Sen. Brad Molnar, R-Laurel, alleges the Montana Department of Revenue has miscalculated a school funding equalization tax, meaning he and other property owners will overpay.
By Eric Dietrich MONTANA FREE PRESS
Republican state Sen. Brad Molnar filed a lawsuit against the Montana Department of Revenue Tuesday, alleging that the agency has misinterpreted state law in a way that will result in property owners across Montana being overcharged on their tax bills.
The suit, filed in Yellowstone County District Court in Billings and assigned to Judge Jessica Fehr, says Molnar will be harmed by the way the revenue department has produced tax calculations passed onto county treasurers. Molnar and his attorney, former Republican lawmaker Matt Monforton, are seeking class-action status so they can litigate the issue on behalf of taxpayers across the state.
“We’re confident that we’re correct and that Montana property owners are getting bilked by the Gianforte administration,” Monforton said in an interview.
Complaint – Brad Molnar lawsuit against Montana Department of RevenueDOWNLOAD
The lawsuit’s critique parallels an argument made by several county governments, which formally asked Montana Attorney General Austin Knudsen last month for a legal opinion backing their interpretation of the state’s somewhat convoluted property tax law.
Gianforte’s office and education groups have responded by arguing that the interpretation advanced by county officials would jeopardize school funding by upending how property taxes have been calculated for decades.
At dispute are the 95 mills of state-level property taxes that balance funding between tax-base-rich and tax-base-poor school districts. That portion of the tax bill has come under heightened scrutiny this year as the revenue department updates the property valuations used for tax purposes to reflect the dramatic upswing seen in the Montana real estate market since the beginning of the COVID-19 pandemic.
Statewide, the median residential property has seen its assessed value increase by 46%, according to the revenue department, a shift that has produced widespread anxiety over the potential for higher tax bills.
Most portions of tax bills are typically scaled to account for rising property values. If, for example, a Montana town has a constant $10 million budget and sees property values in its jurisdiction double, its officials typically halve the tax rate they assess to pay for services such as police, fire and parks. In fact, even if local officials want to grow their budgets, state law explicitly caps their collection growth to half the rate of inflation as averaged over a three-year period unless they put the increase to a jurisdiction-wide vote.
In contrast, the 95 mills, which were created following a school funding lawsuit in the 1990s, operate differently, scaling directly with property values. As such, a home that doubled in assessed value this year will pay twice as much for the 95-mill portion of its bill. Statewide property value growth means the 95 mills are estimated to bring in an additional $91 million this year from homeowners, businesses and other property owners.
Molnar and the county officials argue that the statute that implements the tax cap also applies to the 95 mills. That would mean the state can’t have counties collect the entirety of that additional sum.
The matter is further complicated by a provision that allows local governments to “bank” unused tax collection growth, expanding their collections faster than would be allowable under the tax cap one year if they’ve kept below the cap in previous years.
A document cited by Molnar and Monforton purportedly shows the revenue department relying on “banked mills” calculations to support its decision to have the full 95 mills collected this year. They, however, argue that the growth banking provision only applies to local governments, not the state revenue department.
“They don’t have the authority. They can’t show it,” Molnar said in an interview. “If the judge wants to buy the argument that, because they call the statute ambiguous they have the right to tax, she shouldn’t be a judge.”
In his exchange with county officials, the governor argued the equalization funding that comes from the 95 mills performs an important role in ensuring that highly valued mines and resort properties help pay for schools beyond their immediate communities — costs that would otherwise fall on homeowners in predominantly residential districts.
“Drawing down the 95 public school mill rate not only would provide a windfall for a few large industrial corporations and a few school districts already flush with resources, like Big Sky, but also over time would increase the tax burden on Montanans in most local jurisdictions,” Gianforte wrote in a letter to county commissioners Sept. 8.
Monforton and Molnar said they believe the state has the capacity to make up the difference out of its General Fund this year without forcing higher taxes elsewhere. The General Fund, which has been running a surplus in recent years, is largely filled with income tax dollars.
Specifically, Molnar and Monforton argue the state should be limited to collecting 77.89 mills this year, as opposed to the full 95 mills.
According to publicly available tax records and MTFP calculations, the difference amounts to about $32 a year on the $137,000 home Molnar owns southwest of Laurel. For homeowners with more typical Montana homes valued at $450,000, the difference is about $104 a year.
Monforton said the issue is a good fit for a class-action lawsuit because the alleged harm applies broadly to property owners across the state and it would be inefficient for the court system to process thousands of separate lawsuits.
Monforton also said that property owners who wish to receive a refund if Molnar’s suit is successful should file a formal protest after they receive their tax bill in the coming weeks. He noted that that protest period is separate from the one available to property owners who wanted to contest the reappraisal notices sent by the revenue department earlier this year.
