Residents from Silver Bow and Gallatin counties are asking a state district court judge to force the Montana Department of Revenue to recalculate residential property taxes in the Treasure State because they claim that the Gianforte administration has violated the law and the state Constitution by allowing taxes for homeowners to skyrocket while most business classes saw a reduction.

In a lawsuit filed Tuesday in Butte-Silver Bow County District Court, attorneys for Thomas Powers, Cinder Lord-Powers and Ryan and Elizabeth Swenson are also seeking a class-action certification on the lawsuit, as well as asking the district court judge to halt anymore residential property tax collection until they say the rates can be equalized.

The issue of residential property taxes may not have been the defining issue of the 2023 Legislature, but it soon became a contentious issue after the session adjourned as residential property tax bills started becoming due. Part of the rise in residential property taxes followed the COVID-19 pandemic when Montana experienced sizable in-migration to the state, sending property values soaring.

While Montana Gov. Greg Gianforte proposed and the Legislature passed a rebate program where some homeowners could get as much as $675 back per year, many have criticized the system which was technologically cumbersome, and may not have offset the increases.

The Republican-controlled Legislature was also the target of criticism for not adjusting residential property taxes during the 2023 session when the Montana Department of Revenue warned that not doing so could — and in fact, did — cause sticker shock for Montana homeowners.

Meanwhile, Gianforte, a Republican, took aim at local and county governments throughout the state, many controlled by the GOP, for what he described as out-of-control spending, a debatable point that put many in the governor’s own political party at odds with the administration.

The new lawsuit claims that regardless of the politics, the Gianforte administration and its Department of Revenue had an obligation to do what the Legislature did not: It should have equalized the rates to make property taxes more equitable.

“The failure is an utter dereliction of the constitutional and statutory duty to perform ‘equalization’ and to ‘adjust’ and ‘do all things necessary to ensure fair, just and equitable taxable valuation’ between those taxpayers and classes of property,” the lawsuit said.

Attorneys for the residents, led by John M. Morrison of Helena, say that the tax burden has shifted hundreds of millions “unfairly and unjustly” to residential taxpayers.

The lawsuit argues that because of the number of houses and the number of sales every year, the State of Montana has accurate, up-to-date, market-rate data for residences. However, because so many businesses do not change or have comparable properties, the state undervalues them. They argue that the assessment process is different and leads to a system where businesses can negotiate their way out of taxes, using a different system, while homeowners are stuck.

“(For) example, valuation of centrally assessed property by the state has excluded intangible value. This intangible value is not precisely defined or precisely measurable. It can vary widely — even wildly. Corporations and tax authorities negotiate values for the intangible and tangible portions of centrally assessed property which values are not equalized with the valuations of other taxable property,” the lawsuit said. “Furthermore, by administrative choice of the Department of Revenue, the parties negotiate these values in secret. Every dollar of intangible or tangible value that is thereby excluded from taxation results in a direct shift of local property taxes to other taxpayers, primarily residential taxpayers.”

The attorneys also argue that the taxable residential rate, by the Montana Department of Revenue’s own calculations, should have been adjusted downward from 1.35% to 0.94%.

“Correspondingly, this memorandum made clear that the failure to make such adjustments would result in a huge tax shift onto residential taxpayers,” the lawsuit said.

The attorneys said that ultimately it is the Department of Revenue’s job and the Gianforte administration’s responsibility to do what the Legislature would not in order to comply with state law and the state constitution.

They point to the specific portion of state law which said that current law requires the Department of Revenue to make the adjustments.

“Montana’s core property tax equalization,” the lawsuit said, “requires that the department ‘shall adjust and equalize the valuation,’ and ‘do all things necessary to secure a fair, just, and equitable valuation of all taxable property.’”

The lawsuit includes tables and references to the differences of taxation for some of the state’s largest taxpayers.

For example, of the nine business classes that make up property taxes, six saw decreases as a percentage of the state budget, with business equipment seeing a slight increase (from 4.03% to 4.30%); and commercial property seeing a slight increase from 13.1% to 13.4%.

However, the percentage of residential taxes leapt from making up 51% percent of the state’s budget in 2023 to making up 59%. Using the state’s data, that means the revenue from residential property jumped from $1.8 billion to more than $2.7 billion, generating nearly an additional $900 million for the state.

Meanwhile, the attorneys point out that the state’s largest businesses are centrally-assessed, meaning taxes are determined in Helena because these businesses usually spread out across multiple locations and counties. In 2023, centrally-assessed properties contributed more than $864 million to state coffers, which made up 23.8% of the budget. In 2023, that number fell to $809 million, and decreased as a percentage from 23.8% to 17.3%.

For example, NorthWestern Energy, Montana’s single largest taxpayer, is paying about $36 million less in 2023, a 20% decrease. Other large companies like Montana Rail Link and Spectrum are also paying significantly less in taxes.

In addition to asking that the case be certified as a class-action so that any legal action would apply to a larger class, possibly the entire group of Montana residential taxpayers, the legal action also seeks to proceed with the case using the “private attorney general doctrine.” That means if the plaintiffs’ attorneys are victorious in court, the state would pay their attorney’s fees because it says the property owners and the attorneys are just “vindicating the constitutional and statutory right to tax equalization.”

They said that the state has overcharged residents more than $100 million.

The Daily Montanan had not received any comments from the governor’s office or the Montana Department of Revenue prior to publication.

The citizens are being represented by John M. Morrison of Morrison, Sherwood, Wilson and Deola of Helena, and Allan McGarvey and Dustin Leftridge of McGarvey Law of Kalispell.

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