Department of Revenue v. Leroy and Patricia Coles

OCR transcription for search; preserved printed pages are authoritative

Before The Montana Tax Appeal Board F ; L, i
DEC 22 2020
Montana Tax Appeal Board

MONTANA DEPARTMENT OF CASE Ne: PT-2019-35
REVENUE,
Appellant,
FINDINGS OF FACT, CONCLUSIONS
Vv. OF LAW, ORDER AND OPPORTUNITY
FOR JUDICIAL REVIEW

LEROY & PATRICIA COLES,

Respondents.

STATEMENT OF THE CASE

This case concerns the classification for tax years 2019 and 2020 of grazing land owned by
Leroy and Patricia Coles in Lewis and Clark County. The Lewis and Clark County Tax Appeal
Board (LCTAB) heard this matter on February 14, 2020 and found that the Coles family can
graze sufficient cattle so that their land merits classification as “qualified agricultural” for tax
purposes, thus benefiting from a lower tax rate. The Department of Revenue appealed this
decision, and a hearing was held before the Montana Tax Appeal Board on September 30,

2020. We uphold the LCTAB’s decision.

ISSUE PRESENTED
Whether the Coles have shown that their land can support 31 animal unit months (AUM) of
grazing, the minimum AUM that must be proven for a parcel that has fewer than 160 acres to

qualify for agricultural classification.

Before The Montana Tax Appeal Board
MONTANA DEPARTMENT OF REVENUE v, COLES

PROPERTY DESCRIPTION
The physical address of this property is 5326 Blossburg Road, Canyon Creek. The property
geocode is 05-1992-28-4-01-0000, and the legal description is Section 28, Township 11 North,
Range 6 West, Butler Bar Placer MS1035, Lot 54A. The assessment code is 36419 and the
subject property is in neighborhood 205.552. The current assessed values for the subject
property are $21,825 for the land and $72,980 for the improvements, for a total value of
$94,805 for the 2019-2020 tax appraisal period. Previous values for the subject property
shown on the Property Record Card were $22,070 for the land and $64,310 for the
improvements, for a total of $86,380 for the 2017-2018 tax period.

EXHIBIT LIST
The following Exhibits were submitted by the DOR:

a. DOR Exhibit A: Assessment Information Packet and Property Record Card 0022
through 0029;
b. DOR Exhibit B: Montana Cadastral maps of subject property.

The Following Exhibits were submitted by the Taxpayer:

TXPR Exhibit 1: Various maps of subject property-8 pages;
TXPR Exhibit 2: Photos of fencing-2 pages;

TXPR Exhibit 3: MCA and ARM information-10 pages;

TXPR Exhibit 4: Comparison on four years and checks-5 pages;
TXPR Exhibit 5: photos of pastures 2019-3 pages;

TXPR Exhibit 6: Photos of cows in pasture 2019-4 pages;

TXPR Exhibit 7: Fall pasture photos with water & cows- 3 pages;
TXPR Exhibit 8: Soil Survey and water from Web-4 pages;

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Before The Montana Tax Appeal Board
MONTANA DEPARTMENT OF REVENUE v. COLES

9. TXPR Exhibit 9: Photos of seasons and water rights 2012-2019-6 pages.

The record includes all materials submitted to the county tax appeal board, the transcript

of the hearing at the county tax appeal board, and additional materials submitted by the

parties. §15-2-301(2)(b).

FINDING OF FACT
To whatever extent the foregoing findings of fact may be construed as conclusions of

law, they are incorporated accordingly.

Mr. and Mrs. Coles submitted to the DOR an application for Agricultural Classification
and received a determination letter telling them that their land did not meet the
requirements to be classified as agricultural land for tax year 2019. LCTAB Arg. Record.
Ex. 3. The application was denied because the property did not meet required grazing

animal units’ months. LCTAB Arg. Record. Ex. 1.

The Lewis & Clark County Tax Appeal Board (LCTAB) heard the appeal on October
29, 2019 in Helena. Both sides were given the opportunity to provide evidence and
testimony of their positions. The County Board granted the Taxpayer’s appeal. MTAB
Dkt. 1. LCTAB stated the taxpayer presented sufficient evidence to show that the Cole’s
land can support the necessary AUMs necessary to qualify as Agricultural land for

purposes of classifying taxable land. Jd.

The DOR appealed the county decision to MTAB, based on the Department’s finding
that the carrying capacity for grazing of the Coles’ land is less than 31 Animal Unit

Months. MTAB Dkt. J.

Before The Montana Tax Appeal Board
MONTANA DEPARTMENT OF REVENUE v. COLES

This board finds that over the last four years Mr. and Mrs. Coles leased their grazing
rights to a neighbor who stocked their land with roughly 62 animal unit months (AUM)
on roughly 100 of their 117 acres; and that in 2019 it was closer to 69 AUM. Taxpayers

Ex. 1-9.

An animal unit month, or AUM, is the grazing of one cow-calf pair, for one month.

Mont. Admin. R. 42.20.601 (4)(5).

Mrs. Coles produced receipts proving that she and her husband, in several recent years,
produced over $1,500 of feed for the cows belonging to her ranching neighbor, Mr.

