Department of Revenue v. Gunner and Beth Junge

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BEFORE THE MONTANA TAX APPEAL BOARD F ih E D

AUG 05 2024
Montana Tax Appeal Board
STATE OF MONTANA, CASE Ne: PT-2024-2
DEPARTMENT OF REVENUE,
A
ppestant, FINDINGS OF FACT,
y. CONCLUSIONS OF LAW, ORDER,
AND OPPORTUNITY FOR
GUNNER AND BETH JUNGE, JUDICIAL REVIEW
Respondents.

STATEMENT OF THE CASE
This is an appeal of a final decision by the Sanders County Tax Appeal Board
(CTAB) granting Gunner and Beth Junge, (Taxpayers) a reduction in value on the
subject property located at 407 East 4"" Avenue, Thompson Falls, Montana (Subject
Property). The Department of Revenue (DOR) appealed that outcome to Montana Tax
Appeal Board (MTAB) on January 3, 2024. We reverse CTAB’s determination.

ISSUE TO BE DECIDED
Whether CTAB erred in granting Taxpayers’ request for a reduction in value to

the Subject Property.

EXHIBIT LIST
The following evidence was submitted at the hearing:
Taxpayer Exhibits:
1. Sanders County Tax Appeal Board Meeting PowerPoint;
. Collection of 15 Photos of Subject Property;
. Comparable Properties Document;

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3
4. Cadastral Record of Home/Improvements;
5. MCA Code Sections;

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. Personal Notes and Statements of Fact;

BEFORE THE MONTANA TAX APPEAL BOARD
STATE OF MONTANA, DEPARTMENT OF REVENUE v. GUNNER AND BETH JUNGE

7. Property Record Card;

8. MDOR Dan Lapan Email Dated 11/27/2023;

9. MDOR Appraiser Dan Lapan’s Certification;

10. Written Statement from SCTAB Hearing 12/4/2023;

11. Second Witness/Respondent Written Statement 1/29/2024; and
12. Articles on MT Property Tax Issues.

DOR Exhibits:
A. Property Record Card;
2023 Land Moel Spreadsheet;
Comparable Sales Spreadsheet;
Procedure 2-3-001.1; and
2023-2024 Residential Classification and Valuation Manual.

moO f

PROCEDURAL HISTORY

The DOR initially valued the subject property at $284,000 for the 2023/2024
appraisal cycle, with the land valued at $52,241 and the improvements valued at
$231,759. Ex. A. Taxpayers filed an appeal dated July 26, 2023, to the CTAB
requesting a total value of $30,000. Taxpayers also filed an AB-26, Request for
Informal Classification and Appraisal Review, dated July 26, 2023, with the DOR
requesting a land value of $35,238 and an improvement value of $151,262 for a total
value of $186,500. MTAB Dkt. 2. The DOR performed an on-site review of the
property on August 2, 2023. The DOR sent a Form AB-26 Determination Letter to the
Taxpayer dated August 18, 2023, denying Taxpayers’ request, and setting the value at
298,800, $52,241 for the land and $246,559 for the improvements. Jd. Taxpayers
resubmitted their appeal of the DOR’s valuation request to the CTAB on November
24, 2023, requesting a total valuation $30,000. Jd. The CTAB hearing was held on
December 4, 2023, and the CTAB’s decision granting the Taxpayers’ application for
reduction was sent to the parties on December 6, 2023. The DOR appealed to MTAB
on January 3, 2024, per Mont. Code Ann § 15-2-301, requesting a land value of
$52,241 and an improvement value of $246,559, for a total of $298,800. MTAB Dkt.

BEFORE THE MONTANA TAX APPEAL BOARD

STATE OF MONTANA, DEPARTMENT OF REVENUE vy. GUNNER AND BETH JUNGE

1. The MTAB hearing was conducted in Helena on May 7, 2024, at which the

following were present:

a. Gunner and Beth Junge, Taxpayers; and

b. Dave Burleigh, DOR Counsel; Cindy McGinnis, Paralegal; Dan Lapan,
Area Manager; and Jason Stevens, Modeler.

The record includes all materials submitted to CTAB, a recording of the CTAB

hearing, all materials submitted to MTAB with the appeal, additional exhibits

submitted by the parties prior to and at the MTAB hearing, and a transcript of the
MTAB hearing.

FINDINGS OF FACT
To whatever extent the following findings of fact may be construed as

conclusions of law, they are incorporated accordingly.

The Subject Property is land and a residential dwelling owned by Gunner and
Beth Junge. Ex. A. The Subject Property is located at 407 East 4" Avenue,
Thompson Falls, Montana, and is also identified by its geocode 35-3091-08-1-
12-20-0000. Jd.

