Administrative Rules of the State of Montana

BEFORE THE DEPARTMENT OF REVENUE

OF THE STATE OF MONTANA

In the matter of the amendment ARM 42.20.102, 42.20.106, 42.20.156, 42.20.171, 42.20.173, 42.20.301, 42.20.454, 42.20.455, 42.20.501, 42.20.502, 42.20.503, 42.20.505, 42.20.516, 42.20.602, 42.20.615, 42.20.620, 42.20.640, and 42.20.725 and repeal of ARM 42.20.509, 42.20.510, 42.20.517, and 42.20.621 pertaining to property classification, appraisal, valuation, and exemptions

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NOTICE OF PUBLIC HEARING ON PROPOSED AMENDMENT AND

REPEAL

TO: All Concerned Persons

1. On November 5, 2015, at 9 a.m., the Department of Revenue will hold a public hearing in the Third Floor Reception Area Conference Room of the Sam W. Mitchell Building, located at 125 North Roberts, Helena, Montana, to consider the proposed amendment and repeal of the above-stated rules. The conference room is most readily accessed by entering through the east doors of the building facing Sanders Street.

2. The Department of Revenue will make reasonable accommodations for persons with disabilities who wish to participate in this public hearing or need an alternative accessible format of this notice. If you require an accommodation advise the department of the nature of the accommodation needed no later than 5 p.m. on October 26, 2015. Contact Laurie Logan, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-7905; fax (406) 444-3696; or e-mail lalogan@mt.gov.

3. The rules proposed to be amended provide as follows, new matter underlined, deleted matter interlined:

42.20.102 APPLICATIONS FOR PROPERTY TAX EXEMPTIONS (1) The property owner of record, the property owner's agent, or a federally recognized tribe, must file an application for a property tax exemption on a form available from the local department office before March 1, except as provided in ARM 42.20.118, of the year for which the exemption is sought. All first time exemption applicants in 2016 and all owners of real property that was exempt as of March 1, 2014, must submit an application for exempt status along with the application fee stated in (16) no later than March 1, 2016 in order for the application to be processed for tax year 2016. Applications postmarked after March 1 will be considered for the following tax year only, unless the department determines any of the following conditions are met:

(a) through (c) remain the same.

(2) The following documents must accompany all applications, unless the applicant is a federally recognized tribe. If the applicant:

(a) ~~if the applicant~~ is incorporated, a copy of the applicant's articles of incorporation;

(b) ~~if the applicant~~ is not incorporated, a copy of the applicant's constitution or by-laws; or

(c) ~~if the applicant~~ has been granted tax-exempt status by the Internal Revenue Service (IRS), a copy of the applicant's tax-exempt status letter (501 determination):

(i) through (9) remain the same.

(10) For real property exemption applications submitting use for parks and recreational facilities, the following documents must accompany the applications:

(a) remains the same.

(b) if a federally recognized tribe, a tribal resolution:

(i) identifying the fee land, by legal description, to be used exclusively for parks and recreational facilities~~, by legal description,~~;

(ii) including language stating the type of exemption the tribe is requesting,; and

(iii) including language stating how the property qualifies for this type of exemption, not to exceed 640 acres.

(11) For real property exemption applications where the applicant is requesting an 8-year exemption for up to 15 acres of property owned by a purely public charity, as set forth in 15-6-201, MCA, the following apply:

(a) all documents in (5) must be submitted with the application;

(b) the exemption applies to only the general taxes, not the special fees and assessment charges imposed by the local governments;

(c) upon the department's approval of the 8-year exemption, the department will file a notice of exemption with the clerk and recorder in the county where the property is located. The notice shall:

(i) indicate that the exemption has been granted;

(ii) describe the penalty for default; and

(iii) specify that default will create a lien on the property by operation of law;

(d) the department shall notify the applying entity that the application has been approved and a notice exemption on the property has been filed with the county clerk and recorder;

(e) an organization granted an 8-year exemption must notify the department on an annual basis by March 1 whether the property has been placed into a public charitable use;

(f) if an organization has been granted the 8-year exemption the application stated in (1) does not extend the 8-year timeline;

(g) for property not used directly for the charitable purpose intended within the 8-year exemption period, or for property sold or transferred before it is entered into direct charitable use, the exemption is revoked and the property is taxable as follows. If the property:

(i) has completed the 8 years without being placed into a public charitable purpose, the tax will be calculated using the current year's ad valorem tax multiplied by 8 years; or

(ii) has been sold or the exemption status is revoked prior to the end of the 8-year period, the tax will be calculated using the current year's ad valorem tax multiplied by the number of years the property was exempt before the date of sale or revocation. For example, if the property was exempt for 4 years of the approved 8-year period, the tax will be the current year's ad valorem tax multiplied by 4; and

(h) upon default and removal of the 8-year exemption, the department will inform the county clerk and recorder that a lien was created on the property by operation of law, and inform the county treasurer that the lien on the property is being executed and that taxes will be due.

