Marc Manly v. Department of Revenue

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BEFORE THE MONTANA TAX APPEAL BOARD HI | recut ):
AUG 11 2022
Montana Tax Appeal Board

MARC MANLY, CASE Ne: PT-2022-6

Appellant, | STATEMENT OF UNDISPUTED
FACTS, CONCLUSIONS OF LAW,

v. ORDER, AND OPPORTUNITY FOR
JUDICIAL REVIEW
STATE OF MONTANA,
DEPARTMENT OF REVENUE,
Respondent.
STATEMENT OF THE CASE

This is an appeal of a final decision by the Gallatin County Tax Appeal Board
(CTAB) denying Mark Manly’s (Taxpayer) application for reduction in value on his
property located in Belgrade, Montana, and affirming the Department of Revenue’s
(DOR) improvement valuation for the 2021-2022 tax cycle. The Taxpayer timely
appealed that outcome to Montana Tax Appeal Board (MTAB) on January 19, 2022.
The Taxpayer has filed a Motion for Summary Judgment. As reflected in the
following decision and order, the Taxpayer’s Motion for Summary Judgment is
denied. Per the Taxpayer’s request, and without objection from the DOR, this matter
was decided on the record. The CTAB’s decision upholding the DOR’s valuation of
the subject property for the 2021/2022 valuation cycle is affirmed.

ISSUE TO BE DECIDED
Whether the CTAB erred in affirming the DOR’s appraised improvement value
of $21,310 for this property. .

EXHIBIT LIST
The following evidence was submitted at the CTAB hearing:
Taxpayer Exhibits:
1. AB-26 Determination Letter
2. Mont. Code Ann. § 15-8-111
3. CTAB Decision

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

4. Car Park Condos C, D, E, Agreement for Removal of Property 3/18/14

5. Acceptance of Sublease 3/28/14

6. Closing Statement on Unit E-1 4/20/14

7. Chart Contrasting Proposed Assessed Values

8. Computation of Annual Economic Value of Sales of Units in Bld. F

DOR Exhibits:

A. MDOR Assessment Information Packet

B. MLS Listing for Gallatin Field Garages

C. AB-26 Determination Letter with Condo Sales Information (Filed Under
Seal)

D. Declaration for Car Park Condos C, D, E with Lease Agreement Attached

E. Amendment No. 1 to the Condominium Declaration and Bylaws for Car
Park Condos C, D, E .

F. Amendment No. 3 to the Declaration for Car Park Condos C, D, E Document
No. 2405659

G. Car Park Condos Building E Measurements

H. Montana Appraisal Documents

I. Standard 6: Mass Appraisal, Development, and Reporting

J. CTAB Appeal Form

K. CTAB Decision

PROCEDURAL HISTORY

The DOR valued the subject property at $21,310 for the 2021/2022 appraisal

cycle. Ex. A, at 90. A decision was rendered by the DOR on the Taxpayer’s AB-26

request for an informal classification and appraisal review on September 28, 2021,

affirming the DOR’s valuation. Ex. 1, at 1. The Taxpayer appealed the DOR’s
valuation to the CTAB on October 28, 2021, requesting a value of $11,000. Ex. J. A
hearing was held on December 22, 2021. The CTAB’s decision denying the

Taxpayer’s application for reduction was sent to the parties on December 22, 2021.

Ex. K. The Taxpayer appealed to the Montana Tax Appeal Board (MTAB) on January

19, 2022, per Mont. Code Ann § 15-2-301. MTAB Dkt. 1. The Taxpayer requested,

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

and after due consideration the Board granted an “on the record” review per Mont.
Code Ann. § 15-2-301(2)(b), in lieu of an in-person hearing. MTAB Dkt. 4. The
Taxpayer also filed a Motion for Summary Judgment along with a sworn statement on
March 28, 2022. MTAB Dkt. 6. The DOR responded to the Taxpayer’s Motion May 5,
2022. MTAB Dkt. 9. The last filing in the case was the Taxpayer’s reply, which was
filed on May 17, 2022. MTAB Dkt. 12.

