Deaprtment of Revenue v. Michael E. Potter and Joyce Thares

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BEFORE THE MONTANA TAX APPEAL BOARD KF ILED

JUL O1 2024
Montana Tax Appeal Board
STATE OF MONTANA, CASE Ne: PT-2023-15
DEPARTMENT OF REVENUE
‘ FINDINGS OF FACT,
Appellant, | CONCLUSIONS OF LAW, ORDER,
AND OPPORTUNITY FOR

V. JUDICIAL REVIEW
MICHAEL E. POTTER and JOYCE
THARES,

Respondents.
STATEMENT OF THE CASE

This is an appeal of a final decision by the Cascade County Tax Appeal Board
(CTAB) granting in part Michael E. Potter and Joyce Thares, (Taxpayers) a reduction
in value on the subject property located at 3100 9" Street South, Great Falls, Montana
(Subject Property). The Department of Revenue (DOR) appealed that outcome to
Montana Tax Appeal Board (MTAB) on November 27, 2023. We reverse the CTAB’s

determination.

ISSUE TO BE DECIDED
Whether the CTAB erred in partially 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. Property Comparisons from 2023 Appeal Information;
2. Shop Comparisons;
3. Property Information Spreadsheets;
4. Photos of Neighboring Properties and Shops.

BEFORE THE MONTANA TAX APPEAL BOARD
STATE OF MONTANA, DEPARTMENT OF REVENUE v. Potter

DOR Exhibits:

Property Record Card;
2022 Land Model;
Map of Neighborhood;

>

Photos of subject property;

Comparable Sales Worksheet with Adjustments;
Cost Calculations;

DOR Policy 2-3-001.1;

Appraiser Notes;

Weighted Adjustment Spreadsheet.

“se tot moo wD

Rebuttal exhibit - Residential Appraisal Report.

PROCEDURAL HISTORY

The DOR valued the Subject Property at $902,140 for the 2023 and 2024
appraisal cycle, with the land valued at $59,500 and the improvements valued at
$842,640. MTAB Dkt. 4. The Taxpayers filed an AB-26, Request for Informal
Classification and Appraisal Review, with the DOR. The DOR sent a Form AB-26
Determination Letter to the Taxpayers dated August 9, 2023, denying the Taxpayers’
request. MTAB Dkt. 4. The Taxpayers appealed the DOR’s valuation to the CTAB on
September 7, 2023, requesting a land value of $56,400 and an improvement value of
$660,000. Jd. The CTAB hearing was held on October 26, 2023, and the CTAB’s
decision granting in part the Taxpayers’ application for reduction was sent to the
parties on October 26, 2023. Jd. The DOR appealed to MTAB on November 27, 2023,
per Mont. Code Ann § 15-2-301, requesting a land value of $59,500 and an
improvements value of $842,640, for a total of $902,140. MTAB Dkt. 1. The MTAB
hearing was conducted in Helena on April 9, 2024, at which the following were
present:

a. Joyce Thares and Michael E. Potter and, Taxpayers; and

b. Dave Burleigh, DOR Counsel; Jason Boggess, Regional Manager; Cody
Murphy, Appraiser; Jeanine Crouch, Modeler; and Cindy McGinnis,
Paralegal.

BEFORE THE MONTANA TAX APPEAL BOARD
STATE OF MONTANA, DEPARTMENT OF REVENUE v. Potter

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
1. To whatever extent the following findings of fact may be construed as

conclusions of law, they are incorporated accordingly.

2. The Subject Property is a home owned by Michael E. Potter and Joyce Thares
in Cascade County. MTAB Dkt. 4. The Subject Property is located at 3100 9"
St. South in Great Falls, Montana, and is also identified by geocode 02-3015-
24-1-02-01-0000. Jd. The Subject Property is 2.75 acers. Ex. A. The main house
is 4,102 square feet with an 1,180 square foot attached framed garage. Jd. The
property also has a 3,192 square foot shop. Jd.