(12) For real property exemption applications where the applicant is requesting exemption for property used for low-income housing, as set forth in 15-6-221, MCA, all documents in (2) must be submitted with the application and also include:

(a) documentation that the property is dedicated to providing affordable housing to low-income tenants;

(b) a copy of the IRS tax exemption status letter (if a limited partnership-general partner is a nonprofit corporation with an IRS 501(c)3 exemption);

(d) documentation that at least 20 percent of the residential units are rent-restricted and rented to tenants whose household incomes do not exceed 50 percent of the median family income for the county, and at least 40 percent of the residential units are rent-restricted to persons whose household incomes do not exceed 60 percent of the median income for the county;

(e) a copy of the deed or other legally binding document that restricts the property's usage;

(f) a letter stating that the property meets a public purpose in providing housing to an underserved population and provides a minimum of 50 percent of the units in the property to tenants at 50 percent of the median family income for the area, with rents restricted to a maximum of 30 percent of 50 percent of median family income;

(g) a copy of the owner's partnership or operating agreement or accompanying document providing that at the end of the compliance period, the ownership of the property may be transferred to the nonprofit corporation or housing authority general partner; and

(h) documentation, such as the hearing minutes or newspaper notification, that a public hearing was held to consider whether the property meets a community housing need.

(11) and (12) remain the same, but are renumbered (13) and (14).

(15) Real property exemption renewal applications must provide the documentation specified in this rule and also include a copy of IRS form 990 identifying the gross receipts of the entire organization. Real property exemption renewal applications will be charged a processing fee as follows:

(a) $15 for vacant land parcels 1 acre or less;

(b) $20 for parcels 1 acre or less with one improvement and no complex structures;

(d) $35 for parcels 1 acre or more (land and/or buildings); or

(e) $0 for nonprofit entities with gross receipts less than $5,000.

AUTH: 15-1-201, 15-6-230, 15-6-231, MCA

IMP: 7-8-2307, 15-6-201, 15-6-203, 15-6-209, ~~15-6-211,~~ 15-6-216, 15-6-221, 15-6-230, 15-6-231, 15-6-233, 15-6-311, 15-7-102, MCA

REASON: The department proposes amending ARM 42.20.102 due to the enactment of House Bill (HB) 389, L. 2015, which requires the department to review tax exempt properties and requires all entities owning real property to reapply for exempt status.

The department proposes adding new language in (1) to inform entities currently in exempt status to reapply for exempt status by March 1, 2016. Real property owners who received an exemption beginning in tax year 2014 do not have to reapply because (HB) 389 does not require real property owners who received an exemption within two calendar years of the uniform renewal application to reapply. The department further proposes adding new (15) to delineate the processing fees charged to entities applying for a property tax exemption and the required documentation. The addition of the fees and documentation is a requirement of HB 389, Section 2.

Currently, there are approximately 6,000 entities that receive real property exemption statewide. The department has determined that these entities will pay approximately $129,000 in total ($21.50 average per parcel) in the one-time costs in the first year. Of the 6,000 entities, an estimated 600 will not be charged any fees if their total gross receipts are less than $5,000; 300 will be charged $15 for vacant parcels of 1 acre or less; 3,600 will be charged $20 for parcels that have 1 acre or less with a building on the property but no complex structures; 600 will be charged $35 for parcels that have 1 acre or less with complex structures; and 900 will be charged $35 for parcels greater than 1 acre (land and/or buildings).

The department also proposes adding new (11) to address the process the department follows when an 8-year property exemption is approved for purely public charities, what happens when the exemption is removed, the requirements for purely public charities to maintain exempt status for the duration of the 8 years, instances when the exemption is revoked, and how the taxes are calculated in the event of a revocation.

The language proposed with new (12) is intended to clarify the process and specify the required documents for entities seeking an exemption for low-income housing. While this information is available in 15-6-221, MCA, the department frequently receives questions from new applicants about the process and what documentation to include and determined it would be helpful to detail that information in this rule.

The department further proposes revising the outline structure in (2) to remove excess language and proposes reformatting the outline structure in (10) to make it consistent with similar language sections in this same rule.

The department also proposes updating the implementing section of the rule to correspond with the legislative changes in Senate Bill 157, L. 2015, which repealed 15-6-211, MCA, and replaced it with 15-6-311, MCA.

Furthermore, as HB 389, Section 1 is codified at 15-6-231, MCA, and HB 389, Section 3 is codified at 15-6-233, MCA, the department proposes adding these two statutes to the implementing section of the rule and proposes adding 15-6-231, MCA, as additional rulemaking authority for the rule.

42.20.106 DEFINITIONS The following definitions apply to this subchapter:

(1) through (5) remain the same.

