Inge Cahill v. Department of Revenue

OCR transcription for search; preserved printed pages are authoritative

BEFORE THE MONTANA TAX APPEAL BOARD a
JUL 15 2022

Montana Tax Appeal Board

INGE CAHILL, CASE Ne: PT-2021-34
Appellant, FINDINGS OF FACT,
CONCLUSIONS OF LAW, ORDER,
v. AND OPPORTUNITY FOR
JUDICIAL REVIEW
STATE OF MONTANA,
DEPARTMENT OF REVENUE,
Respondent.
STATEMENT OF THE CASE

This is an appeal by Inge Cahill (Taxpayer), represented by Mark Cahill, ofa
decision by the Flathead County Tax Appeal Board (CTAB) denying an application
for reduction in value on her property located at 1725 3 Ave. W, Columbia Falls,
Montana, and affirming the Department of Revenue’s (DOR) land and improvement
valuation for the 2021/2022 tax cycle. The Taxpayer timely appealed that outcome to
the Montana Tax Appeal Board (MTAB) on December 13, 2021. We modify the
CTAB’s determination and grant the Taxpayer’s appeal in part, reducing the land
value to $241,304 and maintaining the taxable value for the improvements at

$340,400.

ISSUE TO BE DECIDED
Whether the CTAB erred in affirming the DOR appraised land value of
$268,116 and improvement value of $340,400 for this property.

EXHIBIT LIST
The following evidence was submitted at the hearing:
Taxpayer Exhibits:
1. Property Record Card 1725 3" Ave. W. pg. 1
2. Property Record Card 1725 3 Ave. W. pg. 2

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

3. Carmel Ford, Cost of Constructing a Home, NAHB Economics and
Housing Policy Group, Jan. 2, 2020, https://www.nahb.org/-
/media/8F04D7F6EAA34DBF8867D7C3385D2977.ashx (Partial)

4. Table of Single Family Price and Cost Breakdowns — 2019 National
Results

5. Columbia Falls Home Construction Costs & Prices — ProMatcher Cost
Report (Partial)

6. Richard Dews, Real Estate Market Trends, Flathead Beacon, July 15,
2020, https://flatheadbeacon.com/2020/07/15/real-estate-market-trends-
110/ |

7. Richard Dews, Market Trends: Land Sales Article, Flathead Beacon, July
7, 2021, https://flatheadbeacon.com/2021/07/07/market-trends-land-sales-
2/

8. Flathead County 2020-2021 Real Estate Tax Bill for 1030 Riparian Dr.

9. Flathead County 2020-2021 Real Estate Tax Bill for 1110 Riparian Dr.

10. Flathead County 2020-2021 Real Estate Tax Bill for 626 Zephyr Ct.

11. Flathead County 2020-2021 Real Estate Tax Bill for 1611 Grove St.

12. Flathead County 2020-2021 Real Estate Tax Bill for 149 Jorgensen Trail

13. Property Record Card 149 Jorgensen Trail

14. Map of DOR Comparable 5

15. Map with DOR Comparable 5 and 149 Jorgensen Trail

16. Map of DOR Comparables

17. Flathead County 2020-2021 Real Estate Tax Bill for 1725 3 Ave. W.

18. Cahill % Complete Breakdown

19. Montana Insulation Contractors, Inc. Work Order

20. Property Record Card 1725 3" Ave. W pg. 1 (with Taxpayer’s
adjustments)

21. Property Record Card 1725 3" Ave. W pg. 2 (with Taxpayer’s
adjustments)

22. Property Record Card 1725 3" Ave. W pg. 3 (with Taxpayer’s
adjustments)

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

23. Map of the Subject Property and City Park
24. Map of the Subject Property and Right of Way

25. Letter from Dave Heine, Broker

DOR Exhibits:
A. Property Record Card 1725 3"! Ave. W
Pre-2020 Floorplan Sketch
Pictures and Map of the Subject Property
Percent Completion Breakdown
Land Sales Comparables
Emails
. AB-26 Request
. 8/5/21 AB-26 Response Letter
Carmel Ford, Cost of Constructing a Home, NAHB Economics and

roam monaw

Housing Policy Group, Jan. 2, 2020, https://www.nahb.org/-
/media/8FO4D7F6EAA34DBF8867D7C3385D2977.ashx (Complete) — 8
pages ,

J. Columbia Falls Home Construction Costs & Prices - ProMatcher Cost

Report (Complete)

PROCEDURAL HISTORY

The DOR valued the subject property at $608,516 for the 2021/2022 appraisal
cycle, with the land valued at $268,116 and the improvements valued at $340,400.
MTAB Hrg. Tr. 2:5-9; Ex. A, at 000003. The Taxpayer filed an AB-26, Request for
Informal Classification and Appraisal Review, with the DOR on July 8, 2021,
requesting a land value of $149,189 and an improvement value of $150,192. Ex. G.
The DOR sent a Form AB-26 Determination Letter to the Taxpayer dated August 5,
2021, denying the Taxpayer’s request. Ex. H. The Taxpayer appealed the DOR’s
valuation to the CTAB on August 16, 2021, requesting a land value of $187,681 and
an improvement value of $238,280. MTAB Dkt. 1. The CTAB hearing was held on
November 10, 2021, and the CTAB’s decision denying the Taxpayer’s application for
reduction was sent to the parties on November 15, 2021. The Taxpayer appealed to the

2
a

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

Montana Tax Appeal Board (MTAB) on December 13, 2021, per Mont. Code Ann §
15-2-301, requesting a land value of $131,760 and an improvement value of $164,677,
for a total of $296,437. MTAB Hrg. Tr. 5:3-22; MTAB Dkt. 2. The MTAB hearing
was conducted in Helena on April 19, 2022, at which the following were present:

a. Mark Cahill, Taxpayer’s representative (via Zoom); and

b. Kristina Warren, DOR Counsel; Lori Gibson, DOR Appraiser (via
Zoom); Dawn Cordone, DOR Area Manager for Flathead and Lincoln
Counties (via Zoom).

