Colstrip Properties, Inc. and Richard Burnett v. Department of Revenue

OCR transcription for search; preserved printed pages are authoritative

BEFORE THE MONTANA TAX APPEAL BOARD ( nw
DEC 05 2019

COLSTRIP PROPERTIES, INC AND Montana Tax Appeal Board

RICHARD S. BURNETT, . CASE Ne: PT-2018-63
(#1324 & 1329 4 & 10 Larkspur)
Appellant, .

v. FINDINGS OF FACT,
CONCLUSIONS OF LAW, ORDER
STATE OF MONTANA, ;
DEPARTMENT OF REVENUE, AND OPP OR Oe a OR JUDICIAL

Respondent.

This is an appeal from a Rosebud County Tax Appeal Board (County Board)
decision regarding two commercial properties for tax years 2017 and 2018. The
properties are owned by Mr. Richard S. Burnett and are located in the town of Colstrip.
The County Board upheld the Department of Revenue’s (Department) valuation of the
properties and Mr. Burnett filed an appeal with the Montana Tax Appeal Board (MTAB)
on December 14, 2018. A hearing at the MTAB was held on Tuesday, September 24,
2019 at 2:26pm. |

As reflected in the following opinion, Mr. Burnett’s appeal is denied, and the

Department’s valuation stands.

PROPERTY DESCRIPTION
The two properties in this appeal contain one 4-plex apartment building, and three
4-plex apartment buildings (respectively). MTAB Org. 7:24-25. They are identified by
Geocodes 29-1 151-34-3-22-01-0000 and 29-1151-34-3-19-01-0000, and are located at 4
and 10 Larkspur Drive (respectively) in Colstrip. Dept. Ex. K and O. The Legal
Descriptions are $34, T02 N, R41 E, Block 032, Lot 001, Colstrip 32 and $34, T02, N,
R41 E, Block 052, Lot 001, Colstrip 52 (respectively). Id.

1

The four apartment buildings, in total, are identical in size and have similar
amenities. MTAB Hrg. 7: 13-14. Each complex maintains two 2-bedroom/1-bath |
apartments, and two 3-bedroom/1-bath apartments. MTAB Arg. 7:15-16.

BACKGROUND
Mr. Burnett asked the Department to “reduce the value to 4 price paid in 1999 or
appraised value then.” Burnett File Doc. 1, MTAB Appeal p.3. During the hearing before
the MTAB Mr. Burnett sought a value of $8,500 for the single 4-plex property, and
$26,500 for the three 4-plex property. MTAB Arg. 3:13-16 and 4:3-5.
The Department defended the appraised value of $151,100 for the single 4-plex
property, and $453,300 for the three 4-plex property. MTAB Hrg. 3:9 and 3:25.

EXHIBIT LIST
'The MTAB admitted the following exhibits submitted by Mr. Burnett:

1: Online article from qz.com (QUARTZ) titled Most Coal-fired Power
Plants in the US are Nearing Retirement Age, dated March 12, 2013.

2: Page 24 of the fee appraisal report created by R.E. McFarland, Certified
General Real Estate Appraiser, indicating the value of Mr. Burnett’s 4-plex .
units, 8-plex units and mobile home court, established from the Cost
Approach, issued April 9, 2003.

3: Letter from R.E. McFarland to Albert A. Martens of the First State Bank
of Forsyth, concerning the Fort Union Inn Real Estate Fee Appraisal, dated
December 31, 2002.

1 Mr. Burnett submitted one set of exhibits for both appeal PT-2018-67 and PT-2018-63. The MTAB accepted the
exhibits and used the same exhibits for both appeals.

4: Document titled Bid Specification Breakdown from Shylo Construction,
concerning the cost to repair the foundation damage to Mr. Burnett’s
previous property located at 15 Elm CT, Colstrip, Montana, dated June 5,
1994.

5: Montana Code Annotated §15-8-111, with marks and underlining made
by Mr. Burnett, dated 2015.

6: Advertisement listed by A.L. Koelzer of Business Properties, titled For
Sale Apartment and Mobile Home Project, concerning the Cactus and
Larkspur apartments and mobile homes, located in Colstrip, Montana.

7: Page 20 of the fee appraisal report created by R.E. McFarland, indicating
the value of the apartments and mobile home court established from the
Income Approach, issued April 9, 2003.

