BEFORE THE DEPARTMENT OF REVENUE
OF THE STATE OF MONTANA
In the matter of the adoption of New Rule I (42.18.130), II (42.18.131), III (42.18.132), IV (42.18.133), V (42.18.134), VI (42.18.135), and VII (42.18.136); amendment of ARM 42.18.122, 42.18.124, 42.18.128, 42.20.106, and 42.22.1304; and repeal of ARM 42.18.106, 42.18.109, 42.18.112, 42.18.115, and 42.22.1314 relating to the Montana reappraisal plan
NOTICE OF ADOPTION, AMENDMENT, AND REPEAL
TO: All Concerned Persons
1. On October 25, 2012, the department published MAR Notice Number 42-2-885 regarding the proposed adoption, amendment, and repeal of the above-stated rules at page 2165 of the 2012 Montana Administrative Register, Issue Number 20.
2. A public hearing was held on November 19, 2012, to consider the proposed adoption, amendment, and repeal. Al Kington, representative for two Montana ranchers, and Chuck Roady, Vice President and General Manager of F.H. Stoltze Land & Lumber Co., appeared and testified at the hearing. Nancy Higgins Schlepp, President of the Montana Taxpayer's Association, submitted written comments. The oral and written comments received are summarized as follows, along with the responses of the department:
COMMENT NO. 1: Mr. Kington commented on New Rule III (42.18.132), relative to the identification of the data sources being used, that he has been involved with the productivity class ever since it was originated and hopes some of the things they've brought up in past committees, and particularly in the last reappraisal cycle, will be considered.
He further commented that they had a problem in the valuation portion of the formula involving the logging costs and asked "when there are several different valuation components, and suddenly one of the components is no longer credible, how do you change it? How does the department plan on addressing that in this rule, and hopefully in the advisory council?" We are at this point in the valuation formula because the state Department of Natural Resources and Conservation data previously used can no longer be applied with any credibility. We want to be confident that this will be addressed in the new system. He further commented that they raised this topic in every meeting they had during the last reappraisal, and brought up the DNRC data.
Mr. Kington further stated that he doesn't want the valuation formula to change much, but there is a need to adjust for credible data in the logging costs. To be fair and equitable, good data is necessary to meet what you want in the new rules. It was left out before, and while we got through that last appraisal because a professor at the University of Montana (UM) went out of his way to make the state data fit, that won't work this next time around, and there will be appeals if it isn't changed.
RESPONSE NO. 1: The department appreciates Mr. Kington's comments. The Forest Land Taxation Advisory Committee has not had a chance to discuss the valuation impacts for the next reappraisal cycle and will not have the opportunity until the forest land market data becomes available. The department will ensure, however, that Mr. Kington's concerns are brought forward to the advisory committee. The department created a "committee" link on its Department of Revenue web site, at www.revenue.mt.gov, that provides the committee's statutory authority, membership roster, meeting agendas, and meeting minutes. There has been only one meeting since launching the page, however, future meetings and information related to this committee will be posted on the web site, which is available to the public. The department shares Mr. Kington's concerns, that only credible data be used for forest land valuation. The department is committed to ensuring that the most reliable data is used.
COMMENT NO. 2: Mr. Kington recommended that the department contract with the Bureau of Business and Economics at the UM, because they do a lot of forestry research. Mr. Kington stated that the contact he has in mind knows the difference between which costs in forest service wouldn't apply to private land and could extract those costs out. The department might also ask this individual to sit in with the Forestry Advisory Committee and let them figure out what is fair and what is credible. He further commented that he has personally attended appeals hearings, and that it's embarrassing when the department doesn't have the same good data that the landowner has hired a consultant to get.
Mr. Roady also commented on using the same resource at the UM, and provided the individual's name and title. He added that this person would be an excellent source of information because he's knowledgeable on the subject, has a very broad perspective, and also does work in Idaho, Oregon, and Washington, in addition to Montana, and could bring that to the table.