(6) "Complex structure" means improvements that have an intricate or complicated association or assemblage of related parts or units. Some examples include, but are not limited to:

(a) an office building where only a portion of the building is exempt;

(b) a multi-floor hospital; or

(6) through (22) remain the same, but are renumbered (7) through (23).

AUTH: 15-1-201, 15-6-231, 15-7-111, MCA

IMP: 15-6-101, 15-6-232, 15-7-111, 15-7-112, 15-7-304, 15-7-306, 15-9-101, 15-24-1501, MCA

REASON: The department proposes amending ARM 42.20.106 to define the term "complex structure" because that term is proposed to be added to a rule in this subchapter as part of implementing House Bill (HB) 389, L. 2015.

Furthermore, as HB 389, Section 1 is codified at 15-6-231, MCA, and HB 389, Section 2 is codified at 15-6-232, MCA, the department proposes adding the statutes to the authorization and implementing sections of the rule accordingly.

42.20.156 AGRICULTURAL AND FOREST LAND USE CHANGE CRITERIA

(1) through (1)(c)(ix) remain the same.

(e) remains the same, but is renumbered (d).

(i) through (3) remain the same.

AUTH: 15-1-201, 15-7-111, 15-44-105, MCA

IMP: 15-1-101, 15-6-133, 15-7-103, 15-7-111, 15-7-202, 15-7-206, 15-7-207, 15-7-210, 15-44-102, 15-44-103, MCA

REASON: The department proposes amending ARM 42.20.156 to correct a numbering error that occurred when the rule was previously amended. Section (1)(e) should have been numbered (1)(d). No language changes are being proposed at this time.

42.20.171 LAND CLASSIFICATION DETERMINATION DATE FOR CLASS THREE, FOUR, AND TEN PROPERTY (1) through (3) remain the same.

(a) Example 1 - A taxpayer with a contiguous ownership less than 160 acres in size files an application for agricultural land classification on May 1. The department's decision is based on the property's agricultural income for the preceding year and the property's ability to meet the agricultural eligibility rules pursuant to ARM 42.20.620 ~~or 42.20.625~~;

(b) and (c) remain the same.

(d) Example 4 - A taxpayer purchases a parcel of land on May 1 of the current year. The parcel was classified as forest land on January 1 of the current year. The taxpayer files an AB-26 within 30 days of receipt of the assessment notice requesting that the department review the forest land productivity ~~grade~~ for the property. If the department determines that a change in productivity ~~grading~~ is appropriate, the change is effective for the current year because the basis for the property's productivity existed on January 1 of the current year; and

(e) Example 5 - A taxpayer purchases a property on December 31 of the previous year. The property was classified as agricultural land under the previous owner. The new taxpayer files a timely application for agricultural land classification with the local department office. The new taxpayer states that the property will continue to be managed as an agricultural operation for the current year. The property met the agricultural eligibility requirements on January 1 of the current year for the previous owner. The property is classified and assessed as agricultural land by the department for the current year, even though the current taxpayer has not owned the property long enough to market agricultural products or consume agricultural products produced by the property. The department may ask the new taxpayer to file another application for agricultural land classification the following year to demonstrate that the property continues to meet the agricultural land eligibility requirements pursuant to ARM 42.20.620 ~~or 42.20.625~~.

AUTH: 15-1-201, MCA

IMP: 15-6-133, 15-7-103, 15-7-201, 15-7-202, 15-7-203, 15-7-206, 15-7-207, 15-7-208, 15-7-209, 15-7-210, 15-7-212, MCA

REASON: The department proposes amending ARM 42.20.171 to remove references to "grades" and "grading" because grades are no longer used to rate productivity. The department further proposes striking two references to ARM 42.20.625, because that rule is being repealed and combined with ARM 42.20.620.

42.20.173 STATUTORY DEADLINE FOR ~~ASSESSMENT~~ CLASSIFICATION AND APPRAISAL REVIEWS (1) ~~For the current~~ The reappraisal cycle~~, tax years 2015-2020, the~~ for class three and four property is January 1, 2015, through December 31, 2016. The department will accept requests for informal ~~assessment~~ classification and appraisal reviews (Form AB-26) for ~~classes~~ class three, and class four~~, and ten~~ property for tax years 2015 and 2016. The reappraisal cycle for class ten property is January 1, 2015 through December 31, 2020. The department will accept Form AB-26 requests for class ten property for tax years 2015 through 2020. ~~The owner of any land and/or improvements who had not previously submitted a request for an informal review of their 2015 assessment notice and~~ A property taxpayer who is dissatisfied with ~~the valuation~~ their property's appraised value may ~~request an informal review of the assessment notice by submitting a request for informal review form (~~ submit a Form AB-26) one time per reappraisal cycle. The Form AB-26 must be submitted to the local department office in the county in which the property is located~~, on or before the first Monday in June of the current tax year, or~~ within 30 days after the date on the ~~assessment~~ classification and appraisal notice to be considered for the current tax year.