At the conclusion of the AB-26 informal review, the DOR raised the Subject
Property’s improvements value from $231,759 to $246,559, resulting in a total
value of $298,800. MTAB Dkt. 2. The Taxpayer requested his market value be
reduced to $30,000 at the December 4, 2023, CTAB hearing, Jd. The CTAB
granted Taxpayers’ request. Jd. The DOR appealed to MTAB on January 3,
2024, and reasserted that the market value of the Subject Property should be
$289,800. MTAB Dkt. 1. Taxpayers maintained that the most recent valuation
granted by the CTAB of $30,000 is the most accurate value. MTAB Dkt. 4.

At the MTAB hearing, Taxpayers made a number of arguments including that

an excessive property tax was being imposed on them, there are no comparable

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BEFORE THE MONTANA TAX APPEAL BOARD
STATE OF MONTANA, DEPARTMENT OF REVENUE v. GUNNER AND BETH JUNGE

sales in the Subject Property’s neighborhood, the Subject Property should not
be valued using the market sales approach, and the Subject Property’s market
value is unknown because the Subject Property has not been listed for sale,

thus, any market value estimation would be pure speculation. MTAB Hr’g Tr.

6:15-22, 14:25-15:10.

Taxpayers asserted that the DOR often has incorrect or incomplete data and
presented information from Montana Cadastral and Zillow.com which
characterized multiple properties located near the Subject Property and their
improvements. Ex. 3; MTAB Hr’g Tr. 15:21-16:6, 20:2-21. Taxpayers testified
that a neighboring property was not listed as having a covered deck or radon
mitigation systems installed, which it does, and also incorrectly listed the
property as having an extra shed. Jd. Taxpayers highlighted another property
located in Thompson Falls which was described as being a vacant lot with no
living units or dwellings. Jd. Taxpayers disagreed with this assessment and
stated that the property contains a mobile home. Jd. A third property Taxpayers
presented contained a storage shed that is similar in size to the shed located on
the Subject Property but was appraised at no value. Ex. 3; MTAB Hr’g Tr.
20:24-21:7. Taxpayers questioned why this shed was appraised at no value
when the sheds on the Subject Property were assigned a value. Jd. Taxpayers
presented another property which is located within a block of the Subject
Property and sold during January of 2024. Ex. 3;-MTAB Hr’g Tr. 21:16-18.
Taxpayers questioned why this property was not used as a comparable sale. Jd.
Taxpayers presented more properties with similar issues regarding the accuracy
and completeness of the property assessments. Ex. 3; MTAB Hr’g Tr. 21:9-
23:21. Taxpayers stated they could not recall whether they had compared the
assessments contained in their Exhibit 3 with property record cards issued by

the DOR. Ex. 3; MTAB Hr’g Tr. 23:22-24:6.

Taxpayers then listed a number of issues they had with the DOR’s appraisal of
the Subject Property. Ex. 4; MTAB Hr’g Tr. 30:21-32:4. First, Taxpayers

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BEFORE THE MONTANA TAX APPEAL BOARD |
STATE OF MONTANA, DEPARTMENT OF REVENUE v. GUNNER AND BETH JUNGE

broadly objected to what they stated was a 62.4% increase in value from the
2021/2022 appraisal cycle to the 2023/2024 cycle. Jd. Taxpayers also opposed
that the Subject Property’s paved driveway was assigned value during the AB-
26 reappraisal review after not having been assigned a value until the
2023/2024 appraisal cycle. Jd. The Taxpayer disagreed with the Subject
Property construction being identified as conventional from the previously
listed log construction during the AB-26 process. Jd. Taxpayers stated that only
one side of the Subject Property dwelling is framed with siding or sheeting, and
the rest of the home is log. Jd. Taxpayers testified that the heating listed for the
Subject Property had been unchanged for 23 years before it was changed from
electric baseboard heat during the AB-26 review process. Id. Taxpayers stated
that this was incorrect, and the Subject Property is heated by a wood stove in

the basement and a small propane fireplace on the upstairs level of the home.
Td.

Taxpayers also contended that aspects of the Subject Property were not
appraised the same as other properties in the area. Ex. 4; MTAB Hr 2 Tr. 32:6-
33:4. Taxpayers pointed to the fact that a shed located on the Subject Property
was appraised while other nearby properties did not have their similarly sized
sheds appraised. Jd. Likewise, the Subject Property’s asphalt driveway was
appraised when other properties in the area did not have their driveways

appraised. Jd.

Taxpayers testified that the Subject Property’s log outbuilding was not built
onsite as the property record card indicated, but rather was built offsite and

then moved onto the Subject Property at a later date. Ex. 4: MTAB Hr eo Tr.

33: 1-4, 47:24-48:5. Additionally, neither of the outbuildings located on the
Subject Property have wheels attached to them. Jd.

Taxpayers confirmed that as of the lien date of January 1, 2022, the Subject
Property had two outbuildings and a paved driveway on the premises. MTAB

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BEFORE THE MONTANA TAX APPEAL BOARD

STATE OF MONTANA, DEPARTMENT OF REVENUE vy. GUNNER AND BETH JUNGE

Hr’g Tr. 45:17-23. Taxpayers also agreed that the two outbuildings and paved
driveway on the property qualify as improvements according to the definition

contained in Montana Code Annotated. MTAB Hr’g Tr. 47:15-23.

