Wednesday, September 27, 2023

Guest column: Rulings offer some clarity for property tax exemptions

by Gale Decker
| March 10, 2022 12:15 AM

A three-member arbitration panel recently rendered decisions in favor of Lake County on two of the three issues contested in a lawsuit brought against the Montana Department of Revenue (MDOR), by the County related to the Temporary Tribal Tax Exemption (TTTE), a statute enacted in 2012. The statute provides property tax exemptions for a maximum of five years for properties owned in fee by the Confederated Salish and Kootenai Tribes on the Flathead Reservation.

The county took legal action against MDOR in 2018 after discovering what the county believed to be serious inadequacies in the department’s handling of exemption applications and the annual certifications from the CSKT that are required by the statute.

The county argued that the mishandling of the statute by the department was resulting in the shifting of significant tax liability from the CSKT to other county taxpayers.

In January of 2021 the two parties signed off on a settlement agreement that resolved all of the issues in the lawsuit except the question of annual certifications. The purpose of the required annual certifications is to verify that exempted properties continue to have valid trust applications pending with the Bureau of Indian Affairs.

The county maintained that an annual certification was required for tax year 2013 as properties had been exempted in 2012 and were moving through the trust process. The department agreed that properties had been exempted in 2012, but that the exemptions had not been approved by MDOR’s central office in Helena, and therefore a certification was not required for tax year 2013. The arbitrators agreed with the county’s position and unanimously concluded that a certification was required for 2013.

The county also successfully argued that if a required annual certification is not submitted to the MDOR for a tax year, exempted properties should return to taxable status for that year. The department stated that if the arbitrators chose to do this it would be an “extreme remedy.” Again, the arbitrators ruled against the department and referenced the administrative rules written by the department to implement the statute as the basis for their decision. The decision will return about 50 of the 75 properties exempted in 2012 to taxable status for tax year 2013. The remaining properties have acquired trust status, according to department and county records.

The county unsuccessfully argued that the annual certifications for those years after 2013 should not have been approved by the MDOR, as they were prepared by the Flathead Agency, BIA, not the CSKT, as required by the statute. The panel determined that although not prepared by the required party, the information provided to the department was sufficient.

Numerous attempts were made by the county to settle the annual certification controversy before going to arbitration, but the department was determined to continue litigation at taxpayer expense. A tentative agreement was reached by the department’s legal staff and the county in 2019, but the MDOR Polson office director rejected the agreement. A year ago the county commissioners offered to travel to Helena to meet with the director of MDOR and again try to hammer out a settlement that would end the ongoing litigation. There was no response from the department on the offer. Tens of thousands of dollars of taxpayer money was spent by the department on litigation when an agreement could have been reached beforehand.

The arbitrator’s decisions regarding the annual certifications closes the chapter on the debate over those, but other problems persist as the MDOR continues to apply the statute in Flathead Reservation counties. Numerous CSKT properties eligible for the five-year exemption provided by the statute have either not received the full five-year exemption or have had exemptions extend beyond the five-year window. Properties that have been in Tribal trust and exempt from property taxes for years have applied for and received exemption by the department. The department, in many instances, when removing the property taxes levied on the property, also removed fees for services such as irrigation and solid waste that should have remained on the tax statement. Several districts have lost significant revenue needed for the operation of the district.

The only viable solution to correcting the property records of all exempted properties is for the county, CSKT Lands Department and MDOR to sit down together and examine the tax records of the affected properties. The department has shown little interest in pursuing this path forward.

Gale Decker of Ronan is a member of the Lake County Commission.

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