(2) For taxpayers who do not file ~~on or before the first Monday in June of the current tax year, or~~ within 30 days after the date on the ~~assessment~~ classification and appraisal notice, the informal review will be considered for the following year.

(3) remains the same.

(4) For subsequent reappraisal cycles, beginning in tax year 2015, taxpayers may file an informal ~~assessment~~ classification and appraisal review in any year of the cycle, but only one time during a cycle unless the department determines that a change in value occurred and the taxpayer receives a new ~~assessment~~ classification and appraisal notice during the cycle.

AUTH: 15-1-201, MCA

IMP: 15-7-102, 15-7-110, 15-7-111, MCA

REASON: The department proposes amending ARM 42.20.173 due to the enactment of Senate Bill (SB) 157, L. 2015, which generally revised reappraisal laws that changed the reappraisal cycle from six years to two years for classes three and four property beginning in 2015. Class ten (forest land) property remains on the six-year cycle.

The department proposes amending (1) to make the distinction between the lengths of the different reappraisal cycles for the classes relative to the timing for assessment reviews.

The department proposes amending the 30-day language in the rule to match the new legislation and also proposes updating all references to the department's classification and appraisal notice and Form AB-26 with their current names.

The department further proposes adding 15-7-110 and 15-7-111, MCA, as implementing citations for the rule based on the enactment of SB 157 and updating the title to correspond with the proposed amendments to the rule language.

42.20.301 APPLICATION FOR CLASSIFICATION AS NONPRODUCTIVE, PATENTED MINING CLAIM (1) The property owner of record or the property owner's agent must make application to the department to secure classification of the owner's land as a nonproductive, patented mining claim. To be considered for the current tax year, an application must be filed on a form available from the department ~~by the first Monday in June or~~ within 30 days after receiving ~~an assessment~~ a classification and appraisal notice from the department, whichever is later. The form must be filed with the department.

(2) The department will review the application and may conduct a field ~~evaluation~~ review. The department will approve or deny the application and will return a copy of the form to the property owner or the owner's agent.

(3) remains the same.

AUTH: 15-1-201, MCA

IMP: 15-6-101, 15-6-133, 15-7-102, 15-8-111, MCA

REASON: The department proposes amending ARM 42.20.301 due to the enactment of Senate Bill 157, L. 2015, which generally revised reappraisal laws.

The department proposes amending the 30-day language in the rule to match the new legislation, updating a reference to the department's classification and appraisal notice with its current name, and making a word change in (2) for consistency with the remainder of the rule.

The department further proposes adding 15-7-102, MCA, as an implementing citation for the rule as amended.

42.20.454 CONSIDERATION OF SALES PRICE AS AN INDICATION OF MARKET VALUE (1) When considering any objection to the appraisal of property, the department may consider the actual selling price of the property as evidence of the market value of the property. For the actual selling price to be considered, a taxpayer or the taxpayer's agent must:

(a) submit a completed Request for Informal Classification and Appraisal Review (Form AB-26) to the local department office in the county where the property is situated~~, on or before the first Monday in June or~~ within 30 days after the date on the ~~assessment~~ classification and appraisal notice;

(b) through (4) remain the same.

(5) When a tax appeal board decision indicates that the adjusted selling price is market value for the property under appeal, and the department files no further appeal within the time prescribed by law, the adjusted selling price shall become the value for assessment and taxation purposes until such time as changing circumstances with respect to the property requires a new valuation and assessment or upon an updated reappraisal value.

AUTH: 15-1-201, MCA

IMP: 15-7-102, 15-7-111, 15-8-111, MCA

REASON: The department proposes amending ARM 42.20.454 due to the enactment of Senate Bill 157, L. 2015, which generally revised reappraisal laws.

The department proposes amending the 30-day language in the rule to match the new legislation and updating a reference to the department's classification and appraisal notice and Form AB-26 with their current names.

The department also proposes adding language to the end of (5) to make it clear that adjustments made to a property's value following an informal review and/or appeal adjustment will remain that property's value until the department conducts its next statutorily required reappraisal of the property.

The department further proposes adding the word "value" to the rule title for clarity regarding the rule content.

42.20.455 CONSIDERATION OF INDEPENDENT APPRAISALS AS AN INDICATION OF MARKET VALUE (1) When considering any objection to the appraisal of property, the department may consider independent appraisals of the property as evidence of the market value of the property. For an independent appraisal to be considered, the taxpayer or the taxpayer's agent must meet the following requirements:

(a) and (b) remain the same.

(c) submit a Request for Informal Classification and Appraisal Review (Form AB-26) and the original long-form narrative appraisal, to the local department office in the county where the property is situated ~~on or before the first Monday in June or~~ within 30 days after the date on the ~~assessment~~ classification and appraisal notice.

(2) and (3) remain the same.

