David W. and Paula A. Ostby v. Department of Revenue,

OCR transcription for search; preserved printed pages are authoritative

BEFORE THE MONTANA TAX APPEAL BOARD

DEC 92 2020
Montana Tax Appeal Beart!

DAVID W. AND PAULA A. OSTBY,
. CASE No: PT-2020-4

Appellants,
v- FINDINGS OF FACT,
STATE OF MONTANA, CONCLUSIONS OF LAW, ORDER,
DEPARTMENT OF REVENUE, AND OPPORTUNITY FOR
JUDICIAL REVIEW
Respondent.
STATEMENT OF THE CASE

Before the Board is an appeal by David and Paula Ostby of a decision from the Gallatin
County Tax Appeal Board (GCTAB) upholding the Montana Department of Revenue's
valuation of their home in Bozeman. At the conclusion of the hearing on December 11,
2019, the GCTAB made no adjustment to the property value. We affirm the GCTAB’s

determination.

ISSUE TO BE DECIDED
The issue before the Board is whether the Department of Revenue (DOR) correctly
determined the market value of the Ostby’s land and improvements for property tax

purposes.

PROPERTY DESCRIPTION
The subject property is located at 2232 Bucks Run Court, Bozeman, with a land description
of Headlands, $32, T01, S, R6 E, Acres 0.597, Plat J-346, Lot 9, and Geocode 06-0905-
32-3-13-0000. The land comprises 0.597 acres. The improvements on the land consist of a

home with three bedrooms, four full-baths and one half-bath, with a total gross living area

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of 4,324 square feet. Dept. Ex. C. The one-story home was built in 2010. Additional listings
on the property record card include a 1,426 square foot attached garage with a finished

attic, three decks, and two open porches. Jd.

EXHIBIT LISTS
The Board admitted the flowing exhibits submitted by Mr. Ostby:

Ex.1: Montana Residential, Commercial, and Industrial Property Classification and
Valuation Manual (Manual excerpt);

Ex. 2: Comparable sales report, consisting of five houses and the subject property.
This exhibit was prepared by the Department of Revenue (DOR) for the Gallatin
County Tax Appeal Board (GCTAB);

Ex. 3: Google Maps image showing the location of DOR's comparables;

Ex. 4: Google Maps image showing the location of sales selected by Taxpayer that
have occurred near the subject property;

Ex. 5. List of comparable houses closer to the subject property. The DOR prepared
this exhibit for the CTAB hearing. Exhibit includes a handwritten note by Mr.
Ostby from the GCTAB hearing;

Ex. 6: A map of the Highlands housing development showing the location of each lot;

Ex. 7: Handwritten notes by Mr. Ostby stating the reasons he believes the DOR's
comparable houses are not valid;

Ex. 8: DOR's list of comparable houses used to establish market value and map;

Ex. 9: DOR's list of sales within the subject property's neighborhood/market area;

Ex. 10: DOR's list of sales not within the subject property's neighborhood/market

area;

Ex. 11: State of Montana property record card showing the value history of the
subject property;

Ex. 12: Screenshots from an undisclosed internet site, showing the sale history of

three houses;
Ex. 13 & 14: State of Montana property record card for the subject property;
Ex. 15 & 16: Email correspondence between Mr. Ostby and Pamela Hamlin, assistant
secretary GCTAB;
Ex. 16 & 18: Emails correspondence with MTAB regarding the scheduling order;
Ex. 19 Through 23: Email correspondence with DOR regarding tax information for
this case;
Ex. 24 Through 28: Email correspondence with MTAB regarding hearing procedures;
Ex. 29 Through 33: Email correspondence with DOR regarding requests for
discovery;
Ex. 34 Letter sent from DOR to Mr. Ostby regarding discovery;
Ex. 35 Through 41: Photos of the houses used by DOR as comparable to the subject
property;
Ex. 42 Through 48: photos of houses neighboring the subject property;
Ex. 49 Through 51: Photos showing the view from the subject property;
Ex. 52: Liberty Mutual estimates to repair the subject property; and
Ex. 53: Photos of damage to the subject property.

The Board admitted the flowing exhibits submitted by the DOR:

Ex. A: AB-26 request for informal classification and appraisal review, filed by Mr.
Ostby, dated June 19, 2019; .