The record includes all materials submitted to CTAB, a recording of the CTAB
hearing, all materials submitted to MTAB with the appeal, and additional exhibits
submitted by the parties prior to and at the MTAB hearing.

FINDINGS OF FACT
1. To whatever extent the foregoing findings of fact may be construed as

conclusions of law, they are incorporated accordingly.

2. The DOR valued the subject property for the 2021/2022 valuation cycle using
market data based on the January 1, 2020, statewide lien date. MTAB Hrg. Tr.
37:1-12. The market data used for the January 1, 2020 lien date was derived
from sales of residential properties that took place during 2018 and 2019. Id.
The data from those sales was then used to build a comparable sales method
model that was used to calculate the value of the subject property utilizing

characteristics of the subject property as of January 1, 2021. Jd.

3. Based on the DOR’s records from 2011 to 2018, the DOR believed the main
floor of the subject property improvements was 1,444 square feet. MTAB Hrg.
Tr. 40:18-23; Ex. B. In October 2020, Ms. Gibson conducted an exterior
inspection of the subject property, remeasured and resketched the exterior of
the buildings, and arrived at a square footage of 2,944. MTAB Arg. Tr. 40:24-
41:6; Ex. A. Ms. Gibson included photographs of the property which she took

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

during this inspection to add to the existing photographs in the DOR records
from 2011 and 2018. MTAB Hrg. Tr. 41:7-14; Ex. C, at 000009-000010.

The subject property fronts the Flathead River which is southeast of the
property. MTAB Hrg. Tr. 41:15-42:12; Ex. C, at 000011. The subject property
is also abutting, to the south, a city park maintained by the City of Columbia
Falls. 7d.

Tax bills for the five comparable sales the DOR used in valuing the subject
property show an increase in land value from 2020 to 2021 between 35% and
56%. Ex. 8-12. The tax bill for the subject property shows an increase in land

value of 188% in the same time period. Ex. 17.

Mr. Cahill testified that no explanation for the increase in value was provided
as required per Mont. Code Ann. § 15-7-102(1)(b)(iv) which states that an
explanation must be provided within the required valuation notices if the
market value has increased by more than 10%. MTAB Arg. Tr. 11:13-17.
Montana Code Annotated § 15-7-102(1)(b)(iv) is a relatively new law with an
effective date of October 1, 2021, meaning such information will be required

for notices mailed after that date.

Mr. Cahill also argued that because the subject property is within the city
limits, extracting separate values for land and improvements was noncompliant
with Mont. Code Ann. § 15-8-111(9)(c) which states that land and
improvements are separately assessed when the land is outside an incorporated

city or town. MTAB Arg. Tr. 11:19-23.

The DOR valued the land using the sales comparison approach and valued the
improvements using the cost approach. MTAB Hrg. Tr. 34:17-21. Land is
always valued using the sales comparison approach based on market

transactions of vacant land or property with improvements extracted. MTAB

5

10.

11.

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

Hrg. Tr. 60:1-61:2. Because of the incomplete construction of the
improvements, the DOR was required to estimate a percent complete, and
value the improvements using the cost approach. Jd. Since there are very few
sales of partially complete improvements that could be used to support a
valuation of other partially complete improvements using the sales comparison
approach, residential properties that are incomplete, such as the subject

property, will be valued using the cost approach. Jd.

When developing costs of construction to use for the cost approach, the DOR
uses nationally accepted appraisal cost guides, including Marshall and Swift,
and local construction cost data. MTAB Hrg. Tr. 44:21-45:4. The DOR will
also review information by property owners. Jd. Mr. Cahill provided a cost
breakdown for a new roof and a patio roof. MTAB Hrg. Tr. 44:11-45:4; Ex. F.
He testified that because of his connection to the building industry, he is able to
secure materials at a lower cost than provided by the guides the DOR uses.
Because the DOR develops costs from national and local sources to value all
properties in Montana, the information provided by the Taxpayer did not
change the DOR’s valuation. /d. An individual taxpayer’s ability to secure
materials at a discount does not change the costs that would be incurred by
other builders to reconstruct the property and therefore does not change the

costs used in the cost method of valuation.

Mr. Cahill testified that as of January 1, 2020, the “house was still an empty
shell, uninhabitable, and devoid of any interior improvements.” MTAB Hrg. Tr.

11:11-13.

Ms. Cordone testified that the DOR used the land sales and construction cost
data based on the lien date of January 1, 2020, to value the characteristics of
the residence as of January 1, 2021, while the Taxpayer is incorrectly using the

characteristics of the home as they were as of January I, 2020, essentially

12.

13.