8: Page 28 of the 2000 MTAB opinion: Department of Revenue of the State
of Montana v. Richard Burnett, PT-1999-46, Factual Background,
Conclusions of Law, Order and Opportunity for Judicial Review,
concerning the final determination of the MTAB, dated August 25, 2000.
9: One page of the fee appraisal report created by R.E. McFarland, titled
Description of Improvements, concerning Mr. Burnett’s mobile home
project, 8-plex apartments and 4-plex apartments, issued April 9, 2003.

10: Page 25 of the fee appraisal report created by R.E. McFarland, titled
Comments and Reconciliation, indicating the values established from the
market data approach, income approach and cost approach, issued April 9,
2003.

11: Page 3 of the 2000 MTAB opinion: Department of Revenue of the State
of Montana v. Richard Burnett, PT-1999-46, Factual Background,
Conclusions of Law, Order and Opportunity for Judicial Review, dated
August 25, 2000.

12: Realty listing titled Colstrip Apartments and Duplexes, offered by Alan
Lees Realty, concerning the sale of 32 properties owned by Montana
Power.

13: Online article from sierraclub.org (Sierra Club) titled “Fighting for a
Responsible Retirement for Colstrip”, dated June 18, 2019.

14: Map titled South Trailer Court to Cherry Street; Mr. Burnett shaded the
occupied lots.

15: Document titled Agreement to Sell and Purchase, concerning the
Cactus and Larkspur apartments and apx. 132 mobile lots, dated September
21, 1999.

16: 2000 MTAB opinion: The Department of Revenue of the State of
Montana v. Richard Burnett, PT-1999-46, Factual Background,
Conclusions of Law, Order and Opportunity for Judicial Review, dated
August 25, 2000.

17: Document titled Declaration and Affidavit of Richard Burnett, dated
September 11, 2019.

The MTAB admitted the following exhibits submitted by the Department:

A: Comparable Sales for Subject Property, the exhibit was compiled by the
Department for the County Board hearing to compare the supporting
properties for the amount they sold versus the Department’s valuation of
the subject properties.

B: Property Classification and Appraisal Notice issued by the Department
for the subject properties, dated July 3, 2017.

C: AB-26 Request for Informal Classification and Appraisal Review, filed
by Mr. Burnett for the subject property located at 10 Larkspur, dated
received May 16, 2018.

D: AB-26 Request for Informal Classification and Appraisal Review, filed
by Mr. Burnett for the subject property located at 4 Larkspur, dated
received May 16, 2018.

E: Final Request Letter from the Department’s Property Assessment
Division to Mr. Burnett, requesting income and expense information for the
subject property located at 10 Larkspur, dated August 22, 2018.

F: Final Request Letter from the Department’s Property Assessment
Division to Mr. Burnett, requesting income and expense information for the
subject property located at 4 Larkspur, dated August 22, 2018.

G: Form AB-26 Determination Letter, from the Department’s Property
Assessment Division to Mr. Burnett, for the subject property located at 10
Larkspur, dated September 4, 2018.

H: Form AB-26 Determination Letter, from the Department’s Property
Assessment Division to Mr. Burnett, for the subject property located at 4
Larkspur, dated September 4, 2018.

I: Department of Revenue’s Compiled Data for the State Office Model
concerning income and expense, uploaded into the Orion system and used
to value properties.

J: Economic Data from https://DataUSA, the exhibit was compiled by the

Department for the County Board hearing to compare the economic
viability of communities in and around Colstrip.

K: Montana Department of Revenue Assessment Information Packet,
originally submitted to the County Board, for the subject property located at
4 Larkspur, dated January 1, 2016.

L: Land Model Sales Information, used to create the land sales model for
Colstrip.

M: Colstrip Neighborhood Model, map of the land sales for Colstrip, and

an aerial view of the subject properties’ 4-plex units.

O: Property Record Card, for the subject property located at 10 Larkspur,
dated September 24, 2019.

P: Property Record Card, for the subject property located at 4 Larkspur,
dated September 24, 2019.

FINDINGS OF FACT
1. On July 3, 2017, the Department mailed Mr. Burnett a Property Classification and
Appraisal Notice concerning tax years 2017 and 2018, for the subject properties. Dept.
Ex. B.