Ex. B: AB-26 Determination Letter, showing that an adjustment was changed to the
property information; |

Ex. C: State of Montana property record card for the tax year 2019;

Ex. D: Property classification and appraisal notice September 30, 2019;

Ex. E: Comparable sales report, consisting of three houses and subject property;

Ex. F: Department of Revenue computer-assisted land pricing model, 2018 land

valuation;
Ex. G: County Tax Appeal form appealing to GCTAB, and associated documents;
Ex. H: GCTB receipt and acceptance of Mr. Ostby’s appeal for the 2019 tax year and
emails between Mr. Ostby and Pam Hamlin, GCTAB assistant secretary; and

Ex. I: GCTAB final decision.

Upon request of the Taxpayer at the conclusion of the hearing, both parties were
allowed to provide supplemental information for the Board to consider in its deliberation.
The Taxpayer submitted his supplemental information and sixty-two questions for the
DOR on August 19, 2020. The DOR filed its notice declining to respond to the questions

after the hearing was concluded, on September 2, 2020.

FINDINGS OF FACT
1. To whatever extent the foregoing findings of fact may be construed as conclusions

of law, they are incorporated accordingly.

2. Mr. Ostby grew up dryland farm/ranch in Northeastern Montana. He graduated .
with a degree in chemical engineering from MSU and managed the design and
construction of several nuclear projects. MTAB Arg. Transcr. 6:14. During Mr.
Ostby’s life, he has had four new houses built for him and used his business

experience to manage construction costs and identify cost saving materials. Id.

3. The Mr. Ostby purchased the subject land on January 16, 2004 and contracted for
the construction of a house in 2010 for $521,000. MTAB Arg. Transcr. 12:6. For
tax years 2019/2020 the DOR valued the subject land at $210,177 and the
improvements at $713,523, for a total of $923,700 as of January 1, 2018. Dept Ex.
C.

. Mr. Ostby contested this 2019/2020 property appraisal by filing a DOR form AB-
26 request for Informal Classification and Appraisal Review on June 19, 2019.
Dept Ex. A. The core issue of Mr. Ostby’s contention was that the DOR value
assigned to the property had increased by 47% in the previous three years. Mr.
Ostby claimed that his neighbor’s houses had been appraised for 34% less than his
property and that the DOR improperly used the sale prices of homes outside of his
neighborhood to establish his market value. Dept. Ex. G.

. In response to Mr. Ostby’s objections, the DOR sent an AB-26 Letter of
Determination to Mr. Ostby on September 24, 2019, stating that the DOR had
reduced the appraised value from $932,900 to $923,700. MTAB Hrg. Transcr.
45:19. This reduction was achieved by reevaluating some of the house’s

amenities, including plumbing fixtures, fireplaces, and a concrete patio. Jd.

. Mr. Ostby sought a further reduction and filed an appeal to the GCTAB on
October 18, 2019, and a hearing took place on December 11, 2019. Dept. Ex. I.

. The GCTAB heard the taxpayer’s and DOR’s arguments but did not reduce Mr.
Ostby’s value of $923,700. Id.

. Mr. Ostby appealed the GCTAB decision to this Board on January 13, 2020,
seeking a valuation of $722,000. MTAB Appeal Form.

. For the appraisal cycle at issue in this appeal, the DOR used a sales comparison
method of appraisal to determine the market value of the subject property. MTAB
Hirg. Transcr. 61:14. There were six comparable property sales generated by the
DOR mass appraisal software, of which the DOR used five. MTAB Hrg. Transer.

62:4. In the 2017/2018 appraisal cycle however, there were not enough
comparable sales prior to January 1, 2016 to build a valid comparable sales model,
so the DOR instead used a cost approach to value the subject property in 2017.
MTAB HArg. Transcr. 61:23.

10. Mr. Ostby testified at the MTAB hearing if he were to list his home for sale in
2020, he would price it at $820,000. MTAB Hrg. Transcr. 24:24.

11.Mr. Ostby asserted that he built his house for the lowest possible price, testifying
his house has less detail and finish work than the houses around him. MTAB Hrg.

Transcr. 36:18.

12. Mr. Ostby further testified that the primary factor used in the DOR sales
comparison model is square feet. MTAB Hrg. Transcr. 30:5. Mr. Ostby contested
this because his three-bedroom home has more square feet than the other five-
bedroom houses the DOR compared the subject property to. Mr. Ostby claimed a
five-bedroom house used in the DOR’s model was not comparable to the three-

bedroom subject property with similar square feet. MTAB Arg. Transcr. 12:5.