14.

15.

16.

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

confusing the valuation date and lien date. MTAB Hrg. Tr. 64:3-65:5; Ex. A, at
000003-000004, 000007; Ex. 20, 21.

Mr. Cahill testified that the DOR mischaracterized the property and made
mathematical and methodology errors, so he recalculated the valuation using
market data from his own research. MTAB Hrg. Tr. 22:9-25; Ex. 7-11, 16, 17,
20-22; Ex. A, at 000003-000004, 000007.

Mr. Cahill presented into evidence a July 7, 2021 article from the Flathead
Beacon written by Richard Dews, the CEO of Glacier Flathead Real Estate,
estimated the average price of one to five-acre parcels of land in Columbia

Falls in 2020 was $45,000 per acre. MTAB Arg. Tr. 13:6-9; Ex. 7.

To recalculate the land value of the subject property, the Taxpayer multiplied
the property size of 2.1 acres times the $45,000 per acre price as determined by
the article to arrive at a land value of $131,760. MTAB Hrg. Tr. 22:9-25,; Ex.
7-11, 16, 17, 20-22; Ex. A, at 000003.

The DOR testified that Mr. Cahill made multiple mistakes in his mathematic
calculations and his calculations did not follow accepted appraisal

methodology. MTAB Arg. Tr. 64:3-65:5; Ex. A, at 000003; Ex. 21.

The DOR testified that they used several comparable land sales, excluding
sales that the DOR determined were not arm’s length transactions in order to
develop the land valuation model used to value the subject property’s land.
MTAB Hrg. Tr. 43:1-16; Ex. E. To support the DOR’s land value, Ms. Gibson
chose five comparable raw or extracted land sales along the river she felt were

most representative of the Taxpayer’s property. Jd.

' It is unclear to this Board if Mr. Cahill considered additional information to calculate a value of $131,760 for
the subject property based in this information.

17.

18.

19.

20.

21.

22.

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

Mr. Cahill argued that the inclusion of comparable sale #5 distorts the results
under the DOR’s methodology because it is a 1.86-acre plot, but the DOR has
it listed as a 5-acre plot; because the DOR does not list any improvements on
the property, but the aerial view of the 5-acre plot shows otherwise; and
because it is outside of the city limits while the subject property is within city

limits. MTAB Hrg. Tr. 13:21-23; 16:10-17:12; Ex. 13, 14, 15, E.

The DOR testified that comparable sale #5 is considered two parcels which
have separate geocodes; however, the parcels must be sold together, so they are

valued as one parcel. MTAB Hrg. Tr. 43:17-22; Ex. E.

Ms. Gibson testified that the subject property has a lesser price per square foot
value than some of the comparable sales because the law of diminishing returns
may dictate that smaller parcels will sell for more per acre or square foot than a

larger parcel. MTAB Hrg. Tr. 44:6-10; Ex. E.

The DOR did not use a front foot method in this case because, unlike lake
frontage, the market does not always support the frontage method when dealing
with river frontage. MTAB Hrg. Tr. 51:3-10. For this reason, the DOR uses the

acreage or square foot method to calculate the value of land along rivers.

Mr. Cahill introduced into evidence the results of a 2019 study conducted by
the National Association of Home Builders (NAHB) which tended to show that
61% of the sales price of a single-family home goes to construction cost. MTAB
Arg. Tr. 12:4-7; Ex. 3, I. The study also conducted a construction cost survey
and cost breakdown that tended to show that the total construction cost for a
2,594 square foot single-family home was $296,652 which equates to $114 per
square foot. MTAB Hrg. Tr. 12:7-10; Ex. 4.

Mr. Cahill also introduced into evidence a ProMatcher Cost Report for the

Columbia Falls area, which shows basic construction costs for custom homes in

8

23.

24.

25.

26.

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

Kalispell was between $98 and $145 per square foot. MTAB Hrg. Tr. 12:11-
13; Ex. 5, J.

Mr. Cahill also introduced into evidence an article from the Flathead Beacon
written by Richard Dews, the CEO of Glacier Flathead Real Estate indicating
that the median price for a single-family residence in Columbia Falls on
January 1, 2020, was $135 per square foot, which includes the value of the
land. MTAB Hrg. Tr. 12:24-13:2; Ex. 6.

Using the information from the Exhibits noted above and the property record
card (PRC) for the subject property, Mr. Cahill presented his adjustments to the
DOR’s calculation of value. Because the home is only one floor, Mr. Cahill
excluded the DOR’s deduction of $8,807 for the basement and moved the
entire 2944 square feet to the “unfinished area” line on the PRC. MTAB Hrg.
Tr. 24:5-25:6; Ex. 7-11, 16, 17, 20-22; Ex. A, at 000004. Mutliplying this area
by the $115 per square foot value from the NAHB table, he arrived at a home
value of $338,560. Id.

Mr. Cahill testified that there was an existing gas boiler and a circulation pump
to heat the home but there was no heat pump or forced air as listed in the DOR
worksheet. MTAB Hrg. Tr. 24:5-25:6; Ex. 7-11, 16, 17, 20-22; Ex. A, at
000004. He also testified that there were no fixtures because the house was

only a shell as of the lien date. Id.

