If the average Montanan was as adept at lowering his or her taxes as the Plum Creek Timber Company is, the state’s infrastructure might well collapse. In March, funds were distributed to Flathead County schools and city jurisdictions—as well as to the state general fund and state schools—from an escrow account holding state property tax revenues that Plum Creek argued it should not have to pay. In total, Plum Creek disputed $957,923 that the state Department of Revenue (DOR) collected from the timber company in 2003 and 2004. Plum Creek paid almost $2.6 million in Flathead County taxes in 2002, the last year for which accurate data is available, according to Flathead County Tax Department Supervisor Sue Waggener, making the company the Flathead’s largest taxpayer. But in a settlement reached last fall, Plum Creek was able to keep $518,249, or 54 percent, of the disputed funds. Now that the remaining $439,673 has been distributed, several local jurisdictions that rely on tax money are finding themselves with less than they had budgeted for.
According to data from the Flathead County Treasurer’s office, Plum Creek’s appeals cost the county $520,502 in anticipated revenues in 2003 and $177,167 in 2004—or almost $700,000 over the past two years.
Perched in front of a calculator in Columbia Falls City Hall, Mayor Susan Nicosia does the math: In the wake of the tax settlement, Columbia Falls’ elementary school district loses $96,000 and its high school is short $34,500; the City of Columbia Falls loses $26,000; Evergreen elementary loses $46,000; Flathead High School loses $21,600, and the list continues on down to smaller jurisdictions such as the Columbia Falls rural fire department.
“It does put a strain on us for this year,” Nicosia says. “You don’t get to make this up by adding more mills next time around because you got shorted.”
The strain was anticipated by Plum Creek, says Henry Ricklefs, the company’s vice president for manufactured products in Columbia Falls.
“We absolutely understood that this was going to be a disruption for those school districts and other governmental agencies that receive property tax monies,” Ricklefs says. “Unfortunately, the way the law works is that any taxpayer—you yourself, if you get a tax bill on your house and you think it has an incorrect value—has the right to appeal.”
Not every taxpayer, however, employs up to 1,300 local citizens, many of whom have children in the local schools.
“With all the growth in Flathead Valley, I’m often asked the question, ‘Why are my taxes still going up?’” says Michael Nicosia, Mayor Susan Nicosia’s husband and Columbia Falls’ superintendent of schools. “Then I explain that it takes an awful lot of private homes to replace the taxable value that’s been reduced on big business through various forms of legislation.”
“It wasn’t a question of, ‘The state is going to collect X and by filing this protest, we’re shifting the burden,’” Ricklefs says. “That was not our thought process. Our thought process was there’s a system designed around market values, and if we don’t feel that the values are correctly stated, then we’re entitled to test that and seek a correct level.”
Plum Creek hired the Portand-based Tapanen Group, a property tax valuation and consulting firm that specializes in reducing industry’s tax liability, to dispute the DOR’s appraisal.
“One of their complaints is that the DOR bases its numbers on trended and depreciated original costs,” says Gary Peterson, an appraisal specialist in the business tax and valuation department of the Montana DOR. “That’s a legitimate methodology and it’s accepted by all the books, but generally in the private sector they feel, and specifically in this case, they felt it was not an accurate reflection of market value, and they wanted to do it based on market data and based on income data.”
In doing so, the company based its self-appraisal on data available as of Jan. 1, 2003—a convenient date for Plum Creek, given Ricklefs’ acknowledgement that 2002 and 2001 were slow years in the wood market. Though a settlement wasn’t initially reached until fall 2004, no updated 2003 data was considered in the appraisal, says Ricklefs, who notes that by 2003, “markets had gotten better.”
At the negotiating table, Plum Creek and the state were worlds apart. For example, the state appraised the value of the Columbia Falls saw mill buildings at $7,428,300, while Plum Creek put the value of the same buildings at $1,455,000.
Peterson says such disputes aren’t unusual, and that a late-’90s Plum Creek appeal featured even wider variances from state appraisals.
Both Nicosias say they have no qualms with Plum Creek appealing taxes, but the mayor is troubled by the fact that the appeal was issued after a spring deadline for such, giving schools and municipalities the impression they’d have money in their budgets that in fact they did not have.
“It just hurts us as taxing jurisdictions,” Nicosia says. “You’ve already set your budget and then this comes along.”
To mitigate further conflicts, Plum Creek and the state have worked out a valuation structure that will remain static—excepting variables such as new equipment or facility closings—through 2008. But though it may provide stability, that agreement won’t make up for anticipated civic revenue lost to Plum Creek’s tax break.
Still, Mayor Nicosia soldiers on.
“We all lived without that money last year,” she says, shrugging her shoulders to indicate that, with frugality, it can be done again.
Meanwhile, Plum Creek celebrates 2004, a year that was “one of the best in Plum Creek’s history,” according to a written statement by CEO Rick Holley. In 2004, Plum Creek posted a net income of $362 million—$366 million before taxes.