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

UNDISPUTED FACTS
1. To whatever extent the following statements of fact may be construed as

conclusions of law, they are incorporated accordingly.

2. The parties do not dispute the material facts in this matter. The agreed upon

facts provided by the parties are set forth herein.

3. The subject property is a car park/storage unit! located at the Gallatin Field
Airport, Bozeman, Montana, called the Gallatin Field Garages, Unit E-1. Ex. A,
at 90; Ex. B; Appellant’s Mot. Summ. J., Dkt. 6, at 4. It is located in one of

three commercial condominium buildings. Ex. D, at 137.

4. There are three of the same type of buildings in the condominium association
that are identified as Car Park Condos C, D, and E. Appellant’s Mot. Summ. J,
Dkt. 6, at 4. Each building consists of 20 garages, 10 on each side of the
building, separated by common walls between the units. /d. The interior of
each garage unit is approximately 275 to 278 square feet. Appellant’s Mot.
Summ. J., Dkt. 6, at 4-5. The subject property is Unit E-1 which is 276 square
feet. Appellant’s Mot. Summ. J., Dkt. 6, at 5; Ex. A, at 90; Ex. F, at 175.

' Also referred to as a car park/garage condominium unit.

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

The subject property is a leasehold estate subject to the Declaration for Car

Park Condos C, D, E, dated November 8, 2011 (Declaration). Ex. D, at 106.

The lease agreement between the Gallatin Airport Authority (Airport
Authority), as lessor, and Gallatin Field Garages, LLC and Car Park Condos C,
D, E Owners Association (Condominium Association), collectively as lessee,
which governs the subject property (Lease Agreement) terminates on

December 14, 2026. Ex. D, at 165; Appellant’s Mot. Summ. J., Dkt. 6, at 5.

Additionally, the Lease Agreement does not allow individual unit owners “to
rent their units to others or to the public.” Ex. D, at 165; Appellant’s Mot.
Summ. J., Dkt. 6, at 4.

Upon termination of the Lease Agreement, the Airport Authority shall have the
option to:

a. Require the removal of all structures and to have the lessee return the
site to its condition prior to entering into this Lease Agreement, within
ninety (90) days at the lessee’s expense; or

b. Promptly take title to such structures, installations, and improvements.
The lessee shall promptly execute all documents required for the Airport
Authority to take title.

Ex. D, at 160; Appellant’s Mot. Summ. J., Dkt. 6, at 5.

To pay for the demolition costs that may be incurred at the termination of the
lease, the Condominium Association assesses and holds in escrow an annual
“Demolition Fee” of $200 per unit. Appellant's Mot. Summ. J., Dkt. 6, at 5; Ex.
6. The Condominium Association may also take a special assessment if the

escrow is insufficient. Appellant’s Mot. Summ. J., Dkt. 6, at 5-6; Ex. 4, at 1.

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

Although there are no express provisions governing renewal of the Lease
Agreement, it does contemplate the possibility of written renewal of the lease

prior to its expiration. Ex. D, at 160; Ex. 4, at 1.

The Taxpayer purchased the property in 2014 for $19,000. CTAB Hrg. Tr.
7:16-17; Appellant’s Mot. Summ. J., Dkt. 6, at 9.

The Department valued the subject property at $21,310 as a commercial garage
using the actual interior square footage of the unit at 276 square feet. Ex. A, at

91; Ex. F, at 175; Appellant’s Mot. Summ. J., Dkt. 6, at 5.

The Condominium Association amended the Declaration and Bylaws for Car
Park Condos C, D, and E and stated that each unit was to have a 1/60" interest
in the general common elements of Car Park Condos C, D, and E. Ex. E, at

167.

A 1/60" interest of Car Park Condos C, D, and E results in each car park owner
holding an interest in 302 square feet because the square footage of each
building is 6,048 times three buildings equates to 18,144 square feet divided by
sixty equals 302.4. Ex. E, F, and G, at 166-76.