Taxpayers stated they were not familiar with how Zillow.com estimates
property values and did not know whether Zillow.com is required to follow

Montana law when estimating property values. MTAB Hr’g Tr. 50:20-51:11.

Taxpayers conceded that their requested value for the Subject Property of
$30,000 was not based on any sales data or physical factors but was, “a
ballpark attempt to show how ludicrous...Montana Department of Revenue’s
estimation is... If I want to sell my house for $30,000, that’s what it’s worth.”

MTAB Hr’g Tr. 52:8-13.

Taxpayers testified that the log outbuilding located on the Subject Property is
not habitable as it has no heat, electricity, or plumbing. MT7AB Hr’g Tr. 53:19-
54:5. Taxpayers primarily use the log outbuilding for storage. Id.

DOR made several adjustments to the Subject Property during the AB-26
process such as changing the bedroom count from four to three, adjusting the
attic height to be a half story, adding the asphalt driveway, and recording the
basement finish and log outbuilding which were previously unaccounted for.
MTAB Hr’g Tr. 57:17-59:6, 95:10-25. DOR Area Manager, Dan Lapan,
testified that the change in bedroom count did not impact the value of the

Subject Property. Jd.

Mr. Lapan stated that during the AB-26 process he was denied an internal
inspection of the Subject Property which would have allowed him to better
assess whether the home was log built or conventional. MT4B Hr’g Tr. 57:21-
58:6, 59:7-25. Without being able to enter the home, Mr. Lapan’s decision to

change the categorization of the home construction from log built to

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BEFORE THE MONTANA TAX APPEAL BOARD

STATE OF MONTANA, DEPARTMENT OF REVENUE v. GUNNER AND BETH JUNGE

conventional was based on his in-person impressions of the Subject Property as
well as photos provided by Mr. Junge where nails appeared to be protruding
from the exterior of logs similar to how nails would protrude from log siding or
trim. /d. Mr. Lapan stated that the change from a log structure to conventional

resulted in a reduction in value to the Subject Property. Jd.

Mr. Lapan conceded that based on Taxpayers testimony, changing the Subject
Property’s heating from gas to electric was likely a mistake. MTAB Hr’g Tr.
70:20-71:11, 94:14-20. However, Mr. Lapan noted that for assessment
purposes, the DOR considers both gas and electric to be non-central heating

sources and this change did not impact the value of the Subject Property. Jd.

Mr. Lapan testified that the sales approach is the preferred appraisal method for
residential property as long as there are adequate comparable properties
available. MTAB Hr’g Tr. 60:1-16. Mr. Lapan stated that there were five good
quality comparable properties located reasonably close to the Subject Property
that were within the same DOR neighborhood. Jd. The value of the Subject
Property using the cost approach would have been $355,981, whereas the value
using the comparable sales approach was roughly $60,000 less. Jd.

The DOR presented a land valuation model which was used to analyze verified
vacant land sales using multiple regression analysis. Ex. B; MTAB Hr’g Tr.
65:11-66:16. The model produces one or more pricing categories which are
then applied to the properties in question. Jd. The land model used for the
Subject Property was based on a 10,000 square foot base lot which is then
priced up or down depending on whether the Subject Property is smaller or
larger than 10,000 square foot in size. Id. The Subject Property is 22,356
square feet in total size. Jd. The first 10,000 feet of the Subject Property was
valued at $3.00 per square foot and the remaining 12,356 square feet was
priced at $1.80 per square foot due to the incremental and decremental rates.

The model produced a land value of $52,241. Jd. Mr. Lapan testified that the

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BEFORE THE MONTANA TAX APPEAL BOARD
STATE OF MONTANA, DEPARTMENT OF REVENUE v. GUNNER AND BETH JUNGE

model pulled sales data exclusively from the city of Thompson Falls and did
not include sales data from the more rural areas located nearby. Ex. B; MTAB

Ar’g Tr. 67:9-12.

The DOR then presented the comparable sales worksheet used to appraise the
Subject Property. Ex. C; MTAB Hr’g Tr. 68:13-23. The model took sales
within the market area and chose the five most comparable sales based on
which sales have the lowest comparability points. Jd. A property’s
comparability points are based on roughly 15 to 20 variables such as difference
in square footage of living area, whether the property has a garage, and the
number of bathrooms. /d. The five comparable properties used in the model all
had non-central heating like the Subject Property, so there were no adjustments
made. Ex. C; MTAB Hr’g Tr. 70:20-71:17. However, Mr. Lapan stated that
there was a $2,500 adjustment increase made to Comp 5 for it not having a

wood burning stove like the Subject Property has. Jd.