(4) When a tax appeal board decision indicates that the independent appraisal value is market value for the property under appeal, and the department files no further appeal within the time prescribed by law, the independent appraisal value shall become the value for assessment and taxation purposes, until such time as changing circumstances with respect to the property requires a new valuation and assessment or upon an updated reappraisal value.

AUTH: 15-1-201, MCA

IMP: 15-7-102, 15-7-111, 15-8-111, MCA

REASON: The department proposes amending ARM 42.20.455 due to the enactment of Senate Bill 157, L. 2015, which generally revised reappraisal laws.

The department proposes amending the 30-day language in the rule to match the new legislation and updating references to the department's classification and appraisal notice and Form AB-26 with their current names.

The department further proposes adding language to the end of (4) to make it clear that adjustments made to a property's value following an informal review and/or appeal adjustment will remain that property's value until the department conducts its next statutorily required reappraisal of the property.

42.20.501 DEFINITIONS The following definitions apply to this subchapter:

(1) through (3) remain the same.

~~(4) "Comstead exemption" means the percentage of phase-in value of commercial property that is exempt from taxation pursuant to 15-6-222, MCA.~~

(5) through (9) remain the same but are renumbered (4) through (8).

~~(10) "Homestead exemption" means the percentage of phase-in value of residential property that is exempt from taxation pursuant to 15-6-222, MCA.~~

(11) through (16) remain the same but are renumbered (9) through (14).

~~(17)~~(15) "Neighborhood (NBHD) group percentage" means the percent of change in value from the total 2014 tax year value of the year before reappraisal to the total 2015 reappraisal value, excluding properties with new construction, for those homogeneous areas within each county or between counties that have been defined as a neighborhood group. The neighborhood group percentage is determined by using the following formula:

Neighborhood Group Percentage =

(Total ~~2003~~ 2008 NBHD REAP Value - Total ~~2014~~ 2015 NBHD Tax Year Value)

Total 2014 NBHD Tax Year Value

(a) remains the same.

(18) through (23) remain the same, but are renumbered (16) through (21).

~~(24)~~(22) "Taxable market value" means that portion of the total market value subject to taxation after the total market value has been adjusted, if applicable, for the phase-in of value~~, and the homestead/comstead exemption~~.

(25) remains the same, but is renumbered (23).

AUTH: 15-1-201, 15-7-111, MCA

IMP: ~~15-6-222,~~ 15-7-111, 15-10-420, MCA

REASON: The department proposes amending ARM 42.20.501 due to the enactment of Senate Bill (SB) 157, L. 2015, which generally revised reappraisal laws and removed the homestead and comstead exemptions.

The department proposes striking the terms and definitions of "homestead exemption" and "comstead exemption" from this rule because they no longer apply.

The department further proposes striking a statute that was repealed by SB 157 from the implementing section of the rule.

42.20.502 DETERMINATION OF VALUE BEFORE REAPPRAISAL (VBR), FOR FOREST LAND EXCLUDING INDUSTRIAL PROPERTIES (1) For property that contains no new construction, destruction, land splits, land use changes, land reclassifications, land productivity changes, improvement grade changes, or other changes made to the property during ~~2002~~ 2014 or subsequent tax years, the current year VBR will be the same as the prior year ~~VBR~~ market value.

~~(2) For class three property that contains a land reclassification or a land use change, the current year VBR will be the prior year VBR of the new classification or land use change.~~

~~(3) For class three property that contains a productivity change only, the current year VBR will remain the same as the full appraisal value of the previous cycle.~~

(4) For class four property (excluding industrial property) that contains new construction, the current year VBR is determined by dividing the reappraisal value by one plus the percent of neighborhood group change. The following formula illustrates that calculation:

~~VBR = Reappraisal value /(1 + NBHD group percentage)~~

(5) Land which has been reclassified as residential or commercial land after January 1, 2014, will have the VBR determined by comparing other 2014 market values of similar residential or commercial land, and determining a comparable VBR for the new residential or commercial land.

(6) For class four property (excluding industrial property) that has been either partially or wholly destroyed, the current year VBR is calculated by first determining what percent of the property has been destroyed. That percent is multiplied by the prior year improvement VBR to determine a value amount that is attributed to the destruction. The current year VBR is then the difference between the prior year VBR and the value attributed to the destruction. The following formula illustrates that calculation:

~~Current year VBR =~~

~~Prior year VBR -~~

~~(Percent of property destroyed x prior year improvement VBR)~~

(7) and (8) remain the same, but are renumbered (2) and (3).

~~(9)~~(4) The only instances when the current year VBR will be less than the prior year VBR are:

~~(a) in the case of class four improvements that have been partially or wholly destroyed;~~

~~(b) when the neighborhood group percentage change is negative and there is new construction; or~~

~~(c)~~ when land use changes have occurred.