Similar units to the subject property in the car park/storage buildings located at

the Gallatin Field Airport have sold between 2016 and 2020. Ex. C, at 99.

According to the Department’s “Montana Residential, Commercial, and
Industrial Property Classification and Valuation Manual,” the Department is to
value commercial and industrial property utilizing the income or cost approach

to valuation. Ex. H, at 193.

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

The Department utilized the cost approach to valuation when it valued the
subject property for the 2021/2022 valuation cycle. Ex. A, at 90; Appellant’s
Mot. Summ. J., Dkt. 6, at 1.

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 CTAB, and then timely filed an appeal of the CTAB decision to MTAB.
Therefore, this Board maintains jurisdiction to hear and decide this matter.

Mont. Code Ann. § 15-2-301.

Summary judgment shall be granted if the pleadings, discovery, and affidavits
show that no genuine issue of material fact exists, and the movant is entitled to

judgment as a matter of law. Mont. Code Ann. § 25-20-56(c)(3).

The Board is authorized to decide matters on summary judgment. Matter of
Peila, 249 Mont. 277, 280-81, 815 P.2d 139, 144-45 (1990). It determines
undisputed facts at summary judgment in the same manner as a district court.
“(I]t is inappropriate for a district court to enter ‘findings of fact’? when
addressing a summary judgment motion. Rather, the courts simply should set
forth the undisputed facts relevant to the legal issues raised, as well as any
disputed facts which may preclude entry of summary judgment.” Wurl v.
Polson School Dist. No. 23,2006 MT 8, § 11, 330 Mont. 282, 127 P.3d 436.

“The moving party has the burden of establishing the absence of a genuine
issue of material fact, and entitlement to judgment as a matter of law.” Smith v.

Burlington Northern & Santa Fe Ry., 2008 MT 225, ¢ 10, 344 Mont. 278, 187
P.3d 639.

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

Once the moving party satisfies its burden to establish that no genuine issue of
material fact exists, the opposing party must identify a genuine issue of
material fact. Lucas Ranch, Inc. v. Mont. Dep’t of Revenue, 2015 MT 115, § 12,
379 Mont. 28, 347 P.3d 1249 (citing Lorang v. Fortis Ins. Co., 2008 MT 252,
39, 345 Mont. 12, 192 P.3d 186).

To identify a genuine issue of material fact, the opposing party must set forth
specific facts and cannot rest upon the allegations or denials of the pleadings.
Lucas Ranch, § 12; Mont. Code Ann $ 25-20-56(c)(3). Tf no issue of material
fact exists, the ultimate determination is whether the facts entitle the moving

party to judgment as a matter of law. Id.

The Board’s order is final and binding upon all parties unless changed by judicial

review. Mont. Code Ann. § 15-2-301.

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

statements of fact, they are incorporated accordingly.

“The state shall appraise, assess, and equalize the valuation of all property which

is to be taxed in the manner provided by law.” Mont. Const. art. VIII, § 3.

“It is the duty of the department of revenue to accomplish the following: (a) the
classification of all taxable lands; (b) the appraisal of all taxable city and town
lots; (c) the appraisal of all taxable rural and urban improvements.” Mont. Code

Ann. § 15-7-101(1).

“All taxable property must be appraised at 100% of its market value...” Mont.
Code Ann. § 15-8-111(1).

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

“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 sell and both having reasonable knowledge of relevant facts.” Mont. Code

Ann. § 15-8-111(2)(a).

“Tf the department uses the cost approach as one approximation of market
value, the department shall fully consider reduction in value caused by
depreciation, whether through physical depreciation, functional obsolescence,

or economic obsolescence.” Mont. Code Ann. § 15-8-111(2)(b).

“The department may not adopt a lower or different standard of value from
market value in making the official assessment and appraisal of the value of
property, except...for condominium property, the department shall establish the
value as provided in subsection (5) ...” Mont. Code Ann. § 15-8-111(4)(c)().