DOR Modeler, Jason Stevens, testified that the models he creates are checked
against a number of industry standard statistical parameters such as R squared,
COD, PROD, P value, and T stats to ensure that the model is reliably
estimating value. Ex. B, C; MTAB Hr’g Tr. 100:6-103:13. With respect to the
comparable sales used, the main predictor of accuracy is the comparability
points assigned to each property. Jd. The comparable properties used to value
the Subject Property were all within the same neighborhood and fell within the
industry standard for comparability points. Jd. Mr. Stevens also stated that he
routinely compares models for different counties against each other to confirm

that the models make sense statistically. Id.

Mr. Stevens testified that the DOR had more than adequate comparable sales to
make an accurate model in this case. MTAB Ar’g Tr. 103:18-104:9. Mr.

Stevens elaborated by stating that the Sanders County model had more than

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BEFORE THE MONTANA TAX APPEAL BOARD

STATE OF MONTANA, DEPARTMENT OF REVENUE vy. GUNNER AND BETH J UNGE

1,300 sales recorded when he first began working with it, which was the most

sales Mr. Stevens had seen for that county in the last seven tax cycles. Id.

Mr. Lapan testified that two properties located in the Subject Property’s
neighborhood which Taxpayers argued should have been used as comparable
properties were not used for specific reasons. MTAB Hr’g Tr. 72:6-12. The first
property was excluded because it was a more recent sale that sold after the tax
cycle in question. Jd. However, Mr. Lapan stated that it would be considered as
a comparable property in the next tax cycle. Jd. The second property was not
used because its comparability to the Subject Property was not deemed as high

as other properties which were used in the model. Jd.

Mr. Lapan stated that the Subject Property was appraised using the comparable
sales method instead of the cost method because the criteria required by
Property Assessment Division (PAD) procedure were met. Ex. D; MTAB Hr’g
Tr. 72:16-20. PAD appraisal procedures 3.1a(i)A and 3.1a(i)C state that the
comparable sales method should be used if the comparability points for at least
three comparable sales are under 200, and if there is less than a 25% difference
between the final values produced by the cost approach and sales comparison

approach. Ex. D; MTAB Hr’g Tr. 73:17-74:5.

The DOR recorded the Subject Property as having a dry cabin worth $22,440.
Ex. 1, E; MTAB HAr’g Tr. 75:7-77:10. Mr. Lapan clarified that the name dry
cabin used by the DOR does not infer that the cabin is habitable but is instead a
moniker used to differentiate that type of outbuilding from a garage or shed. Jd.
Mr. Lapan described the difference between a dry cabin and a shed as the dry
cabin being “a more extensive structure.” Jd. The dry cabin on the Subject
Property is built from logs, which hold more value and are costlier to construct
than framed outbuildings. Jd. Mr. Lapan stated that the DOR can apply “mod
codes” to structures which can further differentiate outbuildings by identifying

whether the outbuilding has amenities such as plumbing, heating, or insulation.

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BEFORE THE MONTANA TAX APPEAL BOARD

STATE OF MONTANA, DEPARTMENT OF REVENUE vy. GUNNER AND BETH JUNGE

Id. The Subject Property’s dry cabin had heat and electricity added as mod
codes. Jd. Mr. Lapan stated that he added these mod codes based on his exterior

inspection of the dry cabin, as he was denied entry to assess the interior. Jd.

Mr. Lapan testified that there were a multitude of reasons why the sheds
contained in Taxpayers’ Exhibit 1 were appraised inconsistently compared to
the Subject Property’s shed. Ex. 1, A; MTAB Hr’g Tr. 77:17-79:5. One of the
sheds represented in Taxpayers’ exhibit had no door attached to it and
possessed only a simple roof. Jd. Other sheds were valued less or given no
value at all due to their extreme age and overall depreciation. /d.
Comparatively, the Subject Property’s shed has windows, a gambrel roof, a
metal roof instead of shingles, and is generally a much higher quality
outbuilding. Jd. Mr. Lapan stated that both the Subject Property’s shed and dry
cabin had depreciation applied to their values. Jd. The shed was deemed 78%
good or 22% depreciated, and the dry cabin was deemed 81% good or 19%
depreciated. Id.

Mr. Lapan explained that some of the mobile homes Taxpayers had referenced
in their presentation were not listed on the same property record card as the
land value on which they sit because they are on separate geocodes as personal
property, and not real property. MTAB Hr’g Tr. 79:6-16. Additionally, if a
mobile home is not owned by the owner of the real property on which it sits,
this would also prevent it from being listed on the same property record card.
Id. Mr. Lapan stated that many of the referenced mobile homes also qualify for
an exemption based on being worth $10,000 or less, and while they are

considered for valuation purposes, they are exempt from taxes. MTAB Hr’g Tr.

83:16-21.