~~(10) In all other situations, the current year VBR will be the greater of the value determined through application of the formula in (4) or the prior year VBR.~~

AUTH: 15-1-201, 15-7-111, MCA

IMP: 15-7-111, MCA

REASON: The department proposes amending ARM 42.20.502 due to the enactment of SB 157, L. 2015, which generally revised reappraisal laws, and changed the reappraisal cycle from six years to two years, with the exception of forest land (class ten) properties. The new law also removed the phase-in provision from all but class ten properties.

The department proposes amending the rule to update the year in (1) to coincide with the current reappraisal cycle and to strike all references to class three and class four from the rule. Because the change in legislation removed the phase-in from those property types, the VBR references and calculations in this rule no longer apply.

The department further proposes revising the title of the rule to make it clear that the rule now applies to forest land only.

42.20.503 DETERMINATION OF CURRENT YEAR PHASE-IN VALUE FOR ~~CLASS THREE, CLASS FOUR, AND~~ CLASS TEN PROPERTY (1) For tax years 2015 through 2020, the department is required to determine the current year phase-in value for each property in ~~class three, class four, and~~ class ten annually. The current year phase-in value is determined by subtracting the 2014 reappraisal value from the 2015 reappraisal value multiplied by the applicable phase-in percentage, the product of which is added to the 2014 reappraisal value. The calculations of the phase-in values are represented by the following formula:

2015 Phase-in value =

[(2015 full reappraisal value - 2014 full reappraisal value) x 16.66%]

+ 2014 full reappraisal value

2016 Phase-in value =

[(2015 full reappraisal value - 2014 full reappraisal value) x 33.32%]

+ 2014 full reappraisal value

2017 Phase-in value =

[(2015 full reappraisal value - 2014 full reappraisal value) x 49.98%]

+ 2014 full reappraisal value

2018 Phase-in value =

[(2015 full reappraisal value - 2014 full reappraisal value) x 66.64%]

+ 2014 full reappraisal value

2019 Phase-in value =

[(2015 full reappraisal value - 2014 full reappraisal value) x 83.30%]

+ 2014 full reappraisal value

2020 Phase-in value =

2015 full reappraisal value

AUTH: 15-1-201, 15-7-111, MCA

IMP: 15-7-111, MCA

REASON: The department proposes amending ARM 42.20.503 due to the enactment of Senate Bill 157, L. 2015, which generally revised reappraisal laws and changed the reappraisal cycle from six years to two years, with the exception of forest land (class ten) properties. The new law also removed the phase-in provision from all but class ten properties.

The department proposes amending the rule to remove references to class three and class four from the rule content and the rule title because the phase-in no longer applies to those property types.

42.20.505 ~~ASSESSMENT~~ CLASSIFICATION AND APPRAISAL NOTICES AND VALUATION REVIEWS FOR FOREST LAND PROPERTY (1) As required by 15-7-102, MCA, the ~~assessment~~ classification and appraisal notice shall include:

(a) the reappraisal value;

(b) the current year phase-in value for forest land property;

(d) a statement that the notice is not a tax bill~~; and~~

~~(e) amount of appraised value exempt from taxation under 15-6-222, MCA~~.

(2) A taxpayer may seek a department review of any of the required valuation items set forth in (1)(a), and (b)~~, and (e) of this rule~~. Additionally, a taxpayer may request a review of any of the methods used to determine those values which are shown in (1)(a), and (b)~~, and (e)~~.

AUTH: 15-1-201, 15-7-111, MCA

IMP: ~~15-6-201,~~ 15-7-102, 15-7-111, MCA, and Sec. 11, Ch. 463, L. 1997

REASON: The department proposes amending ARM 42.20.505 due to the enactment of Senate Bill 157, L. 2015, which generally revised reappraisal laws and changed the reappraisal cycle from six years to two years, with the exception of forest land (class ten) properties. Senate Bill 157 removed the homestead and comstead exemptions and also removed the phase-in for all but class ten properties.

The department proposes amending the language in the rule to conform to the legislative changes and proposes updating the name of the department's classification and appraisal notice in (1).

The department further proposes amending the rule title to correspond with the rule language as amended and proposes striking an implementing statute that no longer applies to the rule.

42.20.516 APPLICATION OF PHASE-IN PROVISIONS FOR ~~CLASS THREE, CLASS FOUR, AND~~ CLASS TEN PROPERTIES THAT DECREASE IN VALUE DUE TO REAPPRAISAL (1) The department will not apply a phase-in percentage calculation to ~~class three, class four and~~ class ten properties when the reappraisal value decreased as a result of the reappraisal of those properties. The value to be used for assessment purposes for those properties will be the reappraisal value.

~~(2) The reappraisal value is subject to any applicable homestead and comstead exemptions.~~

AUTH: 15-1-201, MCA

IMP: 15-6-134, 15-7-111, MCA

REASON: The department proposes amending ARM 42.20.516 due to the enactment of Senate Bill 157, L.,2015, which generally revised reappraisal laws, eliminated the phase-in of values for all but class ten (forest land) properties, and removed the homestead and comstead exemptions.