3. The DOR valued the Subject Property at $902,140 for tax years 2023 and 2024,
allocating $59,500 for the land and $842,640 for the improvements. MTAB Dkt.
4. At the October 26, 2023, CTAB hearing, the Taxpayers requested the land
value be reduced to $56,400 and the improvements value be reduced to
$660,000 for a total market value of $716,400. Jd. The CTAB partially granted
Taxpayers’ request and lowered the Subject Property’s value to $763,800,
allocating $59,500 for the land and $704,300 for the improvements. Jd. The
DOR appealed this decision to MTAB on November 27, 2023, reasserting that
the total market value for the Subject Property should be $902,140. Jd.

4. Atthe MTAB hearing, Taxpayers argued that the Subject Property’s property
tax increase of 52% from the 2021/2022 tax cycle to the 2023/2024 tax cycle
was excessive and not in line with tax increase that the rest of Montana is

experiencing. MTAB Hr’g Tr. 9: 13-23. Taxpayers stated that contrarily, the

BEFORE THE MONTANA TAX APPEAL BOARD
STATE OF MONTANA, DEPARTMENT OF REVENUE v. Potter

five comparable properties the DOR used to value the Subject Property had an
average increase of only 33.73%. MTAB Hr’g Tr. 14:17-15:17. Furthermore,
properties located in the Subject Property’s actual neighborhood, not the
neighborhood created by the DOR for their assessment purposes, had an
average increase of 27.894% on their market values. Jd. Taxpayers define

“actual neighborhood” as people that live in close proximity to the subject

property. Id.

Taxpayers argued at hearing that properties in their actual neighborhood are
inferior to properties in the DOR neighborhood used for valuation. MTAB Hr’g
Tr. 14:17-15:3. Taxpayers testified that the Subject Property does not have
river frontage, nor does it have a view of the river or surrounding mountains.
Ex. C; MTAB Hr’g Tr. 16:24-17:9. The land the Subject Property resides on is
lower in elevation than surrounding properties and Taxpayers described the lot
as being, “sunk in.” Jd. Due to the Subject Property being lower in elevation,

Taxpayers have no view of the river. Jd.

Taxpayers presented twelve photos of neighboring homes and workshops in
order to show that the neighborhood is not located in a housing development
and that no property in the neighborhood has any views of mountains or the
river. Ex. 4; MTAB Hr’g Tr. 22:22-23:6. Furthermore, Taxpayers contend that

DOR’s value of $900,000 is a similar value to houses with views of river. Jd.

Taxpayers next presented a spreadsheet highlighting the differences between
the Subject Property’s shop and other shops located in DOR Neighborhood 9 to
show that the Subject Property’s shop is overvalued and valued inconsistently
compared to others. Ex. 2; MTAB Hr’g Tr. 25:5-26:4. Some of the
inconsistencies Taxpayers emphasized were the differences in price per square
foot, height adjustments, and deductions for lack of electricity for shops in
Neighborhood 9. Jd. The Subject Property’s shop had a deduction of $15,000
for not having electricity as of the lien date of January 1, 2022. Id. The Subject

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BEFORE THE MONTANA TAX APPEAL BOARD
STATE OF MONTANA, DEPARTMENT OF REVENUE v. Potter

Property’s shop has subsequently had electricity installed. Jd. Taxpayers
expressed doubt concerning the accuracy of the DOR’s electricity deduction in

Neighborhood 9 for other shops. Jd.

Taxpayers also argued that the five most comparable properties the DOR used
in valuing the Subject Property had discrepancies in how they were appraised
as compared to the Subject. Ex. E; MTAB Hr’g Tr. 28:18-29:13. Taxpayers
showed that Comp 1 is 812 square feet larger than the Subject Property with a
total lot size of over three acres making it larger than the Subject Property. Id.
The heating assessment for Comp 1 is $2.36 less per square foot than the
Subject Property, and the value per square acre is $10,018.00 less than the
Subject Property. Jd. Comp 1 also contains a shop on its property which is
similar to the Subject Property, albeit roughly half the size. Jd. The shop for
Comp 1 was valued at $18,860 whereas the shop on the Subject Property was
valued at $117,630. Jd. Taxpayers stated this resulted in an inequitable cost of
$11 per square foot for the shop in Comp 1 as compared to $37 per square foot
for the Subject Property’s shop. /d. Taxpayers also noted that the property
record card for Comp 1 listed a 1,920 square foot daylight basement whilst the
DOR Exhibit E had no basement listed for Comp 1. Jd. Similarly, Taxpayers
stated the garage attached/detached column did not include the shop for Comp
1 despite it containing a shop. Jd.