Mr. Lapan then clarified several aspects of how the DOR appraises specific
household features. Ex. A, 2; MTAB Hr’g Tr. 81:1-82:17. He first testified that

the DOR considers the lack of trim on windows and doors to be deferred

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BEFORE THE MONTANA TAX APPEAL BOARD

STATE OF MONTANA, DEPARTMENT OF REVENUE v. GUNNER AND BETH JUNGE

maintenance which is common in older homes. Jd. Next, regarding the Subject
Property’s cracked concrete, Mr. Lapan stated that cracking is extremely
common with concrete and the DOR addresses the severity of cracking through
depreciation. Jd. Mr. Lapan testified that the DOR does not consider how many
board feet were required to build the decking surface or whether the surface has
warped. Jd. The value of the deck comes from the measurement of the
perimeter of the structure itself. Jd. Mr. Lapan testified that the value of other
property conditions such as radon mitigation and construction status are
determined by the market itself and what the properties are selling for, not by
DOR appraisal. MTAB Hr’g Tr. 85:23-86:11.

The Subject Property’s outbuilding/yard improvements (OBY) grades for the
dry cabin and shed were good and average respectively. Ex. 4; MTAB Hr’g Tr.
84-8-23. The OBY grade for the dry cabin of good reflects its higher quality
log construction as well as the speculated presence of roughed in plumbing and
heating. Jd. The Subject Property’s asphalt driveway was also given an OBY
grade of average. Jd. Mr. Lapan testified that like concrete, cracks in asphalt
are accounted for through depreciation. Jd. Mr. Lapan stated that in his opinion,
the cracks in the asphalt driveway were not significant and appeared to have
been sealed. Jd. Therefore, the DOR assigned the asphalt driveway a
percentage of 68% good or 32% depreciated. Id.

The Subject Property was assigned an effective age of 2005 despite the home
being built in 1987. Ex. A; MTAB Hr’g Tr. 90:17-91:12. The effective age
reflects the DOR’s opinion that the Subject Property’s depreciation is
equivalent to a 17-year-old property that has had no upkeep or maintenance

performed on it. Jd.

Mr. Lapan conceded that the DOR does not have every shed, driveway, or
garage properly accounted for in every county. MTAB Hr’g Tr. 97:4-18.

Typically, new construction is only assigned to a property when they are

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BEFORE THE MONTANA TAX APPEAL BOARD = _-
STATE OF MONTANA, DEPARTMENT OF REVENUE v. GUNNER AND BETH JUNGE

discovered during on-site visits to verify sales or confirm remodels. Id.
Otherwise, it’s not uncommon for a shed or similar structure to be unknown to

the DOR for several years. Id.

JURISDICTION AND STANDARD OF REVIEW
The Montana Tax Appeal Board is an independent agency not affiliated with
the Montana Department of Revenue. Mont. Const., Art. VIII § 7; Mont. Code
Ann. § 15-2-101. The Taxpayer filed a timely appeal of the DOR’s decision to
the MTAB. Therefore, this Board maintains jurisdiction to hear and decide this
matter. Mont. Code Ann. § 15-2-301.

This Board may hear appeals de novo. Dept. of Revenue v. Burlington N., 169
Mont. 202, 213-14, 545 P.2d 1083 (1976). “A trial de novo means trying the
matter anew, the same as if it had not been heard before and as if no decision
had been previously rendered.” McDunn v. Arnold, 2013 MT 138, § 22, 370
Mont. 270, 275, 303 P.3d 1279, 1282.

The Board’s order is final and binding upon all parties unless changed by
judicial review. Mont. Code Ann. § 15-2-301(6).

CONCLUSIONS OF LAW
To whatever extent the following conclusions of law may be construed as

findings of fact, they are incorporated accordingly.

“All taxable property must be appraised at 100% of its market value....” Mont.
Code Ann. § 15-8-111.

“[I]n connection with any appeal under [Mont. Code Ann. § 15-2-301], the
Montana board is not bound by common law and statutory rules of evidence or
rules of discovery and may affirm, reverse, or modify any decision. To the

extent that this section is in conflict with the Montana Administrative

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BEFORE THE MONTANA TAX APPEAL BOARD

STATE OF MONTANA, DEPARTMENT OF REVENUE v. GUNNER AND BETH JUNGE

Procedure Act, this section supersedes that act.” Mont. Code Ann. § 15-2-
301(5).

DOR is entitled to a “presumption of correctness if its decisions are pursuant to
an administrative rule or regulation, and the rule or regulation is not arbitrary,
capricious or otherwise unlawful.” Burlington N., 169 Mont. at 214, 545 P.2d
at 1090. However, DOR cannot rely entirely on the presumption in its favor
and must present a modicum of evidence showing the propriety of their action.

Western Air Lines v. Michunovich, 149 Mont. 347, 353, 428 P.2d 3, 7 (1967).

The Taxpayer bears the burden of proving the error of DOR’s decision.
Farmers Union Cent. Exch. v. Dep’t of Revenue, 272 Mont. 471, 476, 901 P.2d
561, 564 (1995); Western Air Lines, 149 Mont. at 353, 428 P.2d at 7.