The department proposes striking the references to class three and four property from the rule content and rule title, and proposes striking all of (2) to remove the reference to the homestead and comstead exemptions because they no longer apply.

42.20.602 STEPS IN DETERMINING THE CLASSIFICATION OF AGRICULTURAL LAND (1) Steps in the agricultural classification process may include the use of ~~the~~:

(a) ~~USDA Farm Service Administration (FSA) field delineations, called line work, for initial identification of general agricultural land use~~ department land use maps;

(b) ~~initial~~ internal desktop land use classification, using the criteria for each agricultural land use;

~~(d) producer responses to photomaps mailed to all individual operators; and~~

~~(e) digitally identifying each producer's agricultural land use in~~

(d) a Geographic Information System (GIS) to digitally identify each producer's agricultural land use.

AUTH: 15-1-201, 15-7-111, MCA

IMP: 15-7-201, 15-7-202, 15-7-208, MCA

REASON: The department proposes amending ARM 42.20.602 to reflect the department's current process for classifying agricultural land.

The department further proposes citing an additional rulemaking statute for the rule.

42.20.615 APPLICATION FOR AGRICULTURAL CLASSIFICATION OF LAND (1) through (4)(e) remain the same.

(f) the owner, the owner's immediate family members, the owner's agent, employee, or lessee submits a ~~farm and ranch~~ personal property reporting form that significantly reduces the amount of property reported from the prior year to the extent there is convincing evidence that the property is no longer a viable agricultural unit.

(5) remains the same.

AUTH: 15-1-201, MCA

IMP: 15-6-133, 15-7-202, MCA

REASON: The department proposes amending ARM 42.20.615 as a matter of housekeeping to update a form name in (4)(f). The farm and ranch reporting form is now referred to as a personal property reporting form.

42.20.620 CRITERIA FOR AGRICULTURAL LAND VALUATION FOR LAND TOTALING LESS THAN 160 ACRES (1) through (11) remain the same.

(12) A parcel or parcels of land less than 20 acres that meet all of the following criteria will remain classified and valued as agricultural land or as nonqualified agricultural land as defined in 15-6-133 and 15-7-202, MCA. The criteria that must be met are:

(a) through (c) remain the same.

(d) since the reduction in acreage occurred, the parcel or parcels have not been further divided or devoted to a residential, commercial, or industrial use, and there are no covenants or other restrictions that when enforced effectively prohibit agricultural use.

(13) through (15) remain the same.

AUTH: 15-1-201, MCA

IMP: 15-7-201, 15-7-202, 15-7-203, 15-7-206, 15-7-207, 15-7-208, 15-7-209, 15-7-210, 15-7-212, MCA

REASON: The department proposes amending ARM 42.20.620 due to the enactment of House Bill 56, L. 2015, which revised subdivision classifications for agricultural land valuation, and to comply with a recent Supreme Court decision that requires land to be classified according to actual use and not anticipated future use.

The department proposes adding the words "when enforced" to (12)(d) to clarify that land will be classified according to its actual use.

42.20.640 VALUATION OF LAND OWNERSHIPS 160 ACRES OR LARGER IN SIZE (1) In accordance with the provisions of 15-7-202, MCA, contiguous parcels of land under one ownership as defined in ARM 42.20.601 160 acres or larger in size shall be valued as agricultural land, provided that no portion of the ownership meets the criteria for forest land classification and there are no covenants, easements, deed restrictions, or other operations of law that when enforced prohibit the land from being used as agricultural, or the land is not used for residential, commercial, or industrial purposes.

(2) remains the same.

(3) Any remaining acreage in the ownership parcel will be classified and assessed as agricultural land provided the land is not used for residential, commercial, or industrial purposes, and that the land doesn't have stated restrictive covenants, easements, deed restrictions, servitudes, ~~conservations~~ conservation easements, or other legal encumbrances that when enforced effectively prohibit agricultural use. If the remaining acreage in the ownership parcel is either used for residential, commercial, or industrial purposes, or has stated covenants or other restrictions that when enforced effectively prohibit agricultural use, the remaining acreage will be classified and valued as ~~class 4~~ class four land.

(4) For contiguous parcels of land that are 160 acres or larger in size, and under one ownership as defined in ARM 42.20.601, any acreage exceeding that which meets the criteria for forest land set forth in ARM 42.20.156, 42.20.705, and 42.20.710, or has stated restrictions that when enforced effectively prohibit agricultural use, or is used for residential, commercial, or industrial purposes, shall be assessed and taxed as land not specifically included in another class in accordance with 15-6-134(1)(a), MCA.

(5) remains the same.

AUTH: 15-1-201, MCA

IMP: 15-6-133, 15-7-201, 15-7-202, MCA

REASON: The department proposes amending ARM 42.20.640 due to the enactment of House Bill 56, L. 2015, which revised subdivision classifications for agricultural land valuation, and to comply with a recent Supreme Court decision that requires land to be classified according to its actual use and not its anticipated future use.

