, it’s a tax exemption for a wealthy corporation, and that tax burden gets put on the remaining taxpayers,” he said.
Part of the county’s complaint, filed Nov. 21 in Lake County District Court, discussed how the exemption has affected its bottom line.
It was originally projected to reduce state revenue by $3,059 per year from 2012 to 2015, and reduce local jurisdictions’ tax revenue by about $16,650 each year.
But Decker has estimated that, since its creation, the tax exemption has cost Lake County, and its other taxing entities, roughly $129,000. “I just took the properties that were exempted, and pulled up their last tax bill, and that’s what I used for the tax loss,” he explained. “It’s not a very scientific way of doing it, but it’s the only avenue that we have.”
Data provided by the department show that Lake County currently has far more taxable value covered by the exemption — $122,067 — than any other Montana county. How much that’s taxed varies by year and other taxing districts’ decisions. In the current fiscal year, property taxes are expected to contribute $12.2 million to Lake County’s $26.9 million budget.
But whatever the exemption’s full impact, the bulk of Lake County’s complaint focuses on how it’s been managed. “Once we discovered what the process was, we thought the process was quite flawed,” Decker said.
The Montana Department of Revenue administers the tax exemption. Its administrative rules require several documents from both the tribe and the Bureau of Indian Affairs. The exemption lasts a maximum of five years, during which the tribe must annually certify with the department that the application is still pending.
The department is also required to notify the county treasurer when it approves or denies an exemption, and when it finally removes a trust property from the tax rolls.
Lake County holds that the department often skirts these rules. For instance, the complaint alleges that “all Lake County Treasurers who have served since the effective date of the statute have stated that the Department has failed to notify their office of any properties being removed for taxable status.”
It also alleges that the department accepts improper proofs of ownership, incomplete applications, or those not submitted on the official form; that office staff haven’t been trained in the protocols.
In some cases, the county says that the department’s actions deliver more revenue today only to strip it away tomorrow. “The County’s research indicates that some of the properties identified as tax exempt by the Department are still in taxable status. This poses a liability for the County and other entities as improperly collected taxes may be refundable to the taxpayer.”
At other times, it says that “the Department is unwilling to assess taxes on lands improperly or wrongly given the temporary tribal tax exemption … . This allows abuse of or intentional use of the system to create a tax vacation without consequence if the trust application is not approved.”
“The net result” of these and other alleged wrongdoings, the complaint states, “is irreparable harm to County governments and property tax paying residents.”
Revenue Department spokesperson Sanjay Talwani said that the agency does not comment on ongoing litigation. But speaking with the Missoulian in October, its chief legal counsel, Dan Whyte, said that “we follow that [administrative rule] in all of these cases and do it on a consistent basis.”
The complaint gave the department three weeks to respond. But the complaint is just part of what Decker called a “two-pronged approach.”
The other prong is the Legislature. In late September, the Montana Association of Counties adopted a Lake County-sponsored resolution calling for the Temporary Tribal Tax Exemption to be repealed. Like the lawsuit, it argues that the policy’s impact has far overshot expectations, and that “the Montana Department of Revenue has failed to implement the statute as written.”
At a Nov. 20 meeting between the commissioners and area legislators, Rep. Greg Hertz, R-Polson, said he would look for legislators to carry this and another policy change that Lake County and MACO have sought.
As of Nov. 30, the Montana Legislature’s website does not list any repeal legislation for the upcoming session. Hertz did not reply to a request for comment.
It’s passage isn’t certain, Decker said. “We don’t know what the Legislature’s going to do with it, and so repeal of it is iffy, whereas with the injunction we’re just asking that DOR not be allowed to do any more exemptions until they fix these issues that we’ve identified.
“Now if the Legislature doesn’t repeal it, then we’re hoping the injunction will fix the issues and if we can’t fix the issues with DOR then we’re hoping the repeal will take it off the books so that we don’t have to fix it,” he continued. “It's the position of the commissioners that we feel it should be repealed.”
The commissioners' pursuit of this goal comes amid deep disagreements between Lake County and the Confederated Salish and Kootenai Tribes over the trust lands issue itself.
While Decker has calculated that Lake County has lost $2.2 million annually in unpaid property taxes on these lands, the tribes counter that much of their trust land actually has marginal value and doesn’t require county services.
McDonald pointed out that the tribes help provide the county with vital services, but Commissioner Bill Barron said the opposite is also true. “Being an open reservation [where non-tribal residence is allowed] saves the tribe a huge amount of money" in services they don't have to provide.
The Lake County Commissioners have already brought the issue to court twice in recent years, unsuccessfully suing the Department of Revenue over its decision to place Selis Ksanka Qlispe Dam (formerly Kerr Dam) in trust, and appealing the trust status of the Big Arm Marina. A Bureau of Indian Affairs administrative court remanded that property for further consideration. The state has kept it covered by the tribal tax exemption, but the commissioners maintain it should be removed.
County lawsuits were a prime target of Caroline McDonald, Decker’s Democratic challenger in the recent Lake County commissioner’s race. Pursuing these issues in court, she alleged, had soured Lake County’s relationship with the tribes, to the detriment of residents.
McDonald, the tribes’ spokesperson and Caroline’s husband, described the proposed repeal as another instance of this divisiveness.
“Despite the dozens of other exemptions to state and local property taxes that result in millions in revenue losses to counties across Montana, Lake County continues to focus its energy on fighting with tribes rather than trying to solve real problems,” he wrote in an email.
The commissioners have long maintained that they don’t object to the tribes placing land into trust, but want Congress to reimburse them for the loss. On this tax exemption, Decker also directed his critique at non-tribal entities.
“We’re not bringing litigation against the tribe. Our litigations and problems have been with the Department of Revenue.”
He also faults the agency whose timelines required the exemption in the first place. “To me, it’s more of an issue between the BIA and the tribal governments because the BIA just can’t process the application soon enough.”
Coming months will tell if the commissioners can start collecting taxes on Lake County's 54 tribally exempt properties. This goal, they said, suits their need to work within a complex set of policies, one generations in the making.
“We didn’t set up the rules, we’re just trying to live by them,” said Barron. “The decision was made a long time ago that the tribes would pay taxes on deeded property so that was in place way long before I was a commissioner.”
Decker agrees. “Property taxes are our revenue, and like Bill said, we didn’t create the system. We have to operate under it.”