RESPONSE NO. 2: While these comments do not relate to specific issues in the proposed rules, they are nonetheless important to consider. The department agrees that objective and verifiable data is an important requirement in establishing forest land values for the next reappraisal cycle. The department intends to contract with individuals who have the expertise and ability to gather and analyze credible data, and appreciates the recommendation. Those contract decisions, however, have yet to be made.
COMMENT NO. 3: Mr. Roady commented that there should be timelines or timeframes, a formal public review and comment period, set up in this plan for the compilation of this appraisal valuation data and the productivity data, so that the advisory committee and the general public has sufficient time to review and comment on both the productivity, and the valuation specific to forest land taxation data sets once they are established. He emphasized he wants the data set review to occur prior to its use in the reevaluation, and commented that in the last go-around, none of them ever had a chance to see the evaluations or productivity values until they had already been applied to the reappraisal. He further commented that they went into great detail about this in the last legislature to make sure they would have that opportunity.
Mr. Roady further commented that because this isn't provided for in statute or administrative rule, it would be up to the department to make sure this happens and will be open to the public, and now is the time to get that added to the administrative rule process.
Mr. Kington commented that the committees should remain open, and there should be a record of the discussion for the public. He stated he knows this is not addressed specifically in any of the new rules, but believes that openness and having the stakeholders engaged in that process all of the way through was one of the reasons that they have been able to get the productivity tax in place in both forestry and agriculture over the years. Mr. Kington stated that the rules being laid out here are setting the stage for how the department operates until the next reappraisal cycle and hopes they have that same openness.
Mr. Kington further stated that his understanding is that the procedure for the committees hasn't changed, in that they are strictly advisory. The department doesn't necessarily have to take everything that the committee recommends, and the Governor doesn't have to approve their recommendations and has the final say. He commented that this is in kind with the concern he has on making sure the stakeholders and the public can be involved if they want to be. The relationship between the department people and the stakeholder groups has always been good and worked well over the years since the productivity tax came in.
RESPONSE NO. 3: The department thanks Mr. Roady and Mr. Kington for their interest in these rules, and appreciates their comments. The department is required by law to notify taxpayers of their productivity values through the assessment notice process, and does not have rulemaking authority to change this procedure. However, the property owner is afforded an opportunity, through the appeal process provided for in statute, to obtain the information the department used to value their property once they have received their assessment notice.
The Forest Land Taxation Advisory Committee meetings are open to the public. The Department of Revenue web site will be updated regularly with meeting information as the meetings are scheduled. The public is invited to participate in the discussions and to receive the forest land market data the department is reviewing to establish values. The forest land market data, however, will not be available until the end of 2013 or early 2014.
COMMENT NO. 4: Mr. Roady commented, relative to New Rule VI (42.18.135), that there is no mention in the rules about the role or the consultation of the Forest Land Taxation Advisory Committee, and stated that it needs to be defined when such consultation is specifically called for in 15-44-103(10)(c)MCA.
Mr. Roady stated that the member make-up of the advisory council committee should be taken very seriously by the department, as was the intent of the 2011 Legislature. Better homework should have been done prior to the appointment of the nonindustrial and industrial private landowner members. Perhaps putting in some criteria would be best, such as a nonindustrial private forest land owner would need to have 15 acres to be classified as forest land.
Mr. Roady further commented that the same thing could be said on the industrial side. One criterion could be that a tree farm needs to have a written land management plan. You don't necessarily need to have a minimum or maximum number of acres to be industrial, but it needs to truly be a business. He stated that he is certain the advisory committee would be more than happy to help the department with those criteria.
RESPONSE NO. 4: The role of the Forest Land Taxation Advisory Committee is clearly established by law, so it is not necessary to further reference that role in these rules. Further, the composition of the Forest Land Taxation Advisory Committee is determined by the Governor and legislative leadership, not by the department. The department is without authority to either appoint committee members or establish specific criteria that would bind the elected officials in making their appointments to the committee. Further, a rule outlining the responsibilities of the advisory committee is not necessary in light of the statutory language and would in fact go against the requirements of the Montana Administrative Procedures Act, which does not allow for repeating statute in rules.