In the DOR’s valuation, the PRC shows a value of $275,756 for the first floor.
MTAB Arg. Tr. 37:24-38:4; Ex. A, at 000004. This value includes the quality
of construction, property characteristics, and square footage. Jd. The total
value, replacement cost new (RCN), without considering the percent complete,

was $438,716, which includes values for heating, plumbing, and additions. Jd.

27.

28.

29.

30.

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

The DOR does not use information provided by NAHB or ProMatcher because
the information provided is not reliable for developing costs to value Montana
properties. MTAB Hrg. Tr. 56:20-57:15. The NAHB study received usable
responses from only 49 builders nationwide to compile its data and refers
readers to Marshall and Swift for more specific cost estimating data. MTAB

Arg. Tr. 31:23-32-1; Ex. 3-4, Ex. 1.

Ms. Cordone testified that the information provided in the articles written by
Mr. Dews is informative, but the values provided therein are averages that
include million-dollar sales and hundred thousand dollar sales without regard to
analyzing comparable properties as is required by both mass appraisal and fee

appraisal standards. MTAB Hrg. Tr. 69:9-70:2; Ex.6-7.

In addressing the additional six fixtures on the PRC, Ms. Gibson testified that
almost every dwelling has at least three additional fixtures because of the
kitchen sink, the hot water heater, and a washing machine hookup. MTAB Hrg.
Tr. 46:15-25,; Ex. A, at 000004. Ms. Gibson estimated, based on the quality of
construction, that the Taxpayer’s home might have an additional three fixtures,
examples of which could include an extra bathroom sink, a separate tub and

shower unit, or a utility sink. Jd.

Because the Taxpayer did not allow the DOR inside to inspect the interior of
the improvements for valuation, the DOR estimated the residence was 51%
complete on the valuation date, based on the exterior inspection and
conversations with Mr. Cahill. MTAB Arg. Tr. 38:15-17; 42:14-24; Ex. D. The
DOR arrived at the percent complete by inputting the data the appraiser was
able to collect regarding the following ten factors: Excavation; joist subfloor,
floor; wall framing; wall sheathing; roof framing; roof cover; windows,
exterior doors; roughed in plumbing; roughed in electrical; and roughed in

heating. Jd.

10

31.

32.

33.

34.

35.

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

Mr. Cahill argued that at the DOR’s percent complete is incorrect, and that the
residence was instead 45% complete. MTAB Hrg. Tr. 13:24-1 5:1 5; Ex. 18, D.
To arrive at 45% the Taxpayer subtracted the 3% from the joist factor and also
subtracted 3% from the factors that are impacted by whether there is a
basement. Jd. Mr. Cahill testified that there is only a slab foundation, therefore
the floor joist factor should be deleted. Jd.

In the DOR’s valuation, the basement was given a negative value on the PRC
because a lower cost is given to a slab foundation. MTAB Hrg. Tr. 37:23-24;
Ex. A, at 000004.

Mr. Cahill contends that by including the cost of the plumbing and heating
rough-ins within the percent complete for the price per square foot calculation
while also adding more value for the rough-ins themselves, the DOR is
essentially double taxing the value of the heating and plumbing rough-ins.

MTAB Arg. Tr. 25:8-20; Ex. A, at 000004. Therefore, in his calculations, Mr.

-Cahill further decreased the percent complete by the 7 percentage points the

rough-ins were given and used 38% complete to arrive at a value of $128,653.
MTAB Hrg. Tr. 26:11-16; Ex. 20-22. He then added back in the 7% to come
up with a value of $23,699 for the roughed-in plumbing and heating. Jd.

The additions listed on the PRC include the exterior improvements of the
residence, which, in this case, includes the decks, porches, and an attached
garage. MTAB Hrg. Tr. 38:18-25,; Ex. A, at 000004. They are included within
the cost summary and are impacted by the percent complete. Ex. A, at 000004.

The PRC contains a value of $2,594 for a framed porch. MTAB Hrg. Tr.
26:17-24; Ex. 20-22; Ex. A, at 000004. Mr. Cahill testified that this structure is
only a slab poured between the walls of the house and the walls of the garage
but does not have its own separate framing. Jd. Mr. Cahill argued that because

it is only a slab and not a framed porch, he multiplied the 96 square feet by the

ll

36.

37.

38.

39.

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

$3 per square foot price he testified that concrete cost in 2019 which comes to

$288 rather than the DOR’s value of $2,594. Id.

The PRC also contains a finished, framed garage with a value of $36,432.
MTAB Arg. Tr. 27:16-20; Ex. 20-22; Ex. A, at 000004. Mr. Cahill testified
that the garage should be valued at $35.25 per square foot because the garage is
a three-sided structure in that one wall is attached to the already existing wall
of the home. /d. The structure is 780 square feet which when multiplied by
$35.25 arrives at a value of approximately $27,500. Id.

The PRC has two entries for concrete decks with values of $1,117 and $2,834.
MTAB Hrg. Tr. 27:20-22; Ex. 20-22; Ex. A, at 000004. The first is 227 square
feet and the second is 576 square feet. Jd. Mr. Cahill argued that the square

footage of each structure should instead be multiplied by $3 per square foot for

values of $549 and $1,728 respectively. Id.