““Assessment formulations’ by [the Montana Tax Appeal Board] should be
upheld unless there is a clear showing of an abuse of discretion.” Peretti v.
Dep’t of Revenue, 2016 MT 105, J 15, 383 Mont. 340, 344, 372 P.3d 447, 450
(citing O'Neill v. Dep’t of Revenue, 2002 MT 130, 4 23, 310 Mont. 148, 155,
49 P.3d 43, 47); see Northwest Land & Dev. v. State Tax Appeal Bd., 203
Mont. 313, 317, 661 P.2d 44, 47 (1983) (overruled on other grounds by DeVoe
v. Dep't of Revenue, 263 Mont. 100, 866 P.2d 228 (1993)).

The term “improvements” includes all buildings, structures, fences, and
improvements situated upon, erected upon, or affixed to land. Mont. Code Ann.

§ 15-1-101(1)(i).

The Legislature intended the Department to utilize a number of different
approaches or combination of approaches, including the income approach,
sales comparison approach, and cost less depreciation approach, depending on

the market where the appraisals take place, when it assesses property and

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BEFORE THE MONTANA TAX APPEAL BOARD

STATE OF MONTANA, DEPARTMENT OF REVENUE v. GUNNER AND BETH JUNGE

estimates market value. Albright v. State, 281 Mont. 196, 208-09, 933 P.2d
815, 823 (1997).

DISCUSSION
The Taxpayer’s presentation in this appeal covered a wide range of beliefs and
philosophies related to public policy considerations of setting tax policy in
Montana. He presented news articles and internet commentary challenging
some of the fundamental authority of the State of Montana to assess values for
property taxes. This Board, in rendering our decision, first wants to clarify
what our opinions can and cannot do. MTAB can adjust the value set by the
CTAB at $30,000 to a value we believe better reflects market value or in other
words what the Junges could sell their property for if they chose to sell. Our
mandate is to hear the case, consider the testimony and evidence presented, and
evaluate whether DOR made mistakes in setting the market value for Montana
properties. The end product of our fact finding is to designate what we deem to
be market value, after considering all of the evidence and testimony presented

to us.

We do not have the jurisdiction or legal authority to dictate to other parts of

state government what policies or laws they may adopt, or how to follow them.

During parts of their presentation the Taxpayer did seem to acknowledge the
limitations of the tax appeal process: “...So my wife and I realized that you
will make your decision today based on your, our case, the evidence,
testimony, precedent, MCA, and a number of other laws.” MTAB Hr’g Tr. 6:
11-13. At other times it was unclear whether the Junges did agree that
Montana law guides this Board. For example, DOR Attorney Burleigh asked:
“Would you agree that your appeal here today is a process of law?” Mr. Junge
responded: “I believe my opening statement said it was, yeah. It’s just what

law do we choose to follow.” MTAB Hr’g Tr. 54:6-9.

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BEFORE THE MONTANA TAX APPEAL BOARD

STATE OF MONTANA, DEPARTMENT OF REVENUE vy. GUNNER AND BETH JUNGE

There were times during the hearing when questions were raised about whether
the DOR and Taxpayer could agree on what was at issue during the appeal.
During the hearing the Taxpayer argued that if the property was not on the
market, it had no market value. MTAB Hr’g Tr. 6: 11-13, MTAB Hr’g Tr. 54:6-
9.

The Board will do our duty and proceed within our legal limitations to
adjudicate whether the DOR followed its own procedures and the laws of the
State of Montana when assigning market value to Junges’ property, and in the

final analysis whether the DORs value of $298,800 is justified.

This Board does not have jurisdiction to change the values of the Junges’
neighbors’ properties due to any DOR errors or omissions pointed out in the
hearing. Similarly, this Board does not have jurisdiction to direct the executive
or legislative branches of Montana state government to change their policies on
when or how to conduct reappraisal, what tax rates should be applied, or
whether taxes in general should be reduced or abolished. These decisions are
reserved for the healthy debate between those branches of state government,
subject to review by the judicial branch for compliance with the Montana
Constitution and the courts’ interpretation of the meaning of rules and statues

as written which apply at the time of the valuation of the Subject Property.

This Board can decide whether the DOR’s use of the comparable sales method
of finding market value for the subject property was appropriate and allowed
under Montana law. This Board can decide whether the DOR erred in some
way when choosing the most defensible method of valuation, and within that
method evaluating the land and improvements and assigning a value to those
properties in conformance with Montana law, DOR policies and rules, and

standard mass appraisal practices for appraising these properties.

15

48.

49.

BEFORE THE MONTANA TAX APPEAL BOARD |

STATE OF MONTANA, DEPARTMENT OF REVENUE v. GUNNER AND BETH JUNGE

To resolve these preliminary matters, the Board will state again that our
jurisdiction does not extend beyond determining whether the DOR treated the
Taxpayer fairly and equitably to their neighbors, correctly selected and applied
the most defensible appraisal method to find value, and most importantly
reasonably executed their duty of correctly estimating the market value of the
subject property on the lien date of January 1, 2022. That judgement is all that
is required or allowed of our Board and that is what MTAB will decide in this

opinion.