Taxpayers also discussed discrepancies with a second DOR comparable
property, Comp 2. Ex. 3, E; MTAB Hr’g Tr. 29:14-25. Taxpayers contended
that Comp 2 was not being charged for heating despite having electric
baseboards. Jd. Additionally, the property had no added value for plumbing,
even though the property record card states the residence has 1’ baths. Jd.
Lastly, Taxpayers contended that the Subject Property’s assessed land value
was $13,000 more per acre compared to DOR’s Comp 2. Jd.

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BEFORE THE MONTANA TAX APPEAL BOARD
STATE OF MONTANA, DEPARTMENT OF REVENUE v. Potter

Taxpayers then turned to DOR’s Comp 3 where they questioned its overall
comparability to the Subject Property. Ex. 3, E; MTAB Hr’g Tr. 30:1-4.
Taxpayers testified that Comp 3 is listed as a single-story residence with minor
concrete improvements that does not contain a detached shop. Jd. Conversely,
the Subject Property is two-story residence with extensive concrete
improvements, an outdoor deck, and a shop on the premises. /d. Taxpayers had
similar concerns about the actual comparability of DOR’s Comps 4 and 5 to the

Subject Property. Ex. 3, E; MTAB Hr’g Tr. 30:23-31:2.

Taxpayers presented the valuations for a number of properties they deemed to
be more similar to the Subject Property and in the Subject Property’s actual
neighborhood. Ex. 3. The Taxpayers began with their previous home, a
residence located on the same street as the Subject Property. Ex. 3, A; MTAB
Hr’g Tr. 31:3-20. Taxpayers questioned why that residential improvement was
valued at $428,160 while the Subject Property’s dwelling value was $713,600.
Id. Furthermore, Taxpayers argued that their previous home should have been
used as a comparable property due to the many similarities it has with the

Subject Property. Jd. In addition to the similarity in location, Taxpayers

provided that both the Subject Property and their previous home had exactly

4,102 square feet of living area. Jd. Taxpayers conceded that unlike the Subject
Property, their previous home did not have a shop and had a smaller total lot
size. Id. However, Taxpayers argued that even if you took their previous
home’s taxable value and added the value of the Subject Property’s differences,
such as the shop and concrete features, their previous home would still be
valued approximately $150,000 less than the Subject Property. Ex. 3, 4; MTAB
Ar’g Tr. 32:3-8.

The Taxpayers also presented an extensive analysis of several more similar
properties in the Subject-Property’s area. Ex. 3; MTAB Hr’g Tr. 32:9-34:15,
34:23-35:8, 36:14-37:2. In their analysis, the Taxpayers used assessed values
for the 2023/2024 tax cycle rather than sales prices. Ex. 3; MTAB Hr’g Tr.

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BEFORE THE MONTANA TAX APPEAL BOARD
STATE OF MONTANA, DEPARTMENT OF REVENUE v. Potter

36:1-6. Taxpayers’ analysis included comparisons of price per square foot,
heating adjustments, and analysis of the shops located on the properties,
including electrical assessments, and compared price per square foot of the
Subject Property’s shop to basements of “similar properties.” Ex. 3; MTAB
Hr’g Tr. 32:9-34:15, 34:23-35:8, 36:14-38:3, 39:1-8. The DOR testified that
they did not use any comparable properties in Exhibit E to value the Subject
Property because of excess adjustments and switched to the cost approach.
MTAB Hr’g Tr. 75:9-22. Additionally, the DOR did not use any of the
Taxpayer's similar properties to value the Subject Property. Jd. The DOR did
use the comparable sales approach to derive a base acre and incremental acre

rate to value the Subject Property’s land. Ex. B; MTAB Hr’g Tr. 70:22-72:9.