The PRC contains a value of $14,697 for an enclosed porch. MTAB Arg. Tr.
27:1-14; Ex. 20-22; Ex. A, at 000004. Mr. Cahill testified that the porch is not
enclosed because there is only a roof, one solid wall, and one shear wall, but
the other two sides are open. /d. Mr. Cahill argued that the value of this
structure should instead be calculated by multiplying 288 square feet by $14
per square foot, for a value of approximately $4,027. Id.

Mr. Cahill’s calculations for the additions listed in the cost summary of the
PRC as discussed in sections 35 through 38 come to a total value of $34,092
rather than the DOR’s value of $57,674. MTAB Arg. Tr. 27:22-24; Ex. 20-22;
Ex. A, at 000004. Adding Mr. Cahill’s value of $128,653 for the unfinished
residence, $23,699 for the value of the plumbing and heating rough-ins, and
$34,092 for the value of the additions, the improvements subtotal under the

cost summary becomes $186,444. Id.

12

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

40. Ms. Cordone contended that the Taxpayer incorrectly placed a value in the
“unfinished area” portion of the cost summary, which is usually used when
there is no intention to finish that area, such as an attic. MTAB Arg. Tr. 64:3-
65:5; Ex. 21; Ex. A, at 000004. She testified that the value of the home as
completed should instead be listed in the cost summary and then the percent
complete applied in the calculation portion of the PRC to account for the fact
that the improvements were unfinished on the valuation date, rather than
inserting a deduction into the cost summary portion. /d. By calculating the
value of the residence based on a percent complete and then including that
value in the unfinished area of the PRC, the Taxpayer applied the percent
complete reduction to the value of the property twice. Jd.

41. The DOR valuation also includes other buildings and yard improvements
(OBY), which, in this case, include the framed garage, the lean-to, the asphalt,
and the concrete. MTAB Arg. Tr. 38:22-25; Ex. A, at 000007.

42. There is a right of way next to the subject property that is 60 feet wide, 18 of
which are paved. MTAB Hrg. Tr. 18:6-19:5, 23:11-17,; Ex. 23, 24; Ex. A, at
000007. This leaves 21 feet between the edge of the subject property and the
paved street that is still part of the right of way. Jd. Within that 21 feet is
another section of pavement which Mr. Cahill asserts the DOR has included as
part of the subject property within the OB Y/flat values. Jd. The DOR has given
the asphalt an RCN value of $6,127. Id. However, Mr. Cahill asserts that the
asphalt was laid in late September 2019 for a cost of $2.50 per square foot
which equates to $1,700 because the area, which is between the concrete

aprons of the pole barn and the property corner, is 680 square feet. Jd.

43. Mr. Cahill testified that the detached garage is actually a pole barn and lean-to
that was constructed in 2015. MTAB Arg. Tr. 18:18-20:7; Ex. 24; Ex. A, at
000007. There is heat, water for the heater, a sewer tap for a toilet that goes

down to septic, and insulation within the garage; however, Mr. Cahill testified

cad

13

44.

45.

46.

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

that the structure is not habitable because it lacks a solid foundation. Jd. He
testified that the construction of this structure in 2019 cost $24 per square foot
plus $3 per square foot for the concrete slab, including labor costs, rather than

the $48 per square foot the DOR has valued the structure. Jd.

Mr. Cahill argued that value of the pole barn should be calculated by
multiplying the 1,600 square feet of the pole barn times $24 per square foot to
arrive at a value of $38,400 and a value minus depreciation of $32,847 rather.
than the DOR’s value of $76,556 and $65,490 minus depreciation. MTAB Hrg.
Tr. 23:2-24:3; Ex. 7-11, 16, 17, 20-22; Ex. A, at 000007. He argued the value
of the lean-to should be calculated by multiplying the 600 square feet of the
lean-to by $4 a square foot to arrive at a value of $2,400 and a value minus
depreciation of $2,053 rather than the DOR’s value of $2,589 and a value
minus depreciation of $2,040. Jd. Mr. Cahill argued that the square feet of
asphalt should be reduced to 680 square feet rather than the 2,000 square feet
the DOR valued since that was the only part that was on the subject property,
the remainder being located on the right of way, thus leaving a value of $1,700
and a value minus depreciation of $1,454. Jd. Lastly, he multiplied the 400
square feet of the concrete slab by $3 a square foot to arrive at a value of
$1,200 and a value less depreciation of $1,027. /d. All of these values come to
a total value less depreciation of $37,381 for the OBY/flat value. Jd.

The framed garage was added onto the record in 2016 by the appraiser’s
predecessor as an average garage with heat. MTAB Arg. Tr. 39:1-6; Ex. A, at
000007. Ms. Gibson testified that this hearing is the first time the DOR has
heard that the garage is a pole barn rather than a garage. Jd.

In correspondence with the DOR, Mr. Cahill stated that the DOR’s costs were
erroneous. MTAB Hrg. Tr. 45:9-46:14; Ex. F. Ms. Gibson testified that (1) the
pictures in Exhibit C make it appear that there is going to be an enclosed porch
and the city permit estimated the completed value to be over $14,000, which

14

47.

48.

49.

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

aligns with the DOR’s completed value of $14,600; and (2) Mr. Cahill was not
considering the nationally accepted cost guides or local cost data the DOR uses

to develop costs used in the cost approach to valuation. Id.

