County property tax dispute may go before Montana Supreme Court

Helenans see sharp increase in assessed and taxable values of properties
Posted at 7:00 PM, Oct 16, 2023

HELENA — As more counties join an effort to challenge the state’s interpretation of property tax law, the legal questions could now be considered in the Montana Supreme Court.

This month, many county commissions have adopted resolutions, saying they won’t charge the full amount of school equalization property taxes the state has asked them for. State leaders filed in district court to block that move, and last week, a group of public education organizations asked the Supreme Court to step in.

The disagreement between counties and the state over these tax rates has been brewing for months. Equalization funding – intended to ensure equity in education across Montana’s school districts, and commonly known as the “95 mills” – is the one share of property taxes set by the state rather than by local jurisdictions.

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.

Counties, cities, school districts and other local governments have a cap on how many mills they can charge, so that the actual amount of taxes they assess rises by no more than half the rate of inflation, averaged over the last three years. 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.

However, the state has consistently charged 95 mills for school equalization for the past 20 years, so their share of property taxes has increased. The counties are arguing that the same law that caps their mills also requires the equalization mills to float down. County commissions adopting that theory have voted to charge 77.9 mills this year instead of 95.

The state argues that it has the authority to charge the full 95 mills because of a provision allowing governments to “bank” mills – assessing mills in future years if they don’t assess all that they were authorized for in the current year. The Montana Department of Administration filed a motion in the 4th Judicial District Court in Missoula County earlier this month, asking the judge to rule that the state’s interpretation is correct and that the counties are obligated to go along with their calculation.

The latest court filing came from the Montana Quality Education Coalition, which includes organizations like the Montana School Boards Association and Montana Federation of Public Employees, as well as more than 100 school districts. MQEC said, if every county lowered its mills in this way, it could cost the state $79 million this year that would otherwise go toward school funding – while estimating it would only reduce taxes by $45 a year for a typical homeowner with a median-priced residence. They said, if only some counties took that action, it would lead to unfair tax discrepancies for residents based on where they lived.

MQEC argued there would be no way to recover the uncollected money later if the state prevails in its legal action, so they asked the Supreme Court to take on the case immediately and direct counties to levy the full 95 mills. The Supreme Court issued an order last week, giving counties 30 days to file a response to MQEC’s petition.

Some of the county leaders that have already lowered their mills have argued their action won’t have as significant an effect on schools as opponents have claimed. They said, since the equalization funding all goes into the state general fund, the state would be able to make up any loss to school revenues.

There may still be more legal actions. On Thursday, the Lewis and Clark County Commission is set to consider a resolution to authorize the Montana Association of Counties to pursue an original action with the Supreme Court, seeking a declaration of how to interpret the law and the rights and obligations of counties.

One big question is how quickly this issue can be resolved. Property tax bills are already being printed, and are expected to go out to property owners across Montana soon.