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Governor’s Property Tax Reappraisal Advisory Council Meeting

November 21, 2002



Chairman Senator Bob Story
Vice Chairman Kurt Alme
Representative John Brueggemann
Representative Gary Branae
Ward Ernst
Nick Hogan


Senator Emily Stonington
Susan Humbolt

Department of Revenue Staff Present:

Judy Paynter, Tax Policy and Research Process Lead
Brad Simshaw, Principal Tax Policy Analyst
Larry Finch, Principal Tax Policy Analyst
Randy Piearson, Property Valuation Specialist
Dallas Reese, Tax Policy Analyst
Ryan Jose, Tax Policy Analyst
Marla Tilton, Administrative Assistant


The information base is the material prepared for the Council. The only handouts referred to are those given in addition to the basic Council materials.

Chairman Story opened the meeting and introduced the Lieutenant Governor Karl Ohs.

Lieutenant Governor Karl Ohs reviewed the Council Charge, stating that the Council is here to recommend a way to mitigate and address the property tax changes due to the cyclical reappraisal cycle for timberland, agriculture land, residential property and Class 4 commercial property, start working on that solution and make recommendations to the Governor and the 2003 Legislature. Lieutenant Governor Ohs thanked the Council for agreeing to participate, and said he looked forward to receiving their recommendations.

Chairman Story introduced himself and provided some personal background information, then asked the other members to do the same.

Chairman Story noted that there was an addition to the agenda. After lunch, Jim Stack from the Whitefish area would be making a presentation regarding land values inflation.

Chairman Story further discussed the Council Charge.

Department of Revenue introduced their staff.

Brad Simshaw, Department of Revenue, presented the report on History of Reappraisal. He also handed out and explained a chart called the Timeline of Reappraisal (Attachment A). Note: Change on handout – under First Reappraisal Cycle, ‘The 1997 Legislature’ should be ‘1977’.

Brad Simshaw explained the table Estimated Taxable Value of a Residential Property. (Attachment B) The Council asked questions and discussed points in the reports.

Kurt Alme asked why we didn’t have just two different classes and adjust the rate.

Chairman Story responded that we have to look historically at why we have a classification system. It allows you to use different assessment methods on different types of property; for example, we have Class 3 agriculture land that is assessed at a productive value and Class 4 residential land that is assessed at the market value. The classification system allows the different assessments. It allows you to apportion the taxable between the different types of property. Some point in time it was determined that residential and commercial property would be in the same class/tax rate so that you wouldn’t shift the tax burden from homeowners to businesses. Two issues we have are: Do we want to increase the residential exemption and not increase commercial exemption and if so, what is the appropriate level of exemption for each type of property? Should the homestead exemption be capped so that it only applies to the first $200,000 or $300,000 in value of the homes? There are three types of property that are tax rated the same – agriculture land, commercial property and residential property. The statue states that the Class 3 tax rate is the same as the Class 4 top rate. The other property classes have tax rates that vary from 3% to 100%. So when Class 4 moves, Class 3 moves automatically. If we do nothing and assume that the market values are what we have seen here today, the taxable value will go up from 25% to 33%, so we would see a tax increase of about $420 at 500 mills.

Chairman Story asked when we would start seeing some new reappraisal numbers.

Kurt Alme responded that there would be new numbers next week for the residential side and another week before the commercial side.

Randy Piearson, Department of Revenue, presented his report on Agricultural Land Values for Tax Years 2003-2008.

Chairman Story asked how we could have a 15% increase on productive value when we have been in a depressed agriculture cycle. How do you determine the value?

Randy Piearson responded that other areas of commodities that increased were the grazing fees for livestock and the price of hay.

Kurt Alme asked Randy Piearson to give a background about how these values where determined.

Randy Piearson responded that by statue the Governor must appoint an Advisory Committee to assist the Department of Revenue in making policy recommendations on how to value agriculture land. Governor Martz appointed a committee last fall and they met for the first time in December 2001 and completed their work in June 2002. The Advisory Committee recommendations are reflected in this report.

Randy Piearson presented his report on Timber Land Values for Tax Years 2003-2008.

Chairman Story asked what percentage of the tax base is timber.

Randy Piearson stated that Montana has one of the lowest tax rates on timberland and Judy Paynter, Department of Revenue, stated that timberland taxable value is 42% of the total statewide taxable value.

Kurt Alme wanted to know what qualifies land for forestland.

Randy Piearson said there are two critical items that really determine commercial forestland. You have to have the first 50 continuous acres of forestland in your ownership and a minimal production level per year of 25 cubic feet per acre.

Chairman Story asked if forestland was taxed higher than grazing land.