Taxpayers stated that while they could not recall whether every similar
property they discussed had sold between 2020 and 2022, they could confirm
that their former home, the first similar property that was brought up, had been
sold within that time period. Ex. 3; MTAB Hr’g Tr. 42:12-43:7. Additionally,
Taxpayers’ exhibit included five of the DOR’s own comparable properties as
similar properties and those five comparable properties were also confirmed to
have been sold within the time frame. /d. All of Taxpayers’ similar properties
were within the Subject Property’s DOR Neighborhood 9. Jd. Taxpayers stated
they did not know whether the similar properties they presented had also been
appraised using the cost approach. Ex. J, 3; MTAB Hr’g Tr. 47:22-25.

Taxpayers agreed that the valuation approach used to value the Subject
Property was changed during the AB-26 review process from the comparable
sales approach to the cost approach because of excess adjustments on the
comparable properties. MTAB Hr’g Tr. 46:5-8, 67:8-24. Taxpayers agreed that
the difference in value between the Subject Property being valued using the
cost approach versus the comparable sales approach resulted in a 1.1%
reduction in value. Ex. 3; MTAB Ar’g Tr. 50:23-52:14. However, Taxpayers

disagreed that this percentage difference between the cost and sales approach

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BEFORE THE MONTANA TAX APPEAL BOARD
STATE OF MONTANA, DEPARTMENT OF REVENUE v. Potter

concerning value for the similar properties was homogeneous to the Subject

Property. Id.

Taxpayers testified that the Subject Property’s shop is approximately 3,000
square feet and is divided into two separate halves. MTAB Hr’g Tr. 55:14-56:2.
One half is cold storage, and the other is Mr. Potter’s work area. Jd. The work
area is sheet rocked, insulated, painted, has lights, and is considered finished.
Id. The cold storage side is insulated and sheet rocked but is otherwise
unfinished. Jd. The shop is heated through a forced air furnace. /d. The shop
also contains plumbing which is attached to a toilet and sink. Ex. 4; MTAB
Ar’g Tr. 56:13-19.

During cross-examination, DOR Counsel presented a fee appraisal that was
performed on the Subject Property at Taxpayers’ request as a rebuttal exhibit.
Ex. J; MTAB Hr’g Tr. 58:23-59:9. Taxpayers expressed general concerns
regarding the accuracy and completeness of the fee appraisal as they had
discovered inaccuracies in the report and had not been able to reach the
appraiser to discuss his findings. Ex. J; MTAB Ar’g Tr. 56:20-57:23, 59-13-17,
61:18-21, 64:8-65:15. Taxpayers agreed with the DOR that the appraisal report
estimated the Subject Property’s value to be $935,000 using the cost approach,
with $218,000 of that value being attributed to the Subject Property’s shop. Ex.
J; MTAB Hr’g Tr. 60:20-61:3. The DOR Area Manager, Mr. Boggess, testified
that he also found a number of errors in the Taxpayers’ independent fee
appraisal. MTAB Hr’g Tr. 105:20-106:10. These errors included not listing
adjustments for bathroom differences, using a $15 per square foot adjustment
for the basement when the appraisal itself indicated a $10 per square foot
adjustment, and failing to adhere to common appraisal practices such as

bracketing the Subject Property with higher and lower valued properties. Jd.

DOR Lead Appraiser, Mr. Murphy, testified he changed the methodology used
to value the Subject Property during the AB-26 review process from the

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BEFORE THE MONTANA TAX APPEAL BOARD
STATE OF MONTANA, DEPARTMENT OF REVENUE v. Potter

comparable sales approach to the cost approach. MTAB Hr’g Tr. 67:8-24. The
methodology was changed because all the comparable properties that were |
originally used had excessive adjustments of over 50% between the sale price
and adjusted price. MTAB Hr’g Tr. 67:8-24, 95:16-25. Mr. Murphy testified
that DOR assessment procedure instructs appraisers to use the cost approach
when three or more of the comparable sales are being adjusted by more than
fifty percent. Ex. G; MTAB Hr’g Tr. 83:7-84:2. Mr. Murphy stated that this
switch from using the comparable sales approach to using the cost approach

occurs frequently. MTAB Ar’g Tr. 87-14-16.

