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2013 Montana Legislature: Major industries propose changes to property values

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HELENA – Major industries are mounting an effort to convince the 2013 Montana Legislature to change how the state Revenue Department values their properties to restore their property taxes to previous levels and ensure greater predictability.

Critics, however, are calling it an attempt by the companies to lower their own property taxes, while at the same time boosting taxes on other classes – particularly homeowners and Main Street businesses.

No proposed legislation has surfaced publicly yet, but millions of dollars of property taxes may be at stake.

Members of the Legislature’s Revenue and Transportation Interim Committee have spent the past year studying the valuation of centrally assessed property and industrial property.

Valuing or assessing these properties is the first stage in setting their property taxes. It’s a highly complex field and has drawn expert – and dense – testimony from an array of attorneys and accountants from the industries and the Revenue Department.

Evenly split with six Republicans and six Democrats, the interim committee is not expected to recommend any legislation. In general, Republicans support the idea of changing the valuation while Democrats don’t. The industries and business trade associations will have bills introduced in the 2013 Legislature, where Republicans are likely to control both houses again.

Critics like Democratic Gov. Brian Schweitzer, who leaves office at year’s end, warn that Montanans should be wary of any such attempts.

“What they’re proposing is a great tax shift in favor of out-of-state and multinational corporations in Montana – a shift from those paying the taxes to small businesses and homeowners in Montana.

“They’ve decided that they can hire lobbyists on both the Democratic and Republican side and pull the wool over legislators. This is the same cast of characters that brought us utility deregulation. What could go wrong?” Schweitzer said.

Tara Veazey, executive director of the Montana Budget and Policy Center, expressed similar concerns.

“To the extent the underlying purpose of the study is to lower the assessed value and taxable value of large centrally assessed property, we are concerned about the potentially large shift in property taxes toward homeowners, small businesses, farmers and ranchers,” she said.


However, industry representatives have said they believe they are being treated unfairly by an overly aggressive Revenue Department the past eight years under Schweitzer and by a lengthy, costly appeals process they contend is often stacked against them. The net result is an unpredictable tax climate in Montana, they say.

Leading the effort to change the laws are cable television and telecommunication companies and oil refineries, assisted by the Montana Taxpayers Association and Chamber of Commerce.

They also are drawing some support from local officials.

All three Yellowstone County commissioners and Billings Mayor Thomas Hanel recently wrote legislators on the committee about their concerns over an unpredictable tax climate. They said it has led to large property tax protests by some industries, with millions of dollars of property taxes held in escrow, making it difficult for them to budget.

A Revenue Department tally shows centrally assessed companies – telecommunications, cable and pipeline companies – are appealing $61.3 million of $108.2 million worth of property taxes from 2005 to 2011. On the centrally assessed side, two companies owing oil refineries are appealing $16.5 million of $34.3 million in property taxes from 2009 to 2011.

The industries are highly critical of the department’s increases in their property valuations, on which property taxes are levied.

“The chief concern raised by my affected members can be characterized as ‘aggressive valuations’ or unreasonably high valuations,” Dave Galt, executive director of the Montana Petroleum Association, told the committee recently. “MPA members are seeing alarming increases in facility valuations, more than 50 percent in the last five years, and it has my people very concerned.”

Galt said oil refineries have appealed these “unreasonable appeals” to the county and state tax appeal boards and District Court.

Cablevision, which bought Bresnan Communications and operates the cable television, Internet and phone company under the name of Optimum, is another critic. It recently won an appeal of its property taxes in District Court in Billings, but the Revenue Department intends to appeal the $5.6 million tax dispute to the Montana Supreme Court.

“Tax policy is set by the Legislature, yet the DOR (Department of Revenue) seems to ignore statutory mandates,” Shawn Beqaj, Cablevision’s vice president for government and public affairs, told the committee in February. “The misapplication of Montana law results in inconsistent and abrupt changes to tax policy. Unpredictable application of the tax law discourages investment and economic development in the state.” (Beqaj recently left the company.)