“If sufficient, relevant information on comparable sales is not available for
residential condominium units or if sufficient, relevant information on income
is not made available for commercial condominium units, the department shall
value condominiums using the cost approach. When using the cost approach,
the department shall determine the value of the entire condominium project and
allocate a percentage of the total value to each individual unit. The allocation is
equal to the percentage of undivided interest in the common elements for the
unit as expressed in the declaration made pursuant to 70-23-403, [MCA],
regardless of whether the percentage expressed in the declaration conforms to

market value.” Mont. Code Ann. § 15-8-111(5)(c).

“The preferred approach for the appraisal of commercial condominium units is
the income approach where reliable condominium income and expense data are .
available... When reliable income and expense data are not available, the cost
approach must be used. In that instance, the condominium declaration's

percentage of ownership interest required by 15-8-511, 70-23-301, and 70-23-

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BEFORE THE MONTANA TAX APPEAL BOARD
MARC MANLY y, STATE OF MONTANA, DEPARTMENT OF REVENUE

403, MCA, will be used to allocate the value. Allocation of value for each
condominium/townhome unit will be determined by multiplying the
percentage, expressed as a decimal, by the appraised value of the entire
condominium/townhome project. The common elements are deemed to be
inherent in the individual unit's declaration percentage when the cost approach
to value is determined and allocated as specified in this subsection.” Mont.

Admin. R. 42.20.105(2)(b).

Except as otherwise provided in Mont. 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 Mont. 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." Dep ’t of Revenue v. Burlington N., 169
Mont. 202, 214, 545 P.2d 1083, 1090 (1976). However, DOR cannot rely
entirely on the presumption in its favor and must show 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, § 15, 383 Mont. 340, 344, 372 P.3d 447, 450
(citing O’Neill v. Dep’t of Revenue, 2002 MT 130, 4 23, 310 Mont. 148, 155,

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

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).

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, 4 12, 376 Mont. 260,
332 P.3d 235; 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)).

“TT ]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, 990 P.2d 767.

DISCUSSION
This Board agrees with the parties that there are no genuine issues of material
fact in dispute. However, this Board was not convinced that the Taxpayer is
entitled to judgment as a matter of law. At the Taxpayer’s request, and without

objection from the DOR, we decided this matter on the record.

The Taxpayer makes two main arguments to demonstrate that the DOR
incorrectly valued the subject property. First, the Taxpayer argues that DOR
failed to consider the economic obsolescence caused by the Lease Agreement.
Second, the Taxpayer argues the DOR failed to follow Mont. Code Ann. §15-
8-111 in valuing the subject property. The Taxpayer further argues that the

DOR’s use of comparable sales to support its value was improper. The

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43.

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

Taxpayer has argued an alternative method to compute the value of the subject
property which he believes to be more accurate. For the reasons stated below,
this Board disagrees with the Taxpayer and upholds the CTAB’s decision
confirming the DOR’s valuation of the subject property for the 2021/2022

valuation cycle.

Economic Obsolescence
First, the Taxpayer argues that the DOR failed to consider the economic
obsolescence caused by the Lease Agreement as is required by Mont. Code
Ann. § 15-8-111(2)(b). He argues that because the land is leased from the
Airport Authority, the market value of the subject property is derived solely
from the unit owner’s ability to park at the airport for the number of years the
Lease Agreement remains in effect. He argues that under MCA § 15-8-
111(2)(a), the market value is what a willing buyer would pay for the unit, and
because the current Lease Agreement terminates on December 14, 2026, a
knowledgeable buyer would not pay $21,310, the amount at which the DOR
valued the subject property, to use the unit until the Lease Agreement
terminates. However, the DOR provided evidence of several recent sales of
similar car park/condominium garage units that refute the Taxpayer’s
argument. In fact, two units in the same building as the subject property sold in
2020 for more than the subject property was valued. One sale took place on
January 3, 2020, and the other on November 4, 2020. The terms of the
Declaration require the Condominium Association’s express written approval
before any unit may be sold to ensure a subsequent purchaser is fully aware of
the leasehold nature of the property. Thus, this Board finds the DOR’s
evidence, specifically the two 2020 sales in Building E, credible evidence to
refute the Taxpayer’s argument that a willing buyer, with knowledge of the

Lease Agreement termination date, would not pay the amount at which the

DOR valued the subject property.