The OBY values are included within the improvement cost summary on the
PRC, which shows a total improvement value of $340,400. MTAB Hrg. Tr.
39;12-40:5,; Ex. A, at 000003. The total improvement value is calculated by
multiplying the RCN of the dwelling (which includes the application of a grade
factor to the sum of costs including those for the structure, heating, plumbing,
and additions) by ratios representing different factors such as percent complete,
depreciation, and local and economic conditions (ECF). MTAB Hrg. Tr. 38:11-
14, 39:12-40:5,; Ex. A, at 000003-000004.

To arrive at the requested improvement cost value, the Taxpayer calculated an
RCN of $238,648 and an RCN less depreciation value of $127,298, then added
the OBY/flat value of $37,381 for a total of $164,677. ] MTAB Hrg. Tr. 27:25-
28:9; Ex. 20-22; Ex. A, at 000004.

Mr. Cahill also argued that the subject property should receive an additional
20% reduction because the park adjacent to the subject property creates a blight
that negatively impacts the value of the property. MTAB Arg. Tr. 20:8-22:5,
29: 11-13, 32:17-20; Ex, 25. In support of his argument, Mr. Cahill introduced
into evidence a letter written by Dave Heine analyzing the effect of blight on
previous sales of properties in the Flathead Valley. Jd. Mr. Cahill testified that
a potential buyer could easily see the vehicle traffic, haphazard parking, and
other obnoxious activities stemming from the park. Jd. He further testified that
people use the park to access his property, despite his fence and no trespassing
signs, leaving trash on and stealing from the property. /d. Mr. Cahill testified
that the DOR reduced the value of the land in 2019 because, prior to Mr. Cahill
building a 6-foot fence, there was a path that connected the park and the river |

that ran through the subject property. MTAB Hrg. Tr. 20:23-21:9; Ex. 20; Ex.

15

50.

51.

52.

53.

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

A, at 000003. The value of the land as shown on the PRC in 2018 was
$124,310, while the value of the land as shown on the PRC in 2019 was
$93,150. Ex. A, at 000003.

To determine the effect of blight on properties, the DOR looks at the sales
within the model. MTAB Arg. Tr. 47:13-48:17. If the sales within the
neighborhood are consistently showing a decrease in sale value in that
neighborhood compared to the sales value of similar properties without that
influence, the DOR will apply an influence percent reduction to adjust the

value that will be reflected in the market land information on the PRC. M7TAB

Hrg. Tr. 47:13-48:17, 63:12-17.

The DOR testified they do not have market data to suggest that the blight the
Taxpayer attributes to the subject property is decreasing the property’s value.
MTAB Hrg. Tr. 40:11-16. The DOR testified that there was a sale of a property
near a river access that sold for above market in 2017 which would not support
a reduction for blight; however, that sale was in the previous cycle and was not
considered. MTAB Hrg. Tr. 48:22-49:2, 63:3-17. The DOR further testified
that if there are several sales that support a reduction for blight, they will
include an influence factor, but that was not the case during this cycle. MTAB
Arg. Tr. 63:3-17. However, there were sales in 2020 near parks that will be

considered in the next cycle. Id.

Ms. Gibson testified that examples of sales impacted by blight discussed in Mr.
Heine’s analysis are from a recession market and that the properties used are

not comparable to the Taxpayer’s property. MTAB Hrg. Tr. 4973-10; Ex. 25.

In correspondence with the DOR, Mr. Cahill stated there were multiple errors
within the PRC. MTAB Hrg. Tr. 45:9-46:14; Ex. A, at 000003-000004,
000007; Ex. F. One such error was that public water and sewer are unavailable

at his property. Id. Ms. Gibson testified that she changed that on the PRC,

16

54.

55.

56.

57.

58.

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

though the availability of city services is informational only and does not
change value. Jd. Mr. Cahill also identified an error on the PRC regarding the
forced air and cooling. /d. Ms. Gibson testified that, currently, that does not
impact the value because the percent complete is only considering a typical
roughed-in heating system, but when the Taxpayer’s home is complete, the

DOR will update the record. Id.

Ms. Cordone testified that the DOR was very conservative in their value

estimation for the subject property. MTAB Hrg. Tr. 65:24-25.

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. VII $ 7; Mont. Code
Ann. § 15-2-101. The Taxpayer filed a timely appeal of the CTAB’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, 303
P.3d 1279, ¢ 22.

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.

17

59.

60.

61.

62.

63.

64.

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

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

Except as otherwise provided in Montana Code Ann. § 15-2-301(2)(c), the
Board is not bound by common law and statutory rules of evidence or rules of
discovery and may affirm, reverse, or modify any decision in connection with
any appeal under Montana Code Ann. § 15-2-301. To the extent Mont. Code
Ann. § 15-2-301 conflicts with the Montana Administrative Procedure Act, §
15-2-301 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 show the propriety of their action. Western Air Lines, Inc. 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.

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).

““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, { 15, 383 Mont. 340, 344, 372 P.3d 447, 450

18

65.

66.

67.

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

(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
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).

“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 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).

“(a) Subject to subsection (7)(b), a county tax appeal board and the Montana

tax appeal board may not adjust the estimated value of the real or personal

property determined under subsection (6) unless the landowner or the

landowner’s agent:

(i) gives permission to the department to enter the land to appraise or audit
the property; or

(ii) | provides to the department and files with the county tax appeal board or
the Montana tax appeal board an appraisal of the property conducted by
an appraiser who is certified by the Montana board of real estate
appraisers. The appraisal must be conducted in accordance with current

uniform standards of professional appraisal practice established for

19

68.