We will begin with an analysis of whether the DOR was justified in evaluating
the Subject Property using the comparable sales approach. The income method
could not be used as this is a residential property which does not generate
income. This leaves two options, the comparable sales approach, and the cost
approach. The cost method is also known as the cost to build less depreciation.
It is undisputed that the DOR calculated the value of the Subject Property using
a cost approach but disregarded that approach as less reliable, in part because it
yielded an estimate of market value more than $60,000 greater than the
comparable sales approach. To rely on the comparable sales approach the DOR
is required by policy to meet several criteria. The DOR’s own policy was
entered as exhibit D, which indicated that given enough sales to generate as
statistically significant model, the DOR needed to meet two additional tests to
continue their appraisal using the comparable sales approach to value: 1)
comparability points generated by the DOR software for the comparable sales
selected have to be less than 200 for at least three of the comparable sales, and
2) sales and cost methods can differ by no more than 25%. These requirements
were met, and we therefore agree with the DOR that its use of the comparable
sales method was the most appropriate way to evaluate the Subject Property
and logically the most reliable way to estimate market value of the Subject

Property. Ex D, bates 191.

16

BEFORE THE MONTANA TAX APPEAL BOARD
STATE OF MONTANA, DEPARTMENT OF REVENUE v. GUNNER AND BETH JUNGE

50. Regarding whether the DOR had enough comparable sales data from
Thompson Falls to evaluate the Subject Property using the comparable sales
method, the DOR testimony was credible. DOR’s exhibit B land model listed
fifteen comparable land sales used to establish land value, all within the
Junges’ neighborhood. Exhibit B had a least three of the five comparability
scores for the comparable sales selected under 200, per policy. In response to
the comparable sdles presented by the Taxpayer as more accurate, Mr. Lapan
testified that while Mr. Junge did provide nearby sales from a Zillow search,
they were not used by the DOR as one of them was after the lien date, “it was a
more recent sale, so that will be factored in going in the future if it meets the
criteria in picking compared to his. The other one just wasn’t a comparable, as
comparable of a property, so it didn’t get chosen.” MTAB Hr’g Tr. 72:6-12. He
testified that sale was not selected by the software as it had a comparability

score which exceeded 200.

51. As to the overall value selected from the two possible approaches to value,
comparable sales and cost methods, the DOR appraiser testified that using the
cost method would have yielded an even higher value. Mr. Lapan testified the
cost method value was $355,981, about $60,000 more than the value estimated
using the comparable sales method.” MTAB Hr’g Tr. 60:11-16. When asked
on direct examination why he used the comparable sales method to appraise the
subject property instead of the cost method Lapan replied, “It met the criteria
for doing so with our established criteria. All comparability points were less
than 200, and the cost approach and the sales comparison approach were less
than 25 percent difference between the two values.” We find his testimony
credible and uphold the decision that the comparable sales method did meet the
requirements and was the most reliable method to establish market value of the

Subject Property.

52. The Taxpayer’s presentation critiqued not only the method chosen but
questioned whether the property record data relied upon by the DOR was
trustworthy based on what Taxpayer considered to be numerous inaccurate

17

33.

54.

55.

BEFORE THE MONTANA TAX APPEAL BOARD
STATE OF MONTANA, DEPARTMENT OF REVENUE y. GUNNER AND BETH JUNGE

datapoints in the Montana Cadastral, which is Montana State Library’s and
DOR’s on-line property record system.

We find the DOR witnesses testified in response to the critiques with
reasonable explanations for each of the Taxpayer’s alleged mistakes. While
DOR acknowledged some omissions in the record of neighboring properties,
they convinced the Board these did not corrupt the method used to find value or

by association the final value DOR established for the subject.

Taxpayer noted that various mobile homes in Thompson Falls were not listed
on the property record system. DOR testimony rebutted that by explaining that
mobile homes are legally defined as personal property and do not always show
up on the real property record system. Mr. Lapan also explained a mobile home
may not be owned by the record owner of the land, so the geocode and property
record would be distinct. Also, that mobile homes valued at less than $10,000
are exempt from taxation so may not be listed on the state property website.

MTAB Hr’g Tr. 83: 18-21.

Regarding the photographic evidence and testimony provided by the Taxpayer
specific to the characteristics of their home, the DOR was not allowed to
inspect the interior of the property, so they made estimates. As is their right,
Taxpayer presented testimony and photographs at MTAB as to why the DOR’s
data was incorrect and therefore unreliable. We find the only issue raised in the
hearing that may have affected value was whether the home was a log
construction or a combination of log construction and conventional framing.
DOR testimony was that the home was recorded in the property record as
framed construction which yielded a lower value than log construction of the
same size. While the Taxpayer argued for a log construction as more accurate,
we find the lower value associated with a mixture of frame and log
construction is reasonable. MTAB Hr’g Tr. 30-31 25, 1-2; MTAB Hr’g Tr.

