HELENA — A long-brewing disagreement between county and state leaders over Montana property tax rates is now going to be debated in the court system.
Some county commissioners have been claiming the state is misinterpreting a provision in law and collecting too much in property tax.
Now, counties from Missoula, Gallatin and Flathead to Beaverhead and Fergus have all proposed or approved plans to act on their own and reduce that amount.
The state filed in district court on Monday, October 2, 2023, asking a judge to step in and stop those moves.
Mike McGinley, who chairs the Beaverhead County Commission, has been one of the most vocal advocates for the counties’ view.
“I mean, that's been the battle cry all through this whole session and all year long – is to try to control property taxes,” he said. “And that's exactly what we're doing.”
Counties are responsible for collecting all property taxes in Montana.
That includes their own, those for other local jurisdictions and a share that goes to the state for school equalization payments — aimed at ensuring equity in education between school districts with different tax bases. It’s that equalization revenue that’s at issue in this dispute.
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 jurisdictions 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.
That means the increase in actual taxes will be much smaller than the jump in taxable value.
However, the state has consistently charged 95 mills for school equalization for the past 20 years.
Because the number of mills doesn’t change, that share of the property tax bill will grow this year, compared to local governments’ share.
State law caps the equalization mills at a maximum of 95.
The counties are arguing that a section of that law also requires the state to float the mills down, to meet the same inflation limit that applies to local taxes.
The state argues that it has the authority to charge the full 95 mills because of a provision allowing governments to “bank” mills — charging mills in future years if they don’t assess all that they were authorized for in the current year.
In August, Beaverhead County asked Attorney General Austin Knudsen to issue an opinion, stating that the 95 mills should have to float down.
However, Knudsen’s office declined the request, saying this issue was almost certainly going to end up in court, and that was the proper place for the question to be answered.
After Knudsen’s decision, counties began preparing a unilateral move – to state that they would only charge 77.9 equalization mills, despite the state’s request for 95.
McGinley said Beaverhead and Fergus Counties’ commissioners have already adopted the plan, and he expects another dozen or so to do so in the coming days.
McGinley said the maneuver was the best option for his county’s taxpayers.
“In this year with property taxes going up extreme as they are with these reappraisals, even if the state had the right to assess these extra mills, this is the year they have the responsibility not to,” he said.
The Montana Department of Administration — whose director is tasked with handling state money as the state treasurer — filed a motion in the 4th Judicial District Court in Missoula County, on Monday, seeking an order of declaratory relief.
They cited their understanding that county commissioners there were planning to adopt a resolution to lower the equalization mills on Thursday.
The state wants the judge to rule that the Montana Department of Revenue is authorized to calculate and bank mills as they have been doing, and that the counties are obligated to go along with the number the department gives them.
“For more than 20 years, based on its interpretation of Mont. Code Ann. § 15-10-420, the Department has been transparent in its calculation of the School Mills and in its practice of banking mills as described above,” their filing read. “In that time, the Legislature has not amended Mont. Code Ann. § 15- 10-420, in a way that would contradict the Department’s interpretation.”
According to the Department of Revenue, Montana’s total taxable value is roughly $4.7 billion.
If the state equalization mills were lowered by 17, as the counties are proposing, that would reduce collections by about $80 million this year.
This week, the Montana Federation of Public Employees — the labor union that represents public school teachers — expressed strong opposition to the counties’ move.
“Every district in Montana depends on the 95 mills for their day-to-day funding,” said MFPE President Amanda Curtis. “There is no way to decrease the 95 mills and not harm the school that your kids go to, down the street from your house.”
Curtis said the equalization funding — established in response to court cases requiring the state to fund an adequate share of public education costs — is key, and that her organization has worked extensively to keep the 95 mills from being raided for other purposes.
She said leaders could have done more this year to adjust the tax formula and reduce the property tax burden on residents, but this isn’t the way to do it.
“It's left other folks in Montana — property owners — kind of standing in a circle, pointing fingers at each other,” she said. “And for some reason, the counties have chosen to point their fingers at public education.”
McGinley said he didn’t see any reason why the state shouldn’t have to lower its mills when almost all other jurisdictions are doing so.
He said counties have done their part to limit property tax increases, and that they’re standing up for their authority — something he also tied back to the legal challenges over the veto of Senate Bill 442, a bill that would have directed some marijuana revenue to counties for road maintenance.
“Counties, the local governments, I still firmly believe are the most important level of government,” he said. “Everybody states that. So we have our jurisdiction that we need to protect, and we are pushing back the people that are trying to take that authority away from us.”
Curtis said the benefit to individual homeowners from reducing the 95 mills would be limited, but the impact it would have on school funding would be significant. She questioned how that funding gap would be addressed.
“I would ask anyone who wants to cut the funding to public schools by filling it in from some other piece of the budget what other portion of public services they would cut,” she said. “If you're going to rob somebody to pay for this, give us the list of public services that you would like to see not offered to Montanans who are using them now.”
This issue is likely to come to a head soon. McGinley said many counties are printing their property tax bills right now and preparing to send them out around the start of November.