2. On May 16, 2018, over ten months after the issuance of the appraisal notice, Mr.
Burnett filed a Form AB-26 Request for Informal Classification and Appraisal Review
with the Department for both of the subject properties, stating:

“The value of all the property I own or my corporation owns
is based on an appraisal or the sales price all supported by
Montana code annotated and the decision of the state tax
appeal board in tax appeal PT-1999-45, PT-1999-46, and
[PT]-1999-47. Nothing has changed in Colstrip since these
appeals except that 2 of the 4 power plants has to be closed by
2022 and the life of the other 2 is estimated between 7 years
and 18 years before they close from old age. ... My trailer
court, 34 court through 45 court, has only 49 trailers renting.
There has been only 1 new trailer in 17 years come in and it
was to replace an old one. I have 81 vacant spaces now and
had over 100 rented 17 years ago. Colstrip is in decline as
evidenced by this and headed for a closure of the town in the
future. The DOR has no comparable to use to set values. ...
My apartments are 17 [y]ears older since purchase and have a
very high vacancy rate. I set their value at % purchase value.
The same with all other properties I or my corporation own in
rosebud county.” Dept. Ex. C and D.

3. Department Area Manager Liz Franz reviewed Mr. Burnett’s two AB-26 forms.
MTAB Hrg. 14:7-9. Ms. Franz contacted Mr. Burnett and requested an appointment to
review the subject properties. Jd. Mr. Burnett declined stating nothing had changed since

the Department’s review in 2016. Id.

4. On August 22, 2018, Ms. Franz issued a final request for information for Mr.
Burnett’s two properties seeking income and expense information for the properties for

the years 2016 and 2017. Dept. Ex. E and F.

5. Mr. Burnett did not respond to the Department’s request for information. MTAB
Arg. 15:1-3. Without the requested information, on September 4, 2018 the Department
denied Mr. Burnett’s two AB-26 requests. Jd. Subsequently, Mr. Burnett filed an appeal
with the County Board. Jd. at 15.

6. The County Board hearing was held on November 8, 2018. Burnett File Doc. 9,
County Board Minutes. At the conclusion of the hearing the County Board upheld the
Department’s values of $151,100 (4 Larkspur) and $453,300 (10 Larkspur). Jd.

7. Following the County Board hearing, Mr. Burnett filed appeals for both properties
with the MTAB on December 14, 2018. Burnett File Doc. 1, MTAB Appeal Form. Mr.
Burnett stated the 4-plex properties should be reduced in value to half of the price he

originally paid for the properties in 1999. Jd.

8. Pursuant to a second telephonic scheduling conference held on July 9, 2019, both
Mr. Burnett and the Department stipulated to a scheduling order, which set the MTAB
hearing for October 1, 2019 at 10:00am. Burnett File Doc. 11, Scheduling Order. Due to
a scheduling conflict the appeal was rescheduled for a hearing on September 24, 2019.

Burnett File Doc. 17, Order Vacating Hearing and Adopting Proposed Hearing Date.

9. The MTAB hearing was held on September 24, 2019 at 2:26pm. MTAB Hrg. Tr.
During the hearing Mr. Burnett presented testimony and evidence concerning future
expected closures of portions of the Colstrip power plant, and their effect on the local

market. /d. at 39:3-25 and 40: 1-16.

10. Mr. Burnett also questioned the validity of the comparable sales of commercial

property chosen by the Department to value his property, which were from towns other
than Colstrip. MTAB Arg. 4:16-25. “Different circumstances in the towns. They’ ve got
colleges, freeways, railroads. ... It’s a much different community and none of those are

going away at the end of this year or within ten years.” Jd. at 21-25.

11. Mr. Burnett did not offer testimony or evidence concerning 4-plex sales in

communities similar to Colstrip. MTAB Arg. 9:19-21.

12. |The Department used the income method to value Mr. Burnett’s two properties.
MTAB Hrg. 16:7-12. A comparable sales document was created by the Department, but

Ms. Franz testified the document was only used as supporting documentation. Jd.

13. Mr. Burnett testified that in 2016 his secretary gave the Department his actual
rental income data for the two subject properties to allow the Department to calculate an
income method of value. MTAB Hrg. 9:1-9. At the MTAB hearing Mr. Burnett testified
he was unable to provide a vacancy rate for any of his 4-plex units during the same 2016

rental period. Jd. at 11:8-11.

14. Ms. Franz said she did receive income information in 2016 from Mr. Burnett’s
secretary, but when updated rental income and vacancy information was requested from

Mr. Burnett in 2018, she was told the properties remained unchanged, and as such Ms.

Franz used the same information for the year 2017/2018 valuation cycle. MTAB Hrg.
23:15-16.

JURISDICTION AND STANDARD OF REVIEW
1. Mr. Burnett filed a timely appeal of the County Board decision to the MTAB.
Therefore, the MTAB maintains jurisdiction to hear and decide this matter. MCA $15-2-

301(1)(b).

2. In reviewing this appeal, “... the state 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.” MCA $/5-2-301(5).

3. The MTAB hears County Board appeals de novo. CHS Inc. v. DOR, 2013 MT 100.
“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 vy. Arnold, 2013 MT 138.