The department proposes adding the words "when enforced" to three sections of the rule to clarify that land will be classified according to its actual use.

42.20.725 FOREST LAND VALUATION FORMULA (1) and (2) remain the same.

(3) The valuation of forest land shall be based on the average of income and expenses for the most recent ~~five-year~~ ten-year period ending in the calendar year immediately preceding the year published by the department in ARM 42.18.124 and the capitalization rate identified in (5)(c)(i).

(4) through (9) remain the same.

AUTH: 15-1-201, 15-44-105, MCA

IMP: 15-44-101, 15-44-102, 15-44-103, 15-44-104, MCA

REASON: The department proposes amending ARM 42.20.725 due to the enactment of Senate Bill 157, L. 2015, which generally revised reappraisal laws.

The department proposes striking "five-year" and adding "ten-year" to the period referenced in (3). Senate Bill 157 requires the department to calculate the value of forest land using the most recent ten-year period of income and expenses instead of the most recent five-year average.

4. The department proposes to repeal the following rules:

42.20.509 DETERMINATION OF VALUE BEFORE REAPPRAISAL (VBR) FOR INDUSTRIAL PROPERTIES (CLASS FOUR)

AUTH: 15-1-201, 15-7-111, MCA

IMP: 15-7-111, MCA

REASON: The department proposes repealing ARM 42.20.509 due to the enactment of Senate Bill 157, L. 2015, which generally revised reappraisal laws and eliminated the phase-in of values for class four properties, which renders this rule no longer necessary.

42.20.510 BASIC DETERMINATION OF PHASE-IN VALUE FOR CLASS FOUR INDUSTRIAL PROPERTY

AUTH: 15-1-201, 15-7-111, MCA

IMP: 15-7-111, MCA

REASON: The department proposes repealing ARM 42.20.510 due to the enactment of Senate Bill 157, L. 2015, which generally revised reappraisal laws and eliminated the phase-in of values for class four properties, which renders this rule no longer necessary.

42.20.517 APPLICATION OF HOMESTEAD OR COMSTEAD EXEMPTION TO MIXED USE PROPERTIES

AUTH: 15-1-201, MCA

IMP: 15-6-134, 15-7-111, MCA

REASON: The department proposes repealing ARM 42.20.517 due to the enactment of Senate Bill 157, L. 2015, which generally revised reappraisal laws and eliminated the homestead and comstead exemptions, which renders this rule no longer necessary.

42.20.621 2015 CALCULATION OF VALUE BEFORE REAPPRAISAL (VBR) FOR AGRICULTURAL LAND

AUTH: 15-1-201, 15-7-101, 15-7-103, MCA

IMP: 15-7-111, MCA

REASON: The department proposes repealing ARM 42.20.621 due to the enactment of Senate Bill 157, L. 2015, which generally revised reappraisal laws and eliminated the phase-in of values and VBR for agricultural land, which renders this rule no longer necessary.

5. Concerned persons may submit their data, views, or arguments, either orally or in writing, at the hearing. Written data, views, or arguments may also be submitted to: Laurie Logan, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-7905; fax (406) 444-3696; or e-mail lalogan@mt.gov and must be received no later than November 17, 2015.

6. Laurie Logan, Department of Revenue, Director's Office, has been designated to preside over and conduct this hearing.

7. The Department of Revenue maintains a list of interested persons who wish to receive notices of rulemaking actions proposed by this agency. Persons who wish to have their name added to the list shall make a written request that includes the name and e-mail or mailing address of the person to receive notices and specifies that the person wishes to receive notice regarding a particular subject matter or matters. Notices will be sent by e-mail unless a mailing preference is noted in the request. A written request may be mailed or delivered to the person in 5 above or faxed to the office at (406) 444-3696, or may be made by completing a request form at any rules hearing held by the Department of Revenue.

8. An electronic copy of this notice is available on the department's web site at revenue.mt.gov/rules. 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.

9. The bill sponsor contact requirements of 2-4-302, MCA, apply and have been fulfilled. The primary sponsors of Senate Bill 157, Senator Bruce Tutvedt, and House Bill 389, Representative Jeff Essmann, respectively, were contacted by letters on both July 6, 2015 and September 21, 2015, and the primary sponsor of House Bill 56, Representative Kerry White, was contacted by letter on September 21, 2015.

10. With regard to the requirements of 2-4-111, MCA, the department has determined that the amendment and repeal of the above-referenced rules will not significantly and directly impact small businesses. Any impact on small businesses will be the result of legislative changes. Documentation of the department's determination is available at revenue.mt.gov/rules or upon request from the person in 5.

/s/ Laurie Logan /s/ Mike Kadas

Laurie Logan Mike Kadas

Rule Reviewer Director of Revenue

Certified to the Secretary of State October 5, 2015