Mr. Murphy testified that the Subject Property’s land value was determined
using the base rate and incremental rate. Ex. B; MTAB Hr’g Tr. 70:14-72:3.
The base rate is the value of the first acre of the property, and the incremental
rate is the value of any additional acres. Jd. The base rate for the Subject
Property was $53,231 and the incremental rate was $3,644 per acre for each
additional acre. Jd. The formula used to determine market value for the Subject
Property’s land is Y=M*X+B, where Y is the market value, M is the Subject
Property’s land size minus the base rate, X is the incremental rate, and B is the
base value. Jd. For the Subject Property’s 2.75 acres, the land calculation
resulted in a value of $59,500. Jd.

The DOR’s land model land pulled sales data from Neighborhood 9 to
determine the base and incremental rates. Ex. B; MTAB Hr’g Tr. 72:6-9.

Neighborhood 9 encompasses a five-mile radius outside the city limits of Great
Falls. Id.

DOR presented a Comparable Sales Report which included the Subject
Property and five properties that the DOR deemed most comparable. Ex. E;
MTAB HAr’g Tr. 75:9-76:19. The comparable sales method valued the Subject
Property at $912,800, however, Mr. Murphy did not adopt the comparable sales

value because there were excessive adjustments on all comparable sales. Jd.

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BEFORE THE MONTANA TAX APPEAL BOARD
STATE OF MONTANA, DEPARTMENT OF REVENUE y. Potter

Mr. Murphy explained that the comparable properties’ actual sales prices were
around half or less of the adjusted sales prices. Jd. This was primarily due to
the comparable properties having large adjustments for grade per square foot,
condition/desirability/utilities score per square foot, and detached garages. Id.
Mr. Murphy testified that all of the comparable properties had fewer square
feet of livable area or had smaller shops than the Subject Property. Jd.

Mr. Murphy testified that he assigned the Subject Property a grade of 6. Ex. F;
MTAB Hr’g Tr. 78:1-21. Mr. Murphy based his assignment of this grade on
external observations of the Subject Property’s quality of construction, the
good quality of materials used, the good quality of fenestration, and the fact
that the Subject Property was custom built and not mass produced. Jd. All
grade 6 homes are given the same grade multiplier score of 1.31, which will
raise the value of the property to account for the higher costs involved in

construction of the improvements. Jd.

The Subject Property has depreciated 1% and is considered 99% good. Ex. F;
MTAB Hr’g Tr. 80:3-14. Mr. Murphy stated that because the Subject Property
was built in 2020, it’s in very good condition and is practically still new. Jd.
Without the shop and outbuilding, the Subject Property’s replacement cost new
less depreciation was listed as $713,600 by the DOR. Jd.

The Subject Property’s shop is valued at $117,630. Ex. F; MTAB Hr’g Tr.
80:18-81:18. Mr. Murphy stated that the base value of the shop is $8,062.70
plus $39.64 per square foot to account for the grade. Jd. To arrive at the final
price, $6,033 was added to the shop’s value to account for a 2-foot height
adjustment for higher walls, and the value was reduced by $15,609 due to the
shop lacking electricity at the time the DOR valued it. Jd. The shop is
considered unfinished and was given an average construction grade. Jd. The

DOR valued the shop at $117,630 for the 2023/2024 tax cycle. Ex. A.

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BEFORE THE MONTANA TAX APPEAL BOARD
STATE OF MONTANA, DEPARTMENT OF REVENUE v. Potter

Mr. Murphy explained that if a property does not show an adjustment for
electricity, electricity is factored into the price per square foot value. Ex. 2;
MTAB Hr’g Tr. 90:9-91:6. Values for electricity relate not only to the size of
the property, but also the cost of introducing electricity to a building based on
the type of construction. MTAB Hr’g Tr. 92:9-19.