13. Mr. Ostby introduced the Montana DOR Residential, Commercial, and Industrial
Property Classification and Valuation Manual (Manual excerpt) that he asserts
contains fifty pages for an appraisal process. He said the DOR ignored the manual
and used only a square-feet calculation, treating him unequally from his neighbors.
MTAB Hrg. Transcr. 28:16. Mr. Ostby provided no evidence that he has been
treated differently than his neighbors beyond this assertion.

14. Mr. Ostby also focused his critique of the DOR appraisal on the location of
comparable properties used to determine his home's market value. He claimed
that as they were located outside of his neighborhood, the DOR must have
“cherry-picked” comparable properties to buttress the value generated for his
home. MTAB Hrg. Transcr. 111:2. Mr. Ostby contends there were 25 properties
sold within a half-mile of his property, and because the DOR used properties
outside the area of his neighborhood, there are different “cost drivers” affecting

the market value of comparable properties sold outside his neighborhood. MTAB
Arg. Transer. 111:2.

15. Specifically, Mr. Ostby argued that the DOR's comparable properties are in
neighborhoods with better amenities than his own, which would presumably
increase their value relative to his property, including parks, schools, proximity to

the college, and walking paths. MTAB Arg. Transcr. 31:1.

16. Mr. Christian Bradbury, DOR’s witness, refuted this claim regarding
neighborhood amenities and argued the properties Mr. Ostby suggested the DOR
use for comparison have comparability scores to the subject of above 200, which
in the DOR system means they are lacking in similarity to Mr. Ostby’s property to
a great enough degree so as to be rejected by their model as unusable. MTAB Hrg.

Transcr. 57:20.

17. DOR Area Manager Pam Moor testified modelers can weight their model to
consider nearby sales and look in a certain neighborhood for comparable property
sales, but barring that may expand the model boundary to other neighborhoods
where more-comparable sales are documented. MTAB Hrg. Transcr. 77:24. Ifa

model goes outside of the weighted neighborhood DOR modelers use regression

analysis to relate the comparable property characteristics of sold properties to their

sales price. Jd.

18. Mr. Ostby’s home is in DOR neighborhood 10.C which encompasses most of
northeast Bozeman city limits. MTAB Arg. Transcr. 87:3. Each neighborhood has
its own characteristics, and because of the different characteristics, DOR
appraisers weight the model to select comparable houses as close to the subject

property as possible. Jd.

19. Mr. Ostby presented pictures that show significant hail damages to the subject
property. Taxpayer Ex. 53. Mr. Ostby contends this unrepaired damage would
impact the value of his property. MTAB Arg. Transcr. 23:22.

20. DOR witness Bradbury testified he observed hail damage to the home but decided
it was not extensive enough to reduce the property's condition rating. MTAB Arg.
Transcr. 48:15. Mr. Bradbury testified that the minor cosmetic damage would not

affect the marketability of the subject property. MTAB Hrg. Ti ranscr. 49:18.

21.The DOR rated the subject property’s condition as very good (9), the utility as
poor (5), the property desirability as average (7), and the location as average (7).
Dept Ex. C. Property factors are based on a scale, with 1 being the lowest and 9
being the highest. MTAB Arg. Transcr. 47:10.

22. The DOR averages all the property factors, including condition, utility,
desirability, and location. MTAB Hrg. Transcr. 50:8. Because Mr. Ostby’s

property factors are on average high, changing or adjusting one would not affect

the average of all the property factors, and would therefore not lower the subject

property's market value. Jd.

23.DOR’s witness, Area Manager Pam Moor, described in detail the property factors
that the DOR considers when reviewing comparable sales. She explained
regression analysis, a technique for measuring the magnitude of the market’s
response to data elements, and how regression analysis is used to relate the

property characteristics of sold properties to their sales price. MTAB Arg. Transcr.
85:11

24. The model used for the subject property included 33 variables that could be
adjusted. MTAB Hrg. Transcr. 84:10. The comparable properties' primary
adjustments included year built, attached garage, square foot, plumbing fixtures,

and quality grade. /d.; MTAB Hrg. Transcr. 54:4.