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

The Taxpayer argues that the value of the unit should be calculated using a
method of straight-line depreciation in which he starts with the purchase price
of $19,000 paid on April 2, 2014, divided by the approximate 153 months of
use through the Lease Agreement’s termination date to arrive at a monthly
parking value of approximately $124 per month or $1,490 per year. He argues
that as each year passes, a buyer would pay less and less for the use of the unit,
so the value of the subject property should be reduced by $1,490 each year
until the value becomes $0 in 2026 when the Lease Agreement terminates.
While this may seem like a simple method to calculate the value of the unit, it
unfortunately does not take into consideration all market factors that the DOR
is required to consider each valuation cycle. Regardless of the method used to
value property, economic factors that impact the valuation of property, such as
rental income, property sales prices, and the cost of building materials, vary
from one appraisal cycle to the next. For this and other reasons, each valuation
cycle must stand on its own, and we agree with the DOR that a straight-line
method to reduce value over the course of a lease agreement fails to meet

accepted appraisal standards and does not yield a credible value.

The Taxpayer argues that if the DOR’s method is followed, the unit will be
valued at $23,860 the day before the building is razed. However, as stated
above, relevant economic and market data must be considered each valuation
cycle, so predicting a future value is speculative and does not yield a credible

value.

For the reasons stated above, this Board declines to adopt the Taxpayer’s
straight-line depreciation valuation method. In addition to being an over-
simplified method that does not take into consideration various market factors
that may arise over time, the Lease Agreement provides for options other than
razing the building in 2026. Under the terms of the Lease Agreement, the
Airport Authority could also take title to the building at the end of the term.

There is also no prohibition on the parties renewing the Lease Agreement. The

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47.

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

Taxpayer argues that if the Airport Authority takes title to the structure for its
own benefit at the end of the lease term, the market value is still $0 because the
Taxpayer will not have an ownership interest in it. The Board disagrees with
this argument. Under that scenario, the unit may no longer have value for the
Taxpayer, but the unit would then have value for the Airport Authority or other
new owner, as the case may be. The DOR is tasked with appraising land and
improvements pursuant to Mont. Code Ann. § 15-7-101. The terms of the
Lease Agreement merely shift the responsibility to pay property tax from the
Airport Authority to the Condominium Association, and the individual unit
owners in turn take on that responsibility, presumably through the purchase
agreement, sublease, or other agreements not introduced as evidence. How the
individual unit owners come to be liable for the tax is not at issue here, nor is it
in this Board’s jurisdiction and thus will not be discussed further. The point is
the improvements retain some value even if ownership of it changes hands. It is
the person or entity responsible for paying the tax that changes. Additionally,
depreciating the value of the subject property to $0 in 2026 could lead to
absurd results should the Lease Agreement be renewed. The Taxpayer argues
that the Airport Authority taking title of the improvements and the extension of
the Lease Agreement seem unlikely at this time and should be addressed if and
when it happens. The Board understands this argument, but because there are
other options available and it is unknown for certain at this time what will
happen as of December 14, 2026 with regard to the subject property, the Board
finds that the DOR’s valuation of the unit as it stands in the current cycle,
without regard to a potential future event (whether that may be the razing of the
building, the renewal of the Lease Agreement, or some other option), is

appropriate.

