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Taking on the tax man

Outdated appraisals cause Flathead heartburn

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Joan Renne cries when talking about selling off pieces of the 10-acre property in Rollins that she inherited from her father.

"I can't go on like this," she says. "My taxes are now $10,000 a year."

The 74-year-old music teacher makes $32,000 annually. She says her tax payment is just shy of $10,000 on the property that the state's now valued at more than $1 million. "I've been there bawling my head off with the Lake County Tax Assessor," she says. "There doesn't seem to be anything I can do, except try to sell."

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Renne's father bought a 28-acre parcel on Flathead Lake's west side in 1959 for $10,000. In 1975, Renne built a 2,000-square-foot home not far from the big lake's craggy cliffs. After attending music school on the East Coast, she returned to live on her father's land full-time in 1990.

In 2005, her father's death prompted the family to sell 18 acres. Renne says the 18-acre property fetched upwards of $4.7 million in 2009.

Renne kept the remaining 10 acres and watched in dismay as wealthy snowbirds from out of state bought up pieces of the Flathead Lake coastline that she loves so much. As Montana increasingly became a recreation destination in the 1990s and into the 2000s, property values skyrocketed. According to the Montana Department of Revenue, residential real estate values in Lake County, where Renne lives, increased 66.7 percent between 2002 and 2008. In neighboring Flathead County, values increased 65.7 percent.

After 2008, property values in the Flathead began to decrease nearly as dramatically as they had climbed. Kalispell appraiser Jim Kelley says residential and commercial real estate values there have slid about 35 percent since 2008, adding, "Some properties decreased more than others."

Flathead residents say that tax problems are being further exacerbated by the fact that the state only sets how much property tax people pay every six years.

If the state assessed properties annually, taxes would decrease as values slide. But, because the Montana Legislature has only authorized the state Department of Revenue to appraise commercial and residential real estate every six years, it doesn't work that way. That means property owners are stuck paying taxes based on 2008 home values.

Renne is far from the only one decrying the state's tax system as flawed. Jerry Begg is a fifth-generation Montanan who administers a family trust that owns multiple Flathead properties. He says people all the way up and down the socioeconomic ladder are being adversely affected. Since the 2008 assessments, Begg's property tax bills have doubled, tripled and, in some cases, he says, "they've quadrupled." That's because tax increases attached to the assessments have been phased in over time. Yet he can't sell those properties for what the state says they're worth.

MDOR encourages property owners like Renne and Begg to work through an appeals process. But they both say the appeals process is daunting and doesn't yield satisfying results.

"It's a total learning curve on the part of the taxpayer," Begg says. The average citizen is ill equipped to take on the complicated and confusing bureaucracy. "The whole process to me, it's anti taxpayer from the get-go."

The Department of Revenue acknowledges improvements are in order. The department says shorter cycles would better ensure the state keeps up with what can be—and has been—a rapidly changing market. "That's what the statute requires," says MDOR Deputy Director Alan Puera.

In 2011, the legislature shot down two bills that would have shortened the appraisal cycle. According to research done in 2011, implementing a two-year cycle would cost nearly $4.7 million over the course of a three-year span.

Last week, in a referral submitted to an interim legislative committee, MDOR told lawmakers that "the six-year gap in reappraising property gives rise to serious equity problems across the state that raises serious legal/constitutional questions."

Puera says there are also flaws in the appeals process that can only be remedied by the legislature. Montana is a "non-disclosure" state. That means it's illegal for the state to disclose property sale prices compiled by its appraisers to anyone who refuses to sign a non-disclosure agreement. Taxpayer appellants, therefore, must sign a non-disclosure agreement that commits them to stay mum on the comparable sales data dug up by state appraisers to justify state property tax assessments. Puera says the agreement hinders the taxpayer's ability to communicate with outside experts.

"We feel that it serves to intimidate and confuse taxpayers and make them feel less able to manage the appeals process," Puera says. "It's frustrating for us, too. It's not comfortable for our staff to have go through this disclosure signature and to request closing public meetings, but it's what the law requires."

MDOR supported a bill to change that law during the 2011 legislative session. It died in committee.

Begg says if legislators don't act soon, Flathead taxpayers will. He and a growing network of residents that includes Renne are deliberating the prospect of filing a class action lawsuit against the state. "We're hoping we can maybe join forces," Begg says.

Renne says she's nearly out of options. She recently approached a real estate agent. If something doesn't break soon, she'll be forced to begin selling off chunks of her land to raise money to pay her taxes. "This has been a heartbreak," she says.

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