Ms. Crouch testified that for the DOR land models, the DOR uses a straight-
line regression which plots data points for sales and then runs a regression line
through the data. MTAB Hr’g Tr. 94:11-22. The regression analysis gives the
DOR their base acre value, as well as incremental and decremental rates. Jd.
For calculating the contributory value of aspects of the Subject Property, such
as square footage, air conditioning, and heating, the DOR uses a multiple
regression analysis. Id. Ms. Crouch defined base size for the DOR’s acre model
as a typical building site within the DOR neighborhood. MTAB Hr’g Tr. 96:14-
97:3. It is generally the area that’s necessary to contain the dwelling, a well or
cistern, septic systems, and outbuildings. Jd. For the Subject Property’s
neighborhood, the base size is one acre. Jd. Base rate measures the value of that
first acre, and for the Subject Property’s neighborhood, it’s $53,231. MTAB
Ar’g Tr. 97:7-12. The DOR tests its models against standards set by the
Internation Association of Assessing Officers. MTAB Ar’g Tr. 99:6-15.

Ms. Crouch stated that Neighborhood 9, which the Subject Property resides in,
does not have adjustments for river frontage or scenic views as those properties

are contained in separate DOR neighborhoods. MTAB HAr’g Tr. 94:23-95:12.

Ms. Crouch agreed that while the cost approach was used to value the Subject
Property after the AB-26 process, the land value specifically was essentially
being valued using the market sales approach. MTAB Hr’g Tr. 100:15-21.

Mr. Boggess stated that he was not surprised the Taxpayers’ former home was

not selected as a comparable property. MTAB Hr’g Tr. 107:20-108:4. Mr.

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BEFORE THE MONTANA TAX APPEAL BOARD
STATE OF MONTANA, DEPARTMENT OF REVENUE vy. Potter

Boggess speculated that because the sale date was in early 2021, it would have
had to have been adjusted approximately twelve months from the base date
which would add more weight as a coefficient causing the property to not be
selected. Id. Additionally, the former home does not have the same size
outbuilding, and there is approximately 1,400 square foot difference in gross

living area. Jd.

Mr. Boggess testified heating adjustments in the cost approach are used to
represent the replacement cost new of the heating system. MTAB Hr’g Tr.
108:5-109:2. Hypothetically, two equally sized dwellings with identical heat
systems should have the same price per square foot for heat. Jd. Furthermore,
the larger the property, the less it costs per square foot to heat based on the law

of diminishing returns. Jd.

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, 4 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).

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BEFORE THE MONTANA TAX APPEAL BOARD
STATE OF MONTANA, DEPARTMENT OF REVENUE y. Potter

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
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, § 23, 310 Mont. 148, 155,
49 P.3d 43, 47); see Northwest Land & Dev. v. State Tax Appeal Bd., 203

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BEFORE THE MONTANA TAX APPEAL BOARD
STATE OF MONTANA, DEPARTMENT OF REVENUE v. Potter

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)).

When construing a statute, it is the Board’s role to “determine what in terms or
substance is contained in it, and not to insert what has been omitted or to omit
what has been inserted.” State v. Minett, 2014 MT 225, § 12, 376 Mont. 260,
263, 332 P.3d 235, 238; Mont. Code Ann. § 1-2-101.

“When faced with a problem of statutory construction great deference must be
shown to the interpretation given the statute by the officers or agency charged

with its administration.” Dep’t of Revenue v. Puget Sound Power & Light Co.,
179 Mont. 255, 262, 587 P.2d 1282, 1286 (1978) (citing Udall v. Tallman, 380
U.S. 1, 16 (1965)).

“[T]ax statutes are to be strictly construed against the taxing authority and in
favor of the taxpayer.” Western Energy Co. v. Dep’t of Revenue, 1999 MT 289,
4 10, 297 Mont. 55, 58, 990 P.2d 767, 769.

“Administrative agencies enjoy only those powers specifically conferred upon
them by the legislature. Administrative rules must be strictly confined within
the applicable legislative guidelines. Indeed, it is axiomatic in Montana law
that a statute cannot be changed by administrative regulation. We look to the
statutes to determine whether there is a legislative grant of authority.” Bick v.
State Dep’t of Justice, Div. of Motor Vehicles, 224 Mont. 455, 457, 730 P.2d
418, 420 (1986).