95:15. We were not convinced by the evidence of other minor defects or

18

56.

af.

58.

_ BEFORE THE MONTANA TAX APPEAL BOARD

STATE OF MONTANA, DEPARTMENT OF REVENUE v. GUNNER AND BETH JUNGE

unfinished finish carpentry would have had any significant bearing on total

value.

The final point of contention in this appeal was whether the log structure in the
Junges’ back yard described by DOR as a dry cabin was properly entered into
the property record when the DOR was made aware of it seven years after it
was placed on the property. Taxpayer contended the structure was merely a
storage shed similar to his other outbuilding, which both parties referred to as a
storage shed. The DOR, after the on-site review, revised their description of the
log structure from a default of storage shed to a dry cabin. The change was due
to observing a heater vent fixture on the exterior wall of the structure, a
plumbing vent extending from the roof, and other amenities such as metal
roofing, a small porch or deck, and log construction, all of which distinguished
it from the DOR definition of storage shed based on more amenities and a

higher cost of construction. The change led to an increase in value to $22,440.

During the hearing the Board asked what features determined the most accurate
valuation of the log structure. Mr. Lapan testified “There’s a wide range, a shed
is a very basic structure... The dry cabin is a more extensive structure that like
in this case this one’s constructed out of logs, real logs. There’s a much greater
value or cost in constructing something out of logs versus framed, and also a

lot of time there are people that are living in dry cabins in some cases...”

MTAB Hr’g Tr. 75-76:18-25, 1-11.

The Junges’ log structure meets the definition of a habitable building with
plumbing and heating built into the structure. While they may not use it for
habitation, market value is based upon the potential use of the property rather
than the current use as a storage area. While the Junges may presently use the
log structure only for storage, a buyer in the market would pay for its potential
as a guest cabin, and we daresay most sellers would market it as such to
maximize profit in sale. We therefore find that the DOR’s assignment of dry

cabin and associated value are upheld.

19

BEFORE THE MONTANA TAX APPEAL BOARD
STATE OF MONTANA, DEPARTMENT OF REVENUE v. GUNNER AND BETH JUNGE

59. So, in conclusion we uphold the value assigned by the DOR. We don’t fault the
Taxpayer for asking for a review, but a review may lead to a more accurate
property record, and occasionally that more accurate record yields a higher
value. Nor do we fault the DOR for adjusting the record to be more accurate, in
fairness to all taxpayers. The Taxpayers exercised their right of appeal and
presented their evidence and testimony. Our Board fully considered all
testimony and evidence presented in making our determination. We find that
the DOR did apply the correct method of valuation because it had enough
market sales, and that it correctly evaluated the Subject Property by that
method to arrive at a defensible market value. We believe the DOR’s
assessment of the Subject Property reflects market value as of the lien date.
Any discrepancies presented by the Taxpayer in the property record system for
this property or nearby properties did not sway the Board that the DOR value
was in error. Therefore, the Taxpayers did not meet their burden to overturn the
value assigned by the DOR and accordingly, we find the value of the land and
improvements is $298,800 for 2023 and 2024.

20

BEFORE THE MONTANA TAX APPEAL BOARD
STATE OF MONTANA, DEPARTMENT OF REVENUE v. GUNNER AND BETH JUNGE

ORDER
60. The CTAB’s determination is reversed.

61. The DOR shall assign a value of $52,241 for the Land and $246,559 for the
improvements to the property for a total value of $298,800 in 2023 and 2024

and notify interested parties of that determination.

Dated this 5" day of August 2024.

pelt, Me

David L. McAlpin, Chairman |

Gre Lenclvo by Pow

Amie Zendron, Member

Go Se

Travis Brown, Member

Notice: You are entitled to judicial review of this Order by filing a petition in district
court within 60 days of the service of this Order. The Department of Revenue shall
promptly notify this Board of any judicial review to facilitate the timely transmission

of the record to the reviewing court. Mont. Code Ann. $15-2-303(2).

21

BEFORE THE MONTANA TAX APPEAL BOARD .
STATE OF MONTANA, DEPARTMENT OF REVENUE v. GUNNER AND BETH JUNGE

Certificate of Service

I certify that I caused a true and correct copy of the foregoing Findings of Facts and
~ Conclusions of Law to be sent by email and United States Mail via Print & Mail

Services Bureau of the State of Montana on August 5, 2024, to:

Dave Burleigh

State of Montana, Department of Revenue
Legal Services Office

P.O. Box 7701

Helena, MT 59604-7701

Gunner and Beth Junge
407 E 4th Ave
Thompson Falls, MT 59873

Paula Gilbert

State of Montana, Department of Revenue
Property Assessment Division

P.O. Box 8018

Helena, MT 59604-8018

Cassandra Ward

Sanders County Tax Appeal Board
P.O. Box 519

Thompson Falls, MT 59873-0519

etree?”

Rina Sanderson, Legal Secretary

22