25.Ms. Pam Moor further testified that an appraiser, when appraising a property,
cannot just consider the house's overall square-foot as a predominant factor. MTAB
Arg. Transcr. 84:16. Main floor square-footage includes foundation and roof

costs, so when determining square-feet, there is a difference between main level,

basement, and second story square-footage. Id.

26. For the MTAB hearing, the DOR ran a sales comparison model using only
properties in the subject property's immediate subdivision. MTAB Hrg. Transcr.
57:16. DOR found that all the properties had a high comparability rating, which
means the properties were dissimilar to the subject and were therefore not valid for

use in a model. Jd. If the DOR would have used these properties in their sales

comparison model, the appraised value of Mr. Ostby’s property would have been

higher. Jd.

27.In the Bozeman area, the DOR has seen an average of about ten percent increase
each year in the values of properties, including the subject property, according to

Ms. Moor. MTAB Arg. Transcr. 58:14.

28. The Taxpayer vociferously contended that the DOR did not follow its appraisal
manual and “cherry-picked” properties to use as comparable properties, thus
increasing his property's value. MTAB Hrg. Transcr. 17:7. The Taxpayer also
spent considerable time prior to the hearing complaining in ex parte
communications to the board about the DOR’s alleged incompetence in timely
providing him with information that he requested. Ostby Email dated 5/18/20,
Ostby Email dated 7/6/20; Ostby Email dated 8/18/20. Because of his complaints
and to avoid any undue advantage, the Board allowed him a period after the
hearing to submit any additional information he thought would help inform the
Board in making its decision. Instead of doing so, he submitted a detailed list of
some sixty-two questions and demands of both the Board and the DOR with
admissions against interest, replies to accusations, and insistence on admitting
either malfeasance, incompetence, or both. Ostby Email dated 8/18/20. The Board
eventually entered an order dated August 21, 2020, some 17 days after hearing the
matter notifying Mr. Ostby the record is deemed complete and that the time for
submitting evidence or making arguments was finished and would not be
reopened. Board’s Post Hearing Order, Dkt.14. The DOR did not submit any
evidence after the hearing. Respondents Post Hearing Response to Appellant's

Post Hearing Filing, Dkt. 15.

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JURISDICTION AND STANDARD OF REVIEW
29. The Montana Tax Appeal Board is an independent entity not affiliated with the
Montana Department of Revenue. Under the authority of Mont. Code Ann. § 15-2-
301.

30. The Taxpayer filed a timely appeal of the BCTAB decision to the MTAB.
Therefore, this Board has jurisdiction to hear and decide this matter. Mont. Code
Ann. §15-2-301.

31. Mr. Ostby timely appealed the GCTAB's decision to the MTAB, which has
jurisdiction over this case. Section 15-2-301, MCA. The MTAB follows a de novo
standard of review when hearing matters appealed from a county tax appeal board.
CHS, Inc. V. Mont. State Dept. of Revenue, 2013 MT 100, 29, 369 Mont. 505,
299P.3d 813. “A trial de novo means trying the matter anew, the same as if it had
not been heard before and as if no decision had been previously rendered.” McDunn.

v. Arnold, 2013 MT 138 § 14, 370 Mont. 270, 303 P.3d 1279.

CONCLUSIONS OF LAW
32. To whatever extent the following conclusions of law may be construed as findings

of fact, they are incorporated accordingly.

33.DOR is entitled to a “presumption of correctness if its decisions are pursuant to an
administrative rule or regulation, and the rule or regulation is not arbitrary,
capricious or otherwise unlawful.” Dep't of Revenue v. Burlington N. Inc., 169
Mont. 202, 214, 545 P.2d 1083, 1090 (1976). However, DOR cannot rely entirely
on the presumption in its favor and must present a modicum of evidence showing

the propriety of their action. Western Air Lines, 149 Mont. at 353, 428 P.2d at 7.

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34. The taxpayer bears the burden of proving the error of DOR’s decision. Farmers
Union Cent. Exch., Inc. v. Dep't of Revenue of State of Mont., 272 Mont. 471, 476,
901 P.2d 561, 564 (1995); Western Air Lines, Inc. v. Michunovich, 149 Mont. 347,

353, 428 P.2d 3, 7 (1967).

35.“All taxable property must be appraised at 100% of its market value....” Mont.
Code Ann. § 15-8-111.

36. “Market value is the value at which property would change hands between a
willing buyer and a willing seller, neither being under any compulsion to buy or to

sell and both having reasonable knowledge of relevant facts.” Mont. Code Ann.

