HELENA — The Montana Association of Counties is going to the state Supreme Court, in the latest legal action aimed at settling a battle between the state and counties over property tax rules.
Since this summer, a growing number of county leaders have argued the state has been collecting too much in property taxes for years – and now, many of them have defied the state by voting to assess a lower tax rate, based on their interpretation of state law. In a filing this week, MACo asked the court to step in and rule that the counties’ interpretation is correct and that the state can’t force them to assess the higher rate.
The ongoing dispute centers on school equalization funding, intended to ensure equity in education across Montana’s school districts. For decades, that funding has come from a share of property taxes commonly known as the “95 mills” – the one part of Montana’s property tax equation that has been 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.
State law says the school equalization mill rate can never be higher than 95. Where the state and counties differ is whether the equalization mills should also float down, like local mills have.
The state has always charged the full 95 mills. Leaders argue they have the authority to do that because the 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. They say, if their calculation would entitle them to more than 95 mills, they can bank any mills above that number and use them at a later time.
MACo’s filing argues that the law doesn’t give the state the authority to bank mills – and that, even if it did, the hard cap at 95 mills should mean they can’t claim any mills higher than that to be banked.
“The central question before the Court is whether Montana’s tax policy intended to take advantage of these increases in taxable values,” said MACo executive director Eric Bryson in a statement announcing the legal action. “This approach does not apply to counties or schools, and we contend that the law does not permit it for the State either. This issue is not about school funding; it is about clarifying the law and the process we all need to use in levying property taxes across Montana's 56 counties.”
The counties challenging the state’s position argue the equalization mills should be reduced to 77.9 this year, and MACo says 49 of 56 Montana counties have adopted resolutions to charge only that lower amount. They said three other counties have said they’ll hold back the 17.1 mills in taxes so they can refund them to taxpayers if the challenge is successful.
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.
In their statement, MACo leaders argued that, since the Montana Legislature has already set its funding formula for the biennium, the result of this case won’t affect school funding for the next two years.
Three other legal cases have already been filed in attempts to resolve this dispute. The Montana Department of Administration filed a motion against Missoula County in the 4th Judicial District Court, 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 Montana Quality Education Coalition – which includes school districts and a number of other public education organizations – filed with the Supreme Court, naming all 56 counties as defendants and asking justices to order them to collect the full 95 mills. Since then, the court has dismissed several counties that already voted to levy 95 mills.
Finally, Sen. Brad Molnar, R-Laurel, filed a lawsuit against the Montana Department of Revenue, accusing them of overcharging taxpayers by not floating down the equalization mills.
MACo argues those cases either wouldn’t fully settle the issue or wouldn’t be resolved in time for the next property tax payment deadline coming up in May. In their filing, they asked the court to issue a judgment no later than March 15 on the proper interpretation of this law.
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