“[A]dministrative regulations interpreting the statute made by agencies charged
with the execution of the statute are entitled to respectful consideration.” Puget

Sound Power & Light Co., 179 Mont. 255, 266, 587 P.2d 1282, 1288 (1978).

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BEFORE THE MONTANA TAX APPEAL BOARD
STATE OF MONTANA, DEPARTMENT OF REVENUE v. Potter

The Board “may not amend or repeal any administrative rule of the
department,” but may enjoin its application if the Board concludes the rule is

“arbitrary, capricious, or otherwise unlawful.” Mont. Code Ann. § 15-2-301(5).

The term “improvements” includes all buildings, structures, fences, and
improvements situated upon, erected upon, or affixed to land. Mont. Code Ann.
§ 15-1-101()) (i).

“Tf the appeal is an appeal of the valuation of residential property, the state
board shall consider an independent appraisal provided by the taxpayer if the
appraisal meets standards set by the Montana board of real estate appraisers
and uses values obtained within the timeframe provided for in subsection
(3)(a). The appraisal that is provided by the taxpayer is presumed to establish
assessed value in the state board proceeding unless the department provides
sufficient evidence to rebut the presumption of correctness, including another
independent appraisal or other compelling valuation evidence. The state board
shall address the taxpayer’s independent appraisal and the department’s

valuation evidence in the decision.” Mont. Code Ann. § 15-2-301(3)(b).

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

DISCUSSION

First, the Board would like to address the independent appraisal presented by
the DOR as rebuttal Exhibit J. The Board finds that the independent appraisal
does not meet the standards set forth in 15-2-301 M.C.A. The Legislature set a

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49.

50.

BEFORE THE MONTANA TAX APPEAL BOARD
STATE OF MONTANA, DEPARTMENT OF REVENUE y. Potter

valuation date for the 2023/2024 tax cycle of January 1, 2022. The effective
date of the appraisal is January 1, 2023, and is not within the required six
months of the valuation date. Additionally, both parties expressed concerns
about the accuracy of the appraisal and its procedures. The Board will not

presume the appraisal to establish the taxable value of the subject property.

The Taxpayers argue that the subject property’s tax increased by 52%. The
DOR comparable properties had an average of 33.73% increase and similar
properties in the subject’s immediate neighborhood had an average increase of
27.89%. The Taxpayers have the burden of proving that the DOR made a
mistake in its appraisal. Just because a property had a higher percentage value
increase does not necessarily mean the DOR made a mistake in its appraisal
process. Other properties in Neighborhood 9 had potentially similar percent
increases, just not in the immediate area of the subject property. Properties
must be valued using appraisal practices approved by the Montana Code
Annotated, and using a percentage of taxable value to determine property value
is not a generally accepted appraisal methodology. The testimony and evidence
presented convinced the Board that the DOR did follow established practice,
procedures of mass appraisal, and Montana law to determine the value assigned

to the subject land and improvements.

The Taxpayers presented a comprehensive review of the DOR’s comparable
sales and properties similar to the subject property in its immediate
neighborhood. The Taxpayers showed taxable value variations between the
subject property, the comparable properties, and the similar properties,
primarily focusing on a price per square foot and heating assessment analysis.
While the Board is impressed with the details of the work, we must note that
analyzing taxable value differences between properties using a price per square
foot average method alone does not meet the Taxpayers’ burden to prove the
DOR used an incorrect method or made a mistake during its appraisal. Prices

vary between properties for many reasons, including location, size, grade, and

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51.

BEFORE THE MONTANA TAX APPEAL BOARD
STATE OF MONTANA, DEPARTMENT OF REVENUE y. Potter

the utility of the improvements. Size is important because the Taxpayers’
Exhibit 3 has properties ranging from 16 acres to 6,000 square feet, causing the
price per square foot to fluctuate. DOR is limited to the sales comparison
method or the cost approach when valuing residential properties to find value
and cannot use or consider price per square foot. Lastly, the Taxpayers used
DOR property valuations and not sales prices when evaluating the comparable
and similar properties. The Taxpayers did include sales when available, but
many of the properties in Exhibit 3 are based on taxable value and not sales
prices. The Board finds the Taxpayers’ evidence credible, but it does not

convince the Board that DOR made a mistake in this appraisal.