Randy Piearson noted that the tax level varies between timberland and grazing land depending on the location within Montana.

Jim and Lisa Stack from InvesTech Research made their presentation of The Impending Montana Property Tax Crisis. (Attachment C)

Kurt Alme asked about the way California is moving regarding property taxes.

Jim Stack of InvesTech Research responded that California has an acquisition-based tax. It was created by Proposition 13, which did not go through the legislature but went through voters in 1978. It was a big tax cut, rolling back property taxes three years and then tying the legislators’ hands by requiring a 2/3 or super majority in order to increase property valuations and taxes.

Brad Simshaw, Department of Revenue, presented his report on Land Cap – SB184. Brad Simshaw introduced Ryan Jose, Department of Revenue, who assisted in writing the report.

Larry Finch, Department of Revenue, presented his portion of the report on Residential Property Tax Relief Programs – Montana’s Elderly Homeowner/Renter Credit.

Representative Gary Branae asked what percentage of the elderly population is eligible and how many are using Montana’s Elderly Homeowner/Renter Credit Program.

Larry Finch responded that they have not looked at this in some time, but commented that the participation rate is higher in this program than the Property Tax Assistance Program. Larry Finch also added that the department did look at the Property Tax Assistance Program and the participation rate was about 25%-30%. It would be more difficult to obtain information on how many eligible people participated in the Homeowner/Renter Credit Program because income information needs to be correlated to property tax information for each family.

Dallas Reese, Department of Revenue, presented his portion of the report on Residential Property Tax Relief Programs – Property Tax Assistance Program.

Ward Ernst asked if the income from an individual’s tax return was used to qualify for this program.

Dallas Reese responded that an individual would need his/her tax return and the program application to apply for the property tax credit. An individual must apply by March 15th of each year and in January of each year the Department of Revenue mails applications to all individuals who received the benefit in the prior year.

Kurt Alme asked if an individual could qualify for both the Elderly Homeowner/Renter Credit and the Property Tax Assistance Program. Also, would they have to qualify for one before the other?

Judy Paynter responded that an individual would qualify for the Property Tax Assistance Program first and then the Elderly Homeowner/Renter Credit second.

Nick Hogan asked if the income eligibility ranges had increased since 1999 or stayed the same.

Dallas Reese responded that the ranges have increased every year based on inflation. In 1995 the legislature changed the structure of the income ranges and established the requirement to update the ranges each year for inflation.

Nick Hogan asked why participation has dropped. Dallas Reese said he did not know.

Dallas Reese presented his portion of the report on Residential Property Tax Relief Programs –Disabled American Veterans Exemption.

John Kershaw, AARP, stated that a worker at the Fort explained that a requirement of the eligibility states someone has to be 100% disabled even though they are 100% unemployable. He would like to see the eligibility requirements changed to include an individual who is 100% unemployable.

Kurt Alme said this would require a statutory change.

Dallas Reese presented his portion of the report on Residential Property Tax Relief Programs – Reverse Annuity Mortgage Loan Program.

Ward Ernst asked why the state offers this program.

Dallas Reese responded that the purpose of state involvement in this program is to help low-income taxpayers who may not qualify under a lending institution’s requirement. The interest rate is lower than commercial institutions.

Kurt Alme asked what is the interest rate for this program. Dallas Reese said he thought the rate was 5%, but he was not sure and would have to get this information back to the committee.

Mary Whittinghill, Montana Taxpayers Association, commented that the state requirements of this program do not include any medical deductions.

Chairman Story opened the meeting to public comment.

John Kershaw, AARP, congratulated the Department of Revenue on excellent reports that were written clearly and thanked the committee for all their work.

Nick Hogan asked for more research on what has happened in California with their model and how that has impacted real estate prices, etc.

Lee Heiman, Legislature Services Division, responded that he has material and would be getting information to committee. Chairman Story asked if Lee Heiman would present this information at the next committee meeting.

John Kershaw, AARP, gave some history about Proposition 13 in California as he lived there during that time and felt this property tax change was very successful for California.

Chairman Story asked the committee to continue thinking about some type of land cap idea or a combined land cap and credit.

Kurt Alme commented that the tools are there to shift this tax burden however we would like to make this shift. The committee should give some thought to the different ideas and talk with some people. The important principles are fairness and stability. How do we keep people from getting caught in a position where they can’t pay their property taxes?

After Council discussion, staff was asked to bring a list of advantages and challenges to the acquisition system of valuing property for tax purposes.

Chairman Story adjourned the meeting at 3:30 p.m.

The next meeting date was set for December 10, 2002.(Note: the meeting date was later changed to December 20) navigation footer
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