LUCAS RANCH, INC.; MONTANA FARM BUREAU FEDERATION; and THE MONTANA TAXPAYERS' ASSOCIATION, Petitioners and Appellants,
MONTANA DEPARTMENT OF REVENUE, Defendant and Appellee
Submitted on Briefs: February 4, 2015.
Released for Publication: May 14, 2015.
APPEAL FROM: District Court of the Fourteenth Judicial District, In and For the County of Meagher, Cause No. DV-10-02. Honorable Randal I. Spaulding, Presiding Judge.
For Appellants: Michael Green, D. Wiley Barker, Crowley Fleck, PLLP, Helena, Montana.
For Appellee: Daniel J. Whyte, Amanda L. Myers, Special Assistant Attorneys General, Montana Department of Revenue, Helena, Montana.
MIKE McGRATH. We Concur: PATRICIA COTTER, JIM RICE, MICHAEL E WHEAT. Justice Jim Rice, specially concurring. Justice Laurie McKinnon, dissenting. Chief Justice Mike McGrath delivered the Opinion of the Court.
[379 Mont. 29] Mike McGrath,
[¶1] Lucas Ranch, the Montana Farm Bureau Federation, and the Montana Taxpayers' Association (" Petitioners" ) filed suit against the Montana Department of Revenue (" Department" ), in the District Court for the Fourteenth Judicial District, Meagher County. In June 2013, the Department moved for summary judgment. The District Court granted the Department summary judgment and the Petitioners appeal.
[¶2] The sole issue on review is whether the District Court correctly interpreted § 15-7-111, MCA.
[¶3] In 2009, the Department began the process of reappraising Montana agricultural properties. All residential, agricultural, and timber properties are reappraised every six years. Section 15-7-111, MCA; Covenant Investments, Inc. v. State, 2013 MT 215, ¶ 4, 371 Mont. 186, 308 P.3d 54. Prior to the 2009 reappraisal, the Department relied on self-reporting by property owners. In 2005, the Legislature provided funding for a systematic reappraisal of agricultural lands by the Department. In the words of Dallas Reese, Department Management Analyst for the Property Assessment Division, " [t]his reappraisal process for agricultural property was the most comprehensive and detailed in almost 45 years." Aff. Dallas Reese ¶ 7 (April 26, 2010). The Department utilized a number of methods for assessing the land including a geographical information system (GIS), soil surveys from [379 Mont. 30] the United States Department of Agricultural Natural Resource Conservation Service (USDA NRCS), a global position system (GPS), an in-depth review of soil types, and aerial photographs. The Department also surveyed landowners,
however the response was limited, garnering only about a 10% return rate.
[¶4] The Department uses a multi-step process for determining the taxable value for the land. First, the Department identifies the land use and categorizes it according to five classifications: grazing land, non-irrigated summer fallow farm land, tillable irrigated farm land, non-irrigated continuously cropped hay land, or non-irrigated continuously cropped farm land. Second, the Department determines the productivity yield using the USDA NRCS soil surveys and calculates production information for each acre of land by classification. Adjustments are made to reflect income that the average Montana farm or ranch could have attained on the land as required by § 15-7-201(7)(e), MCA. Third, the productivity amount is multiplied by an averaged commodity price determined by Montana agricultural statistical data, to arrive at the gross income per acre. Fourth, the Department calculates a net income per acre according to specific Department administrative rules based on the different classification categories. Finally, the net income per acre is divided by the capitalization rate established in § 15-7-201(4)(c), MCA, and the assessed values are totaled and multiplied by the current taxable percentage to arrive at the taxable value for the parcel.
[¶5] During a six-year cycle, any increases in value from the previous cycle must be accounted for. The Montana Legislature, in an effort to alleviate the tax sting due to fluctuations in value, provided for the phase-in of increases in value from previous cycles. Two values are needed to determine phase-in amounts: the current full market value and the value before reappraisal (" VBR" ). The full market value of a property is determined at the beginning of the cycle. The VBR, as defined in Admin. R. M. 42.20.501(25) (2006):
the 2002 tax year value adjusted for any new construction or destruction that occurred in the prior year. The VBR for the 2003 tax year and subsequent years is the same as the 2002 tax year value if there is no new construction, destruction, land splits, land use changes, land reclassifications, land productivity changes, improvement grade changes, or other changes made to the [379 Mont. 31] property during 2002 or subsequent tax years.
The 2002 tax year value refers to the fully phased-in value from the previous cycle. The phase-in amount is the difference between the full market value at the beginning of the six-year cycle and the full market value from the prior six-year cycle. This amount is phased-in at a rate of 16.66% each year.
[¶6] The Department initially calculated the VBR based on the 2009 updated classification for all agricultural properties. Subsequently, the Department realized that Admin. R. M. 42.20.502 required it to use the unadjusted 2002 base year value, rather than the newly calculated VBR, for properties that increased in value based on a change in productivity. In 2010, the Department adopted a new rule, Admin. R. M. 42.20.607 (2010), to clarify and distinguish between properties experiencing change due to market fluctuations and those changing due to the actions of the owner. If the increase was due to market changes (i.e., changes in the price of a commodity), the Department used the unadjusted 2002 base year value. If the increase was due to non-market changes, such as land reclassification, the Department calculated a new VBR. The new VBR accounted for the increase in value attributable to the non-market change.
[¶7] In 2009, the Department reappraised the Lucas Ranch. The Department concluded
that the Lucas Ranch had non-market changes due to reclassification of land and thus required a newly calculated VBR. In February 2010, the Petitioners filed a Petition for Declaratory Judgment and Writ of Mandate, seeking a declaration that the Department improperly assessed their agricultural property for tax purposes and failed to properly phase-in the increases in value from the previous cycle resulting in erroneous taxable values for the Lucas Ranch and all similarly situated landowners. The Department answered, arguing that it properly applied the statute and that [379 Mont. 32] Petitioners were not entitled to the 16.66% phase-in due to the reclassification of their land. In April 2010, Petitioners moved for class certification and the District Court denied their motion. The Petitioners appealed to this Court, which reversed and remanded the matter for class certification pursuant to M. R. Civ. P. 23, as permitted by § 15-1-407(2)(a), MCA.
[¶8] After the case returned to the District Court, the Department moved to dismiss Charles B. Lucas, who was deceased, as well as the Montana Farm Bureau Federation and the Montana Taxpayers Association for failure to represent the class. The Petitioners stipulated to the dismissal of Charles B. Lucas, but objected to the dismissal of the Farm Bureau Federation and the Montana Taxpayers Association. In June 2013, the Department filed for partial summary judgment on the Petitioners' writ of mandate, and later filed a motion for summary judgment. Petitioners then filed a cross motion for summary judgment.
[¶9] On June 2, 2014, the District Court granted the Department's motion for summary judgment. The District Court declared the ...