PRINCIPLES OF LAW
4, “[T]axable property must be appraised at 100% of its market value except as
otherwise provided [in the law].” MCA $15-8-111(1).

5. “Market value is the value at which property would change hands between a
willing buyer and a willing seller, neither being under any compulsion to buy or to sell

and both having reasonable knowledge of relevant facts.” MCA $15-8-111(2)(a).

6. “ ..[T]he taxing agency should bear a certain burden of showing the propriety of

their action. It is true as a general rule that the taxpayer must overcome the presumption

in favor of the correctness of the assessment.” Western Airlines v. Michunovich, 149

Mont. 347, 353, 428 P.2d 3.

7. “The initial burden of producing evidence as to a particular fact is on the party
who would be defeated if no evidence were given on either side. Thereafter, the burden
of producing evidence is on the party who would suffer a finding against that party in the

absence of further evidence.” MCA $26-1-401.

Income Approach

8. “Tn valuing class four residential and commercial property described in 15-6-134,
the department shall conduct the appraisal following the appropriate uniform standards of
professional appraisal practice for mass appraisal promulgated by the appraisal standards
board of the appraisal foundation. In valuing the property, the department shall use

information available from any source considered reliable.” MCA $/5-8-111(3).

9. “Income Approach — One of the three traditional approaches to value which
measures the present growth of the future benefits of a property by the capitalization of
its net income stream over its remaining economic life. The approach involves making an
estimate of the potential net income the property may be expected to yield, and
capitalizing that income into an indication of value.” Montana Department of Revenue

Appraisal Guide, Property Assessment Division, Valuation Date January 1, 2016

10. “The income approach is based on the theory that the market value of income-
producing property is related to the amount, duration, and certainty of its income-
producing capacity. The formula used by the department to estimate the market value of
income-producing property through application of the income approach to value is V =

I/R where:

(a) "V" is the value of the property to be determined by the department;

10

(b) "I" is the typical property net income which shall reflect market rents, not
investment value income or other rents, for the type of properties being appraised; and

(c) "R" is the capitalization rate determined by the department as provided...”

ARM 42.20.108.

11. “We conclude that the language of § 15-8-111(2)(b) MCA, provides strong

evidence that the Legislature did not intend for only one approach to value to be utilized

when property is appraised and assessed. In fact, if the Legislature did intend for only one
approach to be utilized, then § 15-8-111(2)(b), MCA, would be superfluous.” Albright v.
State, 281 Mont. 196, 22, 933 P.2d 815.

12.0“. .[The] use of more than one appraisal method [is] permitted, so long as “the

_ appraisal method as a whole constitutes relevant and reliable evidence of market value.’”
Parker Cnty. Appraisal Dist. v. Bosque Disposal Sys., LLC, 506 S.W.3d 665, 676

(quoting Houston R.E. Income Props. XV, Ltd. v. Waller Cty. Appraisal Dist., 123 S.W.3d

859).

Economic Obsolescence

13. “Economic obsolescence, also referred to as external obsolescence, is a condition
caused by factors extraneous to the property itself, such as changes in population
characteristics and economic trends, encroachment of inharmonious land uses, excessive
taxes, and governmental restrictions. The condition is generally incurable in that the

- cause or causes lie outside the property owner’s control.” 2017-2018 Montana

Reappraisal Plan, MDOR p.30.
Timeliness

14. The filing of an AB-26 Request for Informal Classification and Appraisal Review

is time sensitive, and must be completed within 30 days of the date on the appraisal

11

notice. Department Property Appraisal Notices — Informal Review Process. If the AB-26
is filed past the 30-day filing date, you may still request an informal review, but any

changes in valuation will only apply to the second year in the valuation cycle. Jd.

BOARD DISCUSSION AND CONCLUSIONS OF LAW
15. | Mr. Burnett’s land was valued at $17,242 (4 Larkspur) and $45,799 (10 Larkspur)
using a Comparable Land Sales Pricing (CALP) model comparing actual land sales from
the Colstrip area. Dept Ex. K and O. The land sales were based on vacant land sales as
enough commercial land sales were unavailable. MTAB Hrg. 27:11-15. The sales were
submitted as evidence in the appeal by the Department and were unrefuted by any
specific testimony or contrary evidence from Mr. Burnett. Dept. Ex. L. We find the value

assigned to the land to be supported by the evidence and testimony of the Department.