DOR’s Application of MCA § 15-8-111(4)(©)()
The Taxpayer also argues that the DOR failed to follow the requirements under
Mont. Code Ann. § 15-8-111(4)(c)(i) in valuing the subject property.
Specifically, the Taxpayer argues that the DOR valued the unit as if it were a

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

stand-alone structure rather than a unit in a condominium project and this
results in a higher value. The Taxpayer argues that the value should have been
calculated for all of the improvements and then 1/60" of the value, which
represents his ownership interest, should have been allocated to the Taxpayer
per Mont. Code Ann. § 15-8-111(4)(c)(@). The Taxpayer argues that the DOR’s
valuation of the individual units as outbuilding/garages would produce a much
higher cost figure than if the DOR had valued the entire building and then
allocated the percentage of ownership to each unit owner as set forth in the
Declarations. This Board understands the Taxpayer’s argument that building
separate units may require more materials and therefore may be more costly.
However, the Taxpayer did not offer any evidence to support that argument,
nor did he indicate what the value would be if the DOR had valued all of the
improvements and then allocated 1/60" to each unit owner. Conversely, the
DOR presented credible evidence showing how the value would be calculated
under each alternative. As discussed below, the DOR presented an affidavit
from the appraiser showing that the value of the unit would have been higher
had the DOR performed the valuation on all of the improvements with 1/60" of
the value allocated to each unit owner rather than as an outbuilding/garage as

the DOR valued it.

Mont. Code Ann. § 15-8-111(5) requires the DOR to use the income approach
when valuing commercial properties if sufficient relevant income information
is available.” If sufficient relevant income information is not available to the
DOR, then the DOR is required to use the cost approach to value the property.
Because the unit owners are prohibited from renting out their units, there was
no income information for the DOR to analyze and the DOR was left with the

cost approach. Under the cost approach, the DOR is required to use the percent

? The sales comparison method is used for residential property and not commercial property. The Taxpayer
argues that the car park/condominium garage is a residential property. The DOR has valued it as a commercial
property according to the DOR’s briefs. The PRC also lists the property as commercial. Because the
classification of the unit was not appealed, this issue will not be further discussed in this opinion. Instead, this
Board will focus on whether or not the DOR properly valued the unit as a commercial property.

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

ownership set forth in the Declarations. However, the DOR states the valuation
of car park/condominium garages presents a unique situation because following
Mont. Code Ann. § 15-8-111(5)(c) would result in inequity among the different
unit owners. Under the statute, each unit owner would be allocated 1/60" of the
value of the building which would mean that each of the units would be valued

at 302 square feet even though the actual internal square footage of the units

ranges from 275.8 to 278.3 square feet.

49. In an attempt to equalize the values among the units, as is required by the
Montana Constitution, the DOR valued the units as outbuilding/garages.? The
DOR based each unit’s valuation on its actual internal square footage, which in
the Taxpayer’s case means that his unit was valued as a 276 square foot unit,
rather than a 302 square foot unit. The DOR calculated the value based on the
replacement cost and then applied depreciation, which includes physical
depreciation, functional obsolescence, and economic obsolescence, to reach a
value of $21,310. As noted above, the DOR provided an affidavit from the
appraiser showing that the value of the subject property would have been
$21,668.67, or $358 higher, had the DOR valued the subject property and then
allocated 1/60" of the value to each of the unit holders.

50. The Taxpayer argues that since the DOR did not follow Mont. Code Ann. § 15-
8-111(5) by allocating 1/60" of the value of the improvements to each owner,
the value should be disregarded, and Taxpayer should prevail. This Board’s
mandate is to find market value, so if we determine the DOR did not properly
value the subject property, then we must assign the correct value. As stated
above, this Board finds that the Taxpayer’s method of calculating the value of
the subject property undervalues the property based on the evidence presented.
The DOR must follow the laws and accepted appraisal practice when valuing

property in Montana. In addition to valuing property in Montana, the DOR is

3 The DOR states it used the “outbuilding/garage” code because it currently does not have a separate code for
car park/condominium garages but anticipates this will be remedied for the future cycle.

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31.

52.