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

certified real estate appraisers under 37-54-403. The appraisal must be
conducted within 1 year of the reappraisal valuation date provided for
in 15-7-103(6) and must establish a separate market value for each
improvement and the land.
(b) If a landowner or the landowner’s agent prevents a person qualified under
subsection (1) from entering land to appraise or audit property or fails or
refuses to establish a date and time for entering the land pursuant to subsection
(5), the department shall estimate the value of the real and personal property
located on the land.” Mont. Code Ann. § 15-7-139(7).

DISCUSSION
Cost of Materials

When the DOR calculates the RCN of a property using the cost approach to
valuation, it is calculating what it would cost to replace the structure based on
costs developed from nationally accepted appraisal cost guides and local
construction cost data. Such information is used to value all properties in
Montana which are valued using the cost approach. Although Mr. Cahill is able
to obtain materials for less due to his industry connections, the RCN is not
based on what a specific builder would charge but rather on costs developed
from a wide range of data that may represent what it would cost another builder
to replace the structure. This Board finds that the evidence presented by Mr.
Cahill, while informative, was narrow in scope and mostly unreliable for mass
appraisal purposes. The NAHB study includes caveats stating that the sample
size is small, that it does not control for differences in types of homes, and that
it is “not a perfect tool for estimating costs for a particular house.” Ex. J. The
ProMatcher report also contains a disclaimer stating that it is intended for
general information only and refers the user to a local service provider for
information on a specific project. Ex. J. The Real Estate Market Trends
articles written by Mr. Dews provide averages which include sales of all land
or all homes within a certain time period and in a certain geographical location

but do not differentiate among comparable properties as required under both

20

69.

70.

71.

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

mass appraisal and fee appraisal standards. As such, the Board declines to
adopt the values provided in these sources for use in valuing the subject
property as we believe the existing method employed by the DOR is more

accurate and is applied equally to all taxpayers.

Percent Complete
Additionally, this Board is unable to find for the Taxpayer that the

improvements were 45% complete rather than 51% complete.

First, Mr. Cahill’s testimony focused on the condition of the improvements as
of the lien date of January 1, 2020, while the DOR valued the improvements
based on their condition on the valuation date of January 1, 2021, a full year
later. Because the difference between the lien date and the valuation date may
be easily confused at times, this Board would encourage the DOR to better
explain this difference to taxpayers going forward. While the DOR appraisers
may be trained in these matters and deal with them on a regular basis, most
taxpayers do not. Due to an avoidable misunderstanding, Mr. Cahill’s
testimony focused on the condition of the improvements as they were a full
year prior to the valuation date. This mistake is especially relevant in this case
because the house was in the midst of a complete remodel which changed its
characteristics significantly between those two dates. However, Mr. Cahill’s
testimony regarding the percent complete of the house was not the only reason
the Board declines to find for the Taxpayer regarding the percent complete of

the improvements.

This Board disagrees with Mr. Cahill’s method of determining the percent
complete of the improvements. Exhibit D shows the breakdown of the DOR’s
calculation of the percent complete of the improvements. To determine the
percent complete, the DOR looks at multiple components of the structure and
applies a set percentage for each component that is completed. The percentage

points vary for certain components based on whether the structure has a

21

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

basement or not. This opinion will focus on the components at issue here,
which include the following along with the respective percentage points
assigned to each completed component if the structure has a basement, as well

as if a structure does not have a basement. They are as follows:

Component Percent Percent
with w/o

basement | basement

Excavation: footings, foundation, basement, columns 11

Joist, subfloor, floor

Roof framing, ceiling joists, sheathing

Windows, exterior doors

8
3
9
9
5

Bl Col col Ww

Plumbing — roughed in

72. Ifa structure has a basement, the excavation accounts for three percentage
points more toward the completion of the structure than it does if there is no
basement. Because the percentage points for all components must equal 100%,
this means that an additional percentage point is added to other components
when there is no basement so that the percentage points add up to 100%.” In
Exhibit 18, Mr. Cahill accepted the 8% complete for excavation since the house
does not have a basement (as opposed to 11% for houses that have basements),
but then rejected the addition of the three percentage points back in for the roof
framing, windows, and plumbing. Selecting which percent complete to use for
components when there is no basement but rejecting others as Mr. Cahill did
here, would mean the values of the percentages when added up after the home
is fully complete would only add up to 97% and could never be 100% complete
based on this chart. If we reject the inclusion of the three percentage points
added when there is no basement as Mr. Cahill did, and also reject the

reduction of the three percentage points for excavation when there is no

? Exhibit D includes additional components and percentages not included here because they were not at issue in
this matter. Such components added together equal 100% for a structure with a basement and 100% for a
structure without a basement.

22

73.

74,

75.

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

basement (which Mr. Cahill did not do), we could ultimately see 100%
completion on this chart. Either way, to use the chart where the home could
ultimately be considered 100% complete, three percentage points would be
added back to Mr. Cahill’s calculation and the improvements would be
considered 48% complete. That leaves the remaining three percentage point

reduction Mr. Cahill calculated.