16. As to the four 4-plex apartment buildings and other improvements on the land, the
Department considered both the cost approach and income approach to estimate market
value, and they yielded almost identical valuations. Dept. Ex. A. Mr. Burnett requested a
valuation of $8,500 for the single 4-plex property, and $26,500 for the three 4-plex
property for the land and improvements, but failed to provide comparative sales or other

concrete testimony or evidence to support this value. MTAB Hrg. 3:13-16, 4:3-5 and
9:19-21.

17. While Mr. Burnett took issue with the comparable sales considered from
neighboring towns identified by the Department, the Department ultimately used the
income method to value both of the subject properties’ improvements, utilizing the
income data provided by Mr. Burnett’s secretary during the Department’s 2016 review.
MTAB Hrg. 4:16-25, 16:7-12, 33:22-25 and 23:9-11. As the Department did not receive

income data from Mr. Burnett for the following two-year cycle, the decision was made

12

not to increase the value of the properties, and the Department gave Mr. Burnett the
benefit of the doubt. Jd. We find the Department gave credible testimony and evidentiary
support for their decision to utilize the income method, and appropriately used actual
income data in the income method to estimate market value. We uphold the Department’s

valuation for the improvements to be $133,858 (4 Larkspur) and $407,501 (10 Larkspur).

18. Mr. Burnett’s argument regarding the Colstrip market is one of economic
obsolescence, and asserts that the possibility of economic loss due to the potential
closures is already having a negative effect on real estate prices, and should therefore
require valuations to be made at a steep discount. Burnett Ex. 17. Mr. Burnett’s appraisal
date, however, was January 1, 2016, and the announcement of the closures of certain
sections of the Colstrip power plant was not made until several years later. Furthermore,
while the shutdown of half the plant seems likely to occur within the next few years, it is
far from certain as to whether the remainder of the facility will close at any time in the
near future. We would note that NorthWestern Energy is estimating the life of units three
and four could possibly run into the year 2042. It is true the plant’s closure is a topic of
lawsuits, speculation and discussion, but at the time of the Department’s lien date and
appraisal, the Department reviewed the market and no discernable negative effect could

be found in the sales of property in the broader market in Colstrip.

19. Moreover, if Mr. Burnett had desired to make his own analysis of comparable
sales of properties in the Colstrip community to try to prove his case, the data was
available to him just as it is for all appellants who request review by the department.
MTAB Hrg. 38:9-22. Mr. Burnett failed to make a showing or analysis to rebut the
testimony of the Department that the Colstrip market, as of the appraisal date, showed no

signs of an overall depression of market value.

13

20. ‘Finally, we agree with the Department as to the issue of timeliness with regard to
Mr. Burnett’s 2017 claim. Mr. Burnett’s Property Classification and Appraisal Notice
was issued by the Department on July 3, 2017. Dept Ex. B. Mr. Burnett failed to make his
initial requests for the AB-26 informal reviews until May 16, 2018, more than 10 months
beyond the 30-day deadline, therefore the MTAB will only consider his 2018 appeal.
Dept. Ex. C and D.

14

ORDER
IT IS THEREFORE ORDERED by the Montana Tax Appeal Board that the

Montana Department of Revenue shall value the subject properties as follows:

a. The property located at 4 Larkspur (Geocode: 29-1151-34-3-22-01-0000)
i. The land shall have a value of $17,242;
ii. The improvements shall have a value of $133,858;
iii. For a total value of $151,100.

b. The property located at 10 Larkspur (Geocode: 29-115 1-34-3-19-01-0000)
i. The land shall have a value of $45,799;
ii. The improvements shall have a value of $407,501;
iii. For a total value of $453,300.

The ordered value is an adoption of the Department’s original valuation of Mr.
Burnett’s properties. As such the issue of timeliness does not affect Mr. Burnett’s

property tax obligation in 2017 or 2018.

15

pedt Mol

David L. McAlpin, Chairman /\
MONTANA TAX APPEAL BO

Steve Doherty, Board Me
MONTANA TAX APPEAL

Ligt

Eric Stefn, Board-viembe?
MONTANA TAX APPEAL BOARD

16

Certificate of Service

I certify that I caused a true and correct copy of the foregoing Order to be sent by United
States Mail via Print and Mail Services Bureau of the State of Montana on December 5,

2019 to:

Colstrip Properties, Inc.
c/o Richard S. Burnett
P.O. Box 1892

Colstrip, Montana 59323

Anthony Zammit, Nicholas Gochis
Montana Department of Revenue
P.O. Box 7701

Helena, Montana 59604-7701

(Lye fanaer

Colleen C. Tanner, Law Clerk
MONTANA TAX APPEAL BOARD

17