While the Taxpayers focused on an extensive analysis of comparable
properties, the DOR switched to the cost method to value the Subject Property
during the AB-26 process. The Board received very little testimony relating to
mistakes with the DOR’s cost method to value the Subject Property. The DOR
presented credible evidence that the comparable sales had excessive
adjustments, which made them less reliable. We find the choice of using the
cost method over the comparable sales method was reasonable and is supported
by Albright. Albright v. State, 281 Mont. 196, 208-09, 933 P.2d 815, 823
(1997). The DOR was able to consider the Subject Property's individual
characteristics and calculate a defendable replacement cost new less
depreciation value. While the Board acknowledges that the heating assessment
impacts the final market value, the Taxpayers’ price per square foot compared
to other property’s heating assessment did not convince the Board their heating
assessment could be too high. The Subject Property’s heating assessment is
among the higher heating assessments presented by the Taxpayers in Exhibit 3.
However, because the house is newer and the heating system is newly installed,
the Board would expect it to have very little depreciation, supporting a higher

heating assessment.

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BEFORE THE MONTANA TAX APPEAL BOARD
STATE OF MONTANA, DEPARTMENT OF REVENUE y. Potter

52. The Board finds it valid that the DOR relied on the cost method to value the

53.

property. The DOR followed its procedures when many of the comparable
sales had excessive adjustments of 50% or more and switched to the cost
method. The Board hopes that the cost approach is applied in similar situation
without having a taxpayer appeal or file an AB-26 to trigger the change.
Additionally, the DOR’s use of the base and incremental rates to determine

land value was proper.

The Taxpayers also argued that the shop on the Subject Property was valued
too high. The Taxpayers presented the price per square foot for comparable and
similar shops. While the Taxpayers’ Exhibit 2 includes all this information, it
also reveals that the Taxpayers compare the Subject Property’s shop to several
different types of shops of varying size, including pole garages, lean-tos, and
attached and unattached garages, some of which were much older and more
depreciated than the Subject Property’s shop. During the hearing, the
Taxpayers compared the Subject Property’s shop to daylight basements. The
Board does not find this argument credible, as a detached framed shop is not
comparable to a basement, pole barn, or lean-to, in this situation. Additionally,
all the shops in Exhibit 2 are varying sizes and are not comparable on a square
foot basis. The DOR testified garages and shops are all valued at a base rate.
The square feet of the shop are multiplied by the building’s grade, and any
deductions or additions are added to the final value. The Board finds the
Subject Property’s shop’s average grade of construction acceptable as the shop
was recently built, and the photos of the shop show no defects. The DOR’s
addition of $6,033 due to the height of the shop is an acceptable way to account
for construction with higher walls and thus more desirable space to a future
buyer, as the two-foot height adjustment was obtained from the Marshal and
Swift cost manuals, a credible source. The Board finds that the DOR did not

make an error when valuing the shop located on the Subject Property.

54. The Board upholds the DOR’s taxable value and reverses the CTAB decision.

18

BEFORE THE MONTANA TAX APPEAL BOARD
STATE OF MONTANA, DEPARTMENT OF REVENUE v. Potter

ORDER
55. The value of the Subject property will be set at $902,140 for the 2023/2024

valuation cycle.

Dated this 1st day of July 2024.

yA 7. Meh

David L. McAlpin, Chairman

Rl

Amie Zendron, Member

Foe Qe

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).

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BEFORE THE MONTANA TAX APPEAL BOARD
STATE OF MONTANA, DEPARTMENT OF REVENUE v. Potter

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 July 1, 2024, to:

Dave Burleigh

State of Montana, Department of Revenue
Legal Services Office

P.O. Box 7701

Helena, MT 59604-7701

Joyce Thares

Michael E. Potter

3100 9th StS

Great Falls, Montana 59405

Bonnie Fogerty

Cascade County Tax Appeal Board
325 2nd Ave North

Great Falls, MT 59401

Paula Gilbert

Department of Revenue, Property Assessment Division
P.O. Box 8018
Helena, MT 59604-8108

heeo—

Rina Sahderson, Legal Secretary

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