Cablevision contracted with a University of Montana law professor, Kristen Gustafson Juras, to do a study on current issues with the state’s centrally assessed property taxation laws and procedures. Juras presented it to a recent legislative committee meeting and identified a number of problems with how Montana values centrally assessed property. She suggested a number of legislative changes.

Officials from AT&T, Verizon Wireless and others, have expressed similar concerns over the past year.

“I think overall businesses just want to be treated fairly,” said Nancy Schlepp, president of the Montana Taxpayers Association. “They’re not asking for anything special. They want some consistency in the process.”


In response, state Revenue Director Dan Bucks, who was appointed by Schweitzer, defended the agency’s valuations.

“The practices that are being debated today are essentially the same practices that have been in place since the 1930s, confirmed by the Montana Supreme Court in the (1932) Western Union case,” he said. “They are tried and tested methods at arriving at market value.”

About 20 percent of the Montana property tax base has been centrally assessed historically, Bucks said.

“It’s a major portion of the tax base,” the director said. “If the Legislature were to adopt provisions that were to lower values below market value for that property, there would potentially a major shift of the tax base to homeowners and small businesses.”

Bucks said the Montana Supreme Court, in cases in the 1930s, 1960s and 1980s and 1990s, and in case involving Puget Sound Energy and Pacificorp in the past five or six years, “has basically affirmed that the practices that the department is using to achieve market value as required by law.”

“If the Legislature said, ‘Use different methods that don’t use market value,’ then there would be a major property tax shift,” he said.

If telecommunications companies alone succeed in reducing their property value to their target, Bucks estimated it would cost each homeowner $23 a year and each Main Street business owner $72 annually. It also would reduce funding for cities, counties and school districts, the director said.

In the recent case involving Bresnan Communications (now called Optimum and owned by Cablevision), District Judge Susan Watters of Billings ruled in Bresnan’s favor and against the Revenue Department. The Billings Gazette reported that Watters decided the department had improperly put all of the cable television and telephone company’s business property in one classification. That had resulted in the department’s doubling some of the company’s property taxes to 6 percent, the Gazette reported.

As a result, 29 counties now owe at least $5.6 million to Bresnan for 2010, although the Revenue Department is appealing Watters decision to the Montana Supreme Court.

Cablevision spokesman Jim Maiella said, “The District Court clearly ruled that the Montana Department of Revenue cannot indiscriminately and unfairly raise taxes on businesses, and we are confident this judgment will be upheld on appeal.”

He added, “We are proud to be in Montana, where we are creating jobs and making significant investments. We will continue to work to promote a fair environment that encourages business growth.”


But C.A. Daw, the Revenue Department’s chief legal counsel, disagreed with the ruling.

“The issue for us is that once you are providing cable television on a two-way basis so you can do on-demand cable, telephone and data service on the same batch of equipment, with the same administration, the same management, same HR (human rights) division, same contracts with everybody, it’s pretty hard to say that some specific piece of that unit is cable television, another is telecomm and another is data,” Daw said. “That’s integration to us.”

Sen. Bruce Tutvedt, R-Kalispell, sponsored the 2011 resolution leading to the study.

“It was put in because we saw problems where we saw companies coming in and talking about the excess taxation (they were facing here) compared to our sister states,” he said.

If Republicans control the 2013 Legislature, Tutvedt said he’s confident they can pass a bill to change how the department values these properties. He acknowledged there would be a tax shift.

“We’ve got to take the political hit of the tax shift,” Tutvedt said. “If you’re going to be fair, then you shouldn’t get hit.”

But Rep. Dick Barrett, D-Missoula, warned about the impacts of revenue shifts if the industries succeed in changing how the department values their property.

“They could be pretty severe, depending on what it looks like,” he said.

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HELENA – Here are definitions from state law of centrally assessed property and industrial property, according to the state Revenue Department:

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