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Due to the state backlog, some new buildings in Bozeman could be exempt from property taxes next year
Idaho

Due to the state backlog, some new buildings in Bozeman could be exempt from property taxes next year

HELENA — Overwhelmed by a flood of property tax appeals following last year’s historic increase in property values, the Montana Department of Revenue acknowledged earlier this month that its Bozeman-area office is behind schedule this year in counting new construction to be added to the Gallatin County tax rolls.

According to Gallatin County Finance Director Justine Swanson, the mess will delay the passage of local government budgets and delay the mailing of November tax bills across the county. In addition, she said in an interview this week that unless tax office staff can catch up on the backlog next month, owners of some new buildings may not receive 2024 tax bills that reflect the true value of their property. That would shift the tax burden to other taxpayers.

The situation has caused consternation among local governments in the greater Bozeman area, particularly officials from Gallatin County, the cities of Bozeman and Belgrade, and the Bozeman and Belgrade school districts. In a joint press release on Aug. 20, they expressed frustration that the agency has not provided them with reliable tax roll values ​​as they prepare their budgets for the coming year.

“If taxes are levied based on these incorrectly certified values, existing property owners will likely face higher tax bills, while newly taxable properties may be spared from payments until 2025,” the local governments wrote. “This will also result in revenue shortfalls in some counties, which may result in poorer levels of service to municipalities.”

Montana’s tax system is designed to work so that the State Tax Commission keeps track of the value of every single property across the state and creates the official assessments used to calculate property taxes, which fund local agencies such as police, park departments and schools.

Each August, the agency is required by law to provide each city, county and school district with a certified assessment that represents its “best estimate” of the total value of the jurisdiction’s properties — in other words, the tax base available to support local services. Once each jurisdiction’s governing body sets its budget for the year, the required tax revenues are apportioned to the tax base to determine the tax rates used to calculate tax bills for individual properties.

The IRS is supposed to use building permits and other records to keep track of renovations and new construction, which generally make properties more valuable. Tax revenue growth from newly taxable developments is usually an important source of revenue for city and county budgets because it is not subject to the growth cap of half the inflation rate that applies to total revenue from existing properties.

In Bozeman, however, the tax office said it did not get all new construction on the books in time to meet the August certification deadline this year. Combined with corrections for errors made during the 2023 certification process, this resulted in the tax office’s estimate of the tax base for the fast-growing city of Bozeman shrinking by 1.8% between 2023 and 2024, a $321 million drop in market value.

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In an Aug. 15 letter to Bozeman city councilors explaining the erroneous decline, Paula Gilbert, director of the Montana Department of Revenue’s property tax assessment division, pointed out that the agency processed 3,700 tax appeals in Gallatin County last year – a job that Gilbert said took 10 months of staff time, even after bringing in assessors from other parts of the state.

“This 10-month commitment left us with only two months to account for new construction that was significant in your jurisdiction and that directly impacts new taxable values ​​for taxing authorities,” Gilbert wrote in the letter, first reported by the Bozeman Daily Chronicle. “This limited two-month time frame obviously impacted our staff’s ability to account for all new construction for the 2024 tax year prior to value certification.”

Gilbert also wrote to Bozeman commissioners that the department has “devoted all available resources to bringing new taxable items into the docket in your jurisdiction for 2025 and beyond.”

It is currently unclear whether the agency’s backlog of new construction is limited to Gallatin County or extends to other parts of the state. A spokesman for the finance agency declined to answer a question from the Montana Free Press on Monday about whether the agency was confident that the certified values ​​it has issued for other parts of Montana accurately reflect new construction.

Kelly Lynch, executive director of the Montana League of Cities and Towns, said in an interview Monday that she is actively investigating the possibility that the problem is even more widespread. Helena City Councilwoman Emily Dean also told MTFP this week that she does not believe the department’s figures on the value of new construction in Helena match the number of building permits the city has issued in recent years.

“We are seeing this significant increase sporadically, and it does not seem to be consistent with taxable values,” Dean said.

According to the IRS, Helena’s total tax base increased by approximately $49.4 million in market value between 2023 and 2024, an increase of 0.8 percent.

Dean said the department’s 2024 tax base in the city of Helena came in lower than city leaders expected. She said after seeing that number and reporting on the uncertainty of the tax base in Bozeman, she decided not to push for an increase in the proposed cost-of-living increase for city of Helena employees from 3.5% to 4% when she and other commissioners finalized the city’s annual budget this week.

“We have to prepare our budget based on the information we have,” Dean said. “And I can’t make a budget amendment if we don’t know if the revenue is there.”

Swanson, Gallatin County’s finance director, said it’s fairly common for local and state officials to clash over small discrepancies in the agency’s certified values, but this year will require a complete reorganization for most Gallatin County tax agencies. She said local officials have worked out a schedule with the tax agency that gives agency staff until the end of September to create a new set of certified values. That means a delay in the county budget being passed and likely a delay in 2023 tax bills, which are normally sent out in early November, until later that month.

Because property taxes are typically levied once a year, any construction that the state tax agency cannot handle will not be included in the 2024 tax calculation, Swanson said. That means property owners will not pay their fair share next year, even if they use tax-funded public services.

Swanson added that she does not blame the IRS staff for the situation and that she believes they are doing their best.

“I think they’re just understaffed, there are a lot of changes going on and they just can’t keep up,” she said.

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