BEFORE THE MONTANA TAX APPEAL BOARD
MARC MANLY vy, STATE OF MONTANA, DEPARTMENT OF REVENUE

constitutionally mandated to equalize the values of such properties. Had the
DOR strictly followed Mont. Code Ann. § 15-8-111(5) as the Taxpayer
suggests, the values of all of the units in the car park would have been higher.
Additionally, each of the units would be valued the same regardless of the fact
that some have more square footage than others. Based on the evidence
presented, this Board agrees with the DOR’s approach as a reasonable attempt
to equalize the values of the units among the various unit holders based on the

actual square footage of their individual units.

DOR’s Use of Sales Data in Support of Valuation

The Taxpayer argues that the 23 car park/condominium garage unit sales the
DOR presented to support their cost valuation are not comparable because the
units in Building F are newer and have a different lease termination period and
the 2020 sales of units in Buildings D and E are outliers. He argues that since
the sales comparison method of valuation is the preferred approach, the DOR’s
use of the cost method to value his unit is a concession that sufficient reliable
information on comparison sales was not available. However, as stated above,
the DOR’s options for valuing commercial property are the income method or
the cost method. The sales comparison method is not used to value commercial

properties. The DOR states the sales data presented demonstrates the

reasonableness of the appraisal, as well as the lack of measurable economic

obsolescence due to the Lease Agreement’s termination date as the Taxpayer
describes. This Board agrees with the DOR that the sales data presented refutes
the Taxpayer’s argument that a willing and knowledgeable buyer would not
pay the amount at which the DOR valued the subject property. Although the
three sales in 2020 occurred post-lien date, the sales support the DOR’s

valuation as an accurate estimate of market value.

The Taxpayer argues that because the lease agreement for the units in Building
F terminates in a later year than the Lease Agreement for the subject property,

the annual value of the units in Building F would be $1,661 as compared to

16

53.

54.

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

$1,490 for his unit if the straight-line depreciation methodology was used for
those units and thus supports his valuation method. As previously stated, this
Board does not find the Taxpayer’s straight-line depreciation method credible
for finding market value. Market value must be determined each cycle based on

relevant economic factors and data available for that particular cycle.

CONCLUSION
This Board commends the Taxpayer for his efforts in finding an alternative
value for the subject property. However, his method does not follow accepted
appraisal practice, and as the evidence presented demonstrates, results in
undervaluing the property for the 2021/2022 cycle. This Board finds that the
DOR did consider economic obsolescence as part of its analysis of the
depreciation it applied to the replacement cost calculation. The sales data
presented did not support further deduction for the Lease Agreement
termination date because other buyers were’ paying even more for similar units
than the appraised value of the subject property in 2020. The DOR valued each
unit based on the actual square footage of the individual units in order to
equalize the values among the other taxpayers owning similar units. For these
reasons, this Board finds the DOR value of $21,310 appropriate for the
2021/2022 valuation cycle.

The Taxpayer’s Motion for Summary Judgment is denied. The CTAB’s
decision upholding the DOR’s valuation is affirmed.

17

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

ORDER

55. Taxpayer’s Motion for Summary Judgment is denied.

56. DOR is directed to maintain Taxpayer’s subject property value of $21,310 for
2021 and 2022.

Dated this 11" day of August 2022.

—~ «fy py
“BH kl WEY

~ David L. McAlpin, Chairman ft

V
wae ae /- ™

Amie Zendron, Member

Ve TC Abo-

Vin Daniel Zolnzkov, 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).

18

BEFORE THE MONTANA TAX APPEAL BOARD
MARC MANLY 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 August 11, 2022, to:

Marc Manly
9200 Old Indian Hill
Cincinnati, Ohio 45243

Teresa G. Whitney

State of Montana, Department of Revenue
Legal Services Office

P.O. Box 7701

Helena, MT 59604-7701

Pamela Hamlin Lammey
Gallatin County Commission
311 W. Main, Rm. 306
Bozeman, MT 59715

Kory Hofland

PAD Administrator

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

Helena, MT 59604-7701

\ fue —

Tara M. Green, Legal Secretary

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