Montana counties challenge interpretation of state's property tax laws

McGinley Property Tax Chart
Posted at 7:21 PM, Aug 24, 2023

HELENA — In the coming weeks, counties across Montana will finalize the property tax bills they’ll send out to residents. Before that happens, though, some county leaders want to see a change in one piece of the property tax picture that’s set by the state – and that’s been fixed for decades.

This month, Beaverhead County leaders submitted a formal request to Attorney General Austin Knudsen, asking him to give a legal opinion on how the state’s property tax laws should be interpreted. Other counties and the Montana Association of Counties have announced their support of the request.

Mike McGinley, who chairs the Beaverhead County Commission, told MTN the recent spike in residential property values highlights the need to have questions about the tax system answered.

“Now looking into it, they’ve been doing it wrong, in my opinion, for 20 years,” he said. “This extreme on property reassessment brings it into focus.”

Governments set their property tax rates in terms of “mills.” The actual amount of taxes charged is the property’s taxable value multiplied by the mill rate that each jurisdiction charges. Each mill is $1 per $1,000 of taxable value. When the value of property in a jurisdiction increases, one mill brings in a greater amount of money.

Most Montana property taxes are determined by local jurisdictions, including counties, cities and towns, school districts, fire districts and other special districts – so they can vary significantly based on location. However, the state also assesses 101 mills on all property across Montana – 95 to equalize funding among school districts and 6 to support the Montana University System.

Counties have a cap on how many mills they can charge, so that the actual amount of taxes they assess rises by no more than half the rate of inflation, averaged over the last three years. When the assessed value of property increases significantly – as happened this year – counties have to reduce, or “float down,” the number of mills they assess. That means the increase in actual taxes will be much smaller than the jump in taxable value.

However, because the state always charges the same number of mills, the change in the taxes they bring in will match the shift in value. This year, the statewide taxable value is estimated to have risen around 30%.

McGinley said the effect is that the share of property tax bills that comes from the state mills will grow, compared to the share from local governments.

“This year in particular, with the reappraisals, you've got the responsibility to float these mills and not burden the taxpayers with that over a 35% increase in revenue,” he said.

Beaverhead County is now arguing that the school equalization mills, commonly referred to simply as “the 95 mills,” should also have to float down, based on the same inflation cap that counties use. They point to a section in the state law that says those mills are subject to the same code that governs how local governments set their mills.

McGinley said he believed the state’s fixed mills were “overassessing” property taxes by around $70 million statewide. He wants the attorney general to rule that the mills should not be fixed – and he hopes Knudsen will do so before the state sends notice to counties that they should include the 95 mills in their property tax bills this year.

“I've been asking anybody I can ask, ‘Do you believe it's the intention of the governor or any one of the state legislators to increase property taxes this year for the state portion by 35%?’, and it's pretty obvious that was not their intention,” he said. “And it needs to be fixed before we set mills here in a couple of weeks.”

But others are pushing back against Beaverhead County’s argument.

“I just don't know how we can suddenly say the Department of Revenue, every session of the legislature since 2001, has got this wrong, and it's error upon error that we just discovered,” said Lance Melton, executive director of the Montana School Boards Association. “It just strains the concept of credibility for me.”

The 95 mills are intended to ensure equity in education between school districts with different tax bases. If a community has high taxable value – like a large industrial operation or high-value property – their schools can raise the same amount of money by assessing far fewer mills than a community with lower taxable value. The equalization money goes toward closing that gap.

Melton says the equalization mills have evolved as the state’s response to a court ruling that found relying too heavily on local mills meant not every student had access to the same system of quality public education. He acknowledged there is ambiguous language in the law, but said it’s always been the intent of the Legislature that the 95 mills be exempt from the inflation cap.

“If those mills are construed in the law to require a reduction, we need changes in the law to make it not happen so that we can preserve the constitutionality of the way that we fund our public schools in Montana,” he said.

Melton said requiring the mills to float down would likely reduce revenues by $65 million. He said school districts’ budgets are set by formulas, and they would have to make up the difference somehow – including likely increasing their own mills.

Melton also said the Legislature passed a bill this year – House Bill 587, sponsored by Rep. Llew Jones, R-Conrad – that directs some of the increased revenue from the 95 mills to specifically help reduce county property taxes.

A spokesperson for the attorney general’s office said Thursday that they have received Beaverhead County’s request for an opinion, and that it will be evaluated in accordance with the law.