Mr. Cahill calculated an additional reduction of three percentage points toward
the completeness of the improvements by removing the percent complete for
the joists because there are no floor joists on a slab. MTAB Arg. Tr. 1575-7.
However, the category which includes joists also includes the floor and
subfloor. If removal of this component in its entirety was appropriate when
there are no joists as Mr. Cahill argues, the percent complete of the structure
could never add up to 100% on this chart. Therefore, this Board finds that this
component also includes the construction of the floor and subfloor. Because |
neither party presented evidence that the construction of the floor was not
complete’, this Board finds that an additional three percentage point reduction
is inappropriate. For the above stated reasons, this Board finds the DOR’s
calculation of 51% complete as of the valuation date of January 1, 2021 is

correct based on the evidence presented.

We commend Mr. Cahill for a sincere effort to mirror the DOR’s method of
calculating the value of a partially complete improvement, but he failed to use
methods and formulas consistent with best appraisal practice, therefore fell

short in the credibility of his estimate of value.

The DOR visited the subject property in October 2020, just a few months prior
to the valuation date. Because Mr. Cahill declined to allow the DOR into the

improvements for appraisal purposes, as is the Taxpayer’s right, Mont. Code

3 There is a separate component on the chart for floor coverings which is left unchecked on both Exhibit 18 and
Exhibit D, which means neither party included it in their calculations as complete and is therefore not at issue

here.

76.

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

Ann. § 15-7-139(7) requires the DOR to estimate the value of the
improvements based on information available. If the DOR has valued a
property according to Montana law and appraisal guidelines, the DOR’s value
is presumed to be correct. The Taxpayer then has the burden to prove to the
Board that the DOR’s valuation is incorrect. In this case for this appraisal
cycle, the Board finds the Taxpayer did not overcome that burden with regard
to the cost method of valuation and with regard to the percent complete of the
improvements. The Board upholds the DOR’s valuation of $340,400 for the

improvements.

Blight
The DOR testified that there was a 2017 sale that would not have supported a
reduction for blight, but it was not considered in this cycle. The DOR also
testified that there are several sales in 2020 near parks that were not considered
in this cycle, but they will be considered for the 2023/2024 cycle. The DOR did
not discuss any sales that either would or would not support a reduction for
blight in the current cycle. This Board is not convinced that just because the
sales discussed by the DOR were outside of the current appraisal timeline, that
means a reduction is inappropriate in this cycle. The DOR previously reduced
the value of the land between 2018 and 2019 by approximately 25% prior to
the installation of the 6-foot fence around the property due to trespassers
crossing the subject land on foot. The Taxpayer is now requesting a reduction
of 20% based on his reading of information presented in the letter from Mr.
Heine regarding blight, while the DOR contends a reduction is not supported.
This Board notes that the letter from Mr. Heine, while informative, is not a fee
appraisal. The letter is a market study of neighborhood blight which is based
on sales of properties (most of which occurred during a recession market) that
are not comparable to the Taxpayer’s property. It also indicates the activities
the Taxpayer described as blight (or external obsolescence) are less permanent

than those affecting the properties discussed in the market study. The letter

24

77.

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

does not provide an opinion on whether or not the activities on the Taxpayer’s

property would reduce the sales price by a particular amount or percentage.

This Board was persuaded by Mr. Cahill that trespassers continue to enter the
property to a lesser extent despite the fence. This Board also notes that the
levels of trespassing and related nuisance issues Mr. Cahill testified to is likely
to vary throughout the seasons. Because the Taxpayer has taken steps to
mitigate the trespassing, including installing a 6-foot fence and purchasing the
neighboring parcels, and because the issues described are not likely to be as
significant year-round, this Board is not convinced that the land value should
be reduced by 20%. However, this Board was persuaded that the trespassing
and related activities may have an impact on what a willing buyer would pay
for the property despite the lack of sales to show what impact such activities
had on other similarly situated properties during the appraisal timeframe. This
leaves the Board with the task of determining how much of a reduction is
warranted in the current cycle. Because the DOR previously reduced the land
value by 25% prior to the installation of the fence, the Board finds that a 10%
reduction for the land is appropriate for this cycle. The Board’s decision
applies to this cycle only. The DOR will analyze and consider more recent
sales of properties neighboring parks during the next cycle. For these reasons,
the Board finds that the land value should be reduced by 10% (or $26,812)
from $268,116 to $241,304 for the 2021/2022 valuation cycle.

25

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

ORDER
78. The Taxpayer’s appeal is granted in part.

79. The DOR is ordered to set the 2021/2022 taxable value for the land located at
1726 3" Ave W, Columbia Falls, Montana at $241,304 and to maintain the

taxable value for the improvements at $340,400.

Dated this 15" day of July 2022.

Dod LM

Pavid L. McAlpin, Chairman

ACR }-

ie Zendron, » Membsr

aniel Zokmikov, 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).

26

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

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 15, 2022, to:

Inge Cahill
1725 Third Avenue West
Columbia Falls, Montana 59912

Kristina Warren

State of Montana, Department of Revenue
Legal Services Office

P.O. Box 7701

Helena, MT 59604-7701

Kory Hofland

PAD Administrator

State of Montana, Department of Revenue
P.O. Box 7701

Helena, MT 59604-7701

Dori Magar

Flathead CTAB

800 S. Main, rm. 302
Kalispell, MT 59901

Doo h nocd Rethuele

Deanna Rothwell, Law Clerk

27