By Michael Howell
The Ravalli County Commissioners heard from state officials last week about what to expect from the recent reappraisal of property values for tax purposes. After experiencing decades of rising property values in the state and in Ravalli County, some property owners are expecting a little tax relief following the most recent reappraisal since property values dropped due to the economic recession and related downturn in the real estate market.
In a nutshell the message was, don’t expect any drastic changes.
The primary reason for that being that the Montana Legislature has instituted a mitigation program that serves to iron out any drastic changes in the amount of tax money that is actually paid and collected each year. According to Deborah Reesman from the Department of Revenue, the legislature instituted the tax stabilization program to keep people from being taxed out of their homes upon reappraisal of their property’s value and to provide some predictability to the process. The result is a complex calculation that is not that easy to understand, but which state officials believe is effective.
First of all, there is what a piece of property is worth on the open market, its “market value.” From that is derived the “taxable value” of the property. This newly calculated “taxable value” is then phased in over a six-year period so that actual tax payments only gradually increase, reaching the required total at the end of the six-year reappraisal cycle.
This taxable value is then multiplied by the local tax mill levy which varies from jurisdiction to jurisdiction across the state. According to Reesman, the phase-in process works fairly well except for a couple of unpredictable factors such as legislative changes and the local mill levies.
The effects of the mitigation process can be seen in the 2003-2009 tax cycle. Market value of property in the state rose on average about 56%. In Ravalli County, one of the fastest growing counties in the state at the time, it rose 60%. But the taxable value of property in the state only rose by 2%. Which, in turn, led to a 3% increase on the taxpayer’s bill due to the mill levies which are variable from locale to locale and from year to year.
All changes made to the taxes during each reappraisal cycle are based upon the market values of the last year of the preceding cycle. So the base values for the 2009-2014 cycle were based on the property values of 2008. The upcoming appraisal cycle will begin on January 1, 2015 and end on December 31, 2020 with January 1, 2014 as the base value date.
With the emphasis on “preliminary,” because it will take several months to do the final computations, unlike the past two cycles it appears that property values for tax purposes will decrease. While taxable value increased by 2% in the previous cycle, this cycle is estimated to bring a decrease of 2% on a statewide average, with a 12% decrease on average in Ravalli County.
The estimated decrease in taxable value in 2015 in Ravalli County is estimated to be 9%. But due to the state’s mitigation measures, the actual taxes paid by Ravalli County taxpayers will be a 1% decrease, although schools, cities and counties will see a 1% increase in tax revenue, while the state will see a 9% decrease in revenue from Ravalli County.
The bottom line is that the county did not see a windfall in revenues due to the skyrocketing price of real estate in the booming years and they probably won’t see a big reduction in revenue following the decline of the last cycle, unless the legislature changes the mitigation process.
“If history repeats itself,” said Reesman, “you won’t see much of an impact on county revenues and that was the legislature’s goal.” But she cautioned that the analysis was based on averages. She said that some property owners would see a decrease and others would see an increase depending upon many factors. She said owners of bare land would generally see a decrease greater than the average, which includes developed land. She said commercial property taxes would probably decrease more than residential.
Any person who believes that the value of their land was not appraised appropriately may appeal. She said about 1,200 appeals were filed in the last cycle and from 40% to 50% of those were adjusted.
More information about the property reappraisal process may be accessed on the internet at mt.gov/agencies.