§15-8-111(2)(a).

37. “(T]he Legislature intended the Department to utilize both the cost approach and
the market data approach, depending upon the available market data, when it
assesses property and estimates market value.” Albright v. State By & Through
State, 281 Mont. 196, 208, 933 P.2d 815, 823 (1997).

38. For the taxable years from January 1, 2019, through December 31, 2020, all
property classified in Mont. Code Ann. § 15-6-134, (class four) must be appraised
at its market value as of January 1, 2018. Mont. Code Ann. § 15-7-111.

39. The DOR has submitted sufficient evidence on its findings and methodology to
meet its initial standard of proof, and it is thus entitled to the presumption of
correctness. In contrast, we find that the Taxpayer has not submitted substantial or
credible evidence that the DOR failed in any way to treat similar properties in a

similar fashion. There was no cherry-picking in this case.

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40. The DOR may use any of three acceptable methods to determine the fair market
value of a property. In this case, the Department relied on the sales comparison
approach because there were sufficient sales in the Bozeman area of properties
comparable to Mr. Ostby’s. The DOR’s use of this method in this appraisal cycle
followed the standards and rules set forth in Montana Administrative Rules, the
relevant statutes, and case law. The DOR proved that the properties used as
comparable properties in their modeling were, in fact, comparable to the subject
property, as indicated by the testimony that each of the properties used rated less
than 200 on the comparability scales, meaning that the properties were, by all

measures, comparable.

41. The DOR also took an extra step and built a sales model using the properties
suggested by the Taxpayer using the same program it used to arrive at its appraisal
value (different input data subjected to the same program). When the dust settled
from this computer run, the results were that the Taxpayer’s property's value
would have increased had the suggested properties been used to build the model of
comparable sales. The DOR provided substantial, credible testimony to this effect;
the Taxpayer provided nothing that seriously questioned this conclusion. The old
saying that “garbage in, garbage out” ruins the validity of computer projections

and modeling aptly describes, in this instance, the Taxpayer’s contentions.

42. While we accept that the Taxpayer’s engineering degree and long history of real-
world experiences in managing complex construction projects give him a unique
perspective of the construction business, these factors do not qualify him as an
expert in the appraisal of either real property or improvements thereon. His
contention that long unrepaired hail damage would automatically translate into a

significant decrease in his house's value compared to his neighbors’ houses also

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fails as a matter of law. The DOR’s testimony that it took the hail damage into
account when rating the CDU components as reflected on the property record

cards is credible. Further, adjustments made to some factors in the model do not

mathematically result in significant swings in the result.

43. The Gallatin County Tax Appeal Board is affirmed. The Taxpayer’s appeal is

denied.
ORDER
44, Mr. Ostby’s appeal and complaint are denied, and the BCTAB decision is
affirmed.

45.DOR is ordered to set the value of the property at $923,700 for 2019/2020 tax
years.

Ordered December 2, 2020 ~ 7 Mz ~
. - a

David L. McAlpin, Chairman
MONTANA TAX APPEAL BO

Sleplond ore,

Steve Doherty, Board Member

Eric Stent, Board Membet

M ANA TAX APPEAL BOARD

Notice: You are entitled to judicial review of this Order by filing a petition in district
court within 60 days of the service of this Order. The Department of Revenue shall
promptly notify this Board of any judicial review to facilitate the timely transmission of

the record to the reviewing court. MCA §15-2-303(2).

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Certificate of Service

I certify that I caused a true and correct copy of the foregoing Findings of Fact,
Conclusions of Law and Opportunity for Judicial Review to be sent by Email, United
States Mail via Print and Mail Services Bureau of the State of Montana on December 2,

2020 to:

David W. and Paula A. Ostby
2232 Bucks Run Court
Bozeman, MT 59715

David W. and Paula A. Ostby
3619 Anchor Cove
Richmond, TX 77496

Katherine Talley

Brendan Beatty

Montana Department of Revenue
P.O. Box 7701

Helena, Montana 59604-7701

Gallatin County Tax Appeal Board
311 West Main, Room 306
Bozeman, MT 59715

Kory Hofland, Property Assessment Division
Department of Revenue

P.O. Box 8018

Helena, MT 59604-8018

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Zig lethitn=

ochran, Legal Secretary
TANA TAX APPEAL BOARD