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Montana Supreme Court rules against counties' challenge to property tax policy

Montana Supreme Court
Posted at 11:44 AM, Nov 22, 2023
and last updated 2023-11-22 16:03:35-05

HELENA — The Montana Supreme Court has issued an order upholding the state’s interpretation of property tax law – ruling against the vast majority of Montana counties, which sought to challenge the way the state calculated taxes.

On Wednesday, Supreme Court justices ruled unanimously that counties are obligated to charge the full amount of school equalization property tax mills – commonly called the “95 mills” – as directed by the Montana Department of Revenue.

“DOR’s interpretation of its taxation authority is consistent with the Montana Constitution and the Legislature’s directive to equalize funds for public education across Montana,” said the court’s opinion, authored by Chief Justice Mike McGrath.

The ruling ends what had become a months-long dispute between the state and the counties, which started this summer in the aftermath of a spike in residential property values across Montana – expected in many cases to lead to an increase in property tax bills.

Governments set their property tax rates in terms of mills. The actual amount of taxes charged is the property’s taxable value multiplied by the mill rate that each jurisdiction charges. Each mill is $1 per $1,000 of taxable value. When the value of property in a jurisdiction increases, one mill brings in a greater amount of money.

Most mills are set by counties, cities, school districts and other local governments, but school equalization mills are set by the state. The funding they bring in is intended to ensure equity in education across Montana’s school districts. State law says leaders can never charge more than 95 equalization mills, and the state has consistently levied exactly 95 mills for more than 20 years.

The dispute centered on whether the equalization mill rate should be lowered in response to rising property values. Local governments have a cap on how many mills they can charge, based on the rate of inflation. When the assessed value of property increases significantly – as happened this year – they have to reduce, or “float down,” the number of mills they assess.

The Department of Revenue argues it has the authority to charge the full 95 mills because state law allows governments to “bank” mills – assessing mills in future years if they don’t assess all that they were authorized for in the current year. But a number of county leaders argued only local governments had the authority to bank mills, and that the department should have to float down its mills this year from 95 to 77.9.

The effect of charging 77.9 mills statewide instead of 95 would be to reduce property tax collections statewide by about $80 million this year. According to the Montana Association of Counties, or MACo, 49 of Montana’s 56 counties passed resolutions to unilaterally charge the lower amount. MACo then filed with the Supreme Court, asking them to rule the counties’ interpretation was correct.

However, the court sided with the state, saying the Department of Revenue has the authority under state law to set the number of equalization mills, and counties must abide by that decision.

“If we interpreted § 15-10-420(1)(a) and (b), MCA, to mean DOR is prohibited from calculating statewide mills altogether, which is the logical conclusion of MACo’s argument, it would be impossible to harmonize the statutes governing statewide mills with the State’s constitutional mandate to provide equalized funding for public education,” McGrath said in his opinion.

Justices went on to say they generally let state agencies’ interpretations stand when they haven’t been challenged for a considerable length of time. Since the department has been banking mills since 2001, they said they would defer to that policy.

“DOR’s methodology has been untested for two decades, and its interpretation of the statute is consistent with the State’s constitutional directives,” McGrath’s opinion said.

MACO’s case was just one of several seeking a resolution to the dispute over equalization mills. Leaders brought it forward in hopes of settling the legal questions as quickly as possible, before the next property tax deadline.