COMMENT NO. 5: Ms. Schlepp commented that the Montana Taxpayers Association believes it is premature to adopt these rules prior to the next session, as it is likely the legislature, through a bill requested by the Revenue and Transportation Interim Committee, is going to address the length of the appraisal cycle in some manner.
Section 15-7-111, MCA, which is used as the reasoning for promulgating these rules states: "A comprehensive written reappraisal plan must be promulgated by the department. The reappraisal plan adopted must provide that all class three, four, and ten property in each county is revalued by January 1, 2015, effective for January 1, 2015, and each succeeding six years. The resulting valuation changes must be phased in for each year until the next reappraisal. If a percentage of change for each year is not established, then the percentage of phase-in for each year is 16.66 percent."
Adopting a new plan within weeks of the 2013 Montana Legislative Session seems counterproductive knowing that changes concerning the appraisal of Classes three, four, and ten may be around the corner. These rules can be addressed adequately to meet all MCA requirements after the 2013 session, within the time frame required by the January 1, 2015 deadline.
RESPONSE NO. 5: The department appreciates Ms. Schlepp's comments and welcomes this opportunity to address them. These rules are mandated by law for the current reappraisal cycle that concludes with the establishment of new valuations as of January 1, 2015. The scope of these rules encompasses valuation activities that occur prior to that date. Those processes are underway, and the public has a right to know what these processes are. Further, these rules do not address the phase-in process for changes in value that commences on January 1, 2015 and that, under current law, extends out six years hence. The current bill request by the Revenue and Transportation Interim Committee does not overlap with or address the valuation process leading up to the new valuations applied as of January 1, 2015. That bill does address a change to the length of future reappraisal cycles. That bill could affect the phase-in of changes in values that commences on January 1, 2015. However, phase-in is not addressed in these rules, so there is no interaction between these rules and that bill. Thus, the existence of that bill does not provide the department with a reason to fail to comply with the legislative mandate for these rules implementing a reappraisal plan. These rules only seek to provide transparency to the public of the department's valuation objectives and processes for the current reappraisal cycle. If the 2013 Legislature were to enact any legislation affecting the valuation processes for the current reappraisal cycle that required modifications of these rules, the department will propose additional new rules or amendments as required.
3. To insert a missing word and an implementing statute, the department amends New Rule II (42.18.131) as follows:
NEW RULE II (42.18.131) SPECIFIC OBJECTIVES OF THE 2015 REAPPRAISAL (1) Specific objectives for the department's 2015 reappraisal include but are not limited to:
(1)(a) through (1)(i) remain as proposed.
AUTH: 15-1-201, 15-7-111, MCA
IMP: 15-7-101, 15-7-111, 15-7-112, 15-9-101, MCA
4. Therefore, the department adopts New Rule II (42.18.131) with the amendments shown above, and adopts New Rule I (42.18.130), III (42.18.132), IV (42.18.133), V (42.18.134), VI (42.18.135), and VII (42.18.136), amends ARM 42.18.122, 42.18.124, 42.18.128, 42.20.106, and 42.22.1304, and repeals ARM 42.18.106, 42.18.109, 42.18.112, 42.18.115, and 42.22.1314, as proposed.
5. An electronic copy of this notice is available on the department's web site at www.revenue.mt.gov. Select the "Laws and Rules" link in the left hand column, and click on the "Rules" link within to view the options under the "Current Rule Actions – Published Notices" heading. The department strives to make the electronic copy of this notice conform to the official version of the notice, as printed in the Montana Administrative Register, but advises all concerned persons that in the event of a discrepancy between the official printed text of the notice and the electronic version of the notice, only the official printed text will be considered. While the department also strives to keep its web site accessible at all times, in some instances it may be temporarily unavailable due to system maintenance or technical problems.
/s/ Cleo Anderson /s/ Dan R. Bucks
CLEO ANDERSON DAN R. BUCKS
Rule Reviewer Director of Revenue
Certified to Secretary of State December 10, 2012