Burt, who wrote them checks for grazing his cattle on their land. Taxpayer Ex. 4.

This board finds that the land in question is meadowed bottom land, and naturally sub-
irrigated, meaning that the property is perpetually wet from underground aquatic
springs. This was shown convincingly by way of aerial satellite maps from Google, and
Mrs. Coles’ own photography, showing extremely green, lush, and soaked grazing areas
throughout the grazing months, in contrast to much of the surrounding rangeland that is
shown to be brown and dry. Taxpayer Ex. 1,2, 5-9. The DOR offered no disputation of

this evidence or testimony.

Mr. John Davis, the appraiser for the Department of Revenue, testified that under the
mass appraisal formula on which the Department of Revenue relies for determining the
carrying capacity of grazing land, the Coles’ property has a carrying capacity of only 23
AUM. MTAB Hrg. 01:51:35. By statute, grazing land only qualifies as agricultural land
if it has a carrying capacity at or above 31 AUM. This threshold is set by the
Governor’s Agriculture Advisory Committee. Mont. Code Ann. § 15-7-201.The
number of AUM set by the committee is intended to be the equivalent of $1500 of

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MONTANA DEPARTMENT OF REVENUE v. COLES

income, the statutory minimum income for classification as ag land in the Montana tax

codes.

Carrying capacity is the number of animals that the DOR determines can be grazed on
the land without any injurious long-term effects to the vegetation or soil. To make this
determination, the Department of Revenue relies, under statute, on Montana State
University, which in turn relies on data from a computer model prepared by the Natural
Resource Conservation Service (NRCS), which provides a soil survey via computer
mapping tools and some site surveys. Mont. Code Ann. § 15-1-101. Mont. Code Ann. §
15-7-202(c)(3), Mont. Admin. R. 42.20.603, MTAB Hrg. Transcr. 01:52:40.

The NRCS has never sampled the Coles’ soil. The nearest soil sample occurred 2.5

miles away, in which Mr. Davis testified is a non-irrigated parcel. MTAB Arg. Transcr.

01:49:50.

Mr. Davis acknowledged that it is possible for a parcel to “slip through the cracks,”
meaning the NRCS software might not accurately determine the soil content or reflect

sub-irrigated conditions for every parcel. MTAB Hrg. Transcr. 02:48:40.

No DOR employee has ever conducted a site visit to the subject property, although Mr.
Davis said that he recently “found himself nearby” while driving on Blossburg road and
viewed the property from a distance. MTAB Hrg. Transcr. 02:14:00. Mr. Davis of the
DOR testified that whether the property is sub-irrigated is something that he cannot
determine, because his job is to perform mass appraisal. MTAB Hrg. Transcr. 02:03:30.

Ms. Bonnie Hamilton, management analyst at the DOR’s property assessment division,
said that the Coles, by virtue of grazing 69 AUM, have only shown a stocking rate, and
not a carrying capacity, of 69 AUM. MTAB Hrg. Transcr. 02:19:49. Stocking rate is the

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Before The Montana Tax Appeal Board
MONTANA DEPARTMENT OF REVENUE v. COLES

number of cow-calf pairs that are actually grazed, whereas carrying capacity is the
number that is determined can be erazed, according to the NRCS soil survey for the
land, without injurious effect to the land. Mont. Admin. R. 42.20.601(8), Montana
Department of Revenue, Montana Agricultural Land Classification and Valuation

Manual 2019-2020,2019, Pg. 24.

Ms. Hamilton acknowledged that if in fact the Coles’ property is adequately sub-
irrigated, that such information could not be gathered from the NRCS mapping software,
and further, that site visits are not made for purposes of classification but rather
valuation only. MTAB Hrg. Transcr. 02:22:30, 02:23:55. Counsel for the Department
further acknowledged in his closing statement that it is possible the NRCS maps could
be incomplete. MTAB Hrg. Transcr. 02:39:35.

The Department may have suggested to Mrs. Coles, at some point in the review process,
that she might retain a soil scientist or other specialist, who could produce a detailed
study and report of the soil and present it to the DOR during the informal review period.
MTAB Firg. Transcr. 02:08:00, 02:24:35. The Department is unable to state
conclusively that such a recommendation, or the consequences of not retaining such an

expert, was in fact clearly made to the Coles. MTAB Hg. Transcr. 02:24:35.

Mrs. Coles contacted the NRSC to request a soil survey of her property and was advised
that the federal employee was not authorized to conduct this sort of consulting in

addition to normal duties. MTAB Hrg. Transcr. 01:43:15.

JURISDICTION AND STANDARD OF REVIEW
The Montana Tax Appeal Board (Board) is an independent agency not affiliated with the
Montana Department of Revenue (DOR). Mont. Code Ann. § 15-2-301.

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Before The Montana Tax Appeal Board
MONTANA DEPARTMENT OF REVENUE v. COLES

The Taxpayers filed a timely appeal of the LCTAB decision to the MTAB. Therefore,

this Board maintains jurisdiction to hear and decide this matter. Mont. Code Ann. §15-2-

301(1)(b).

This Board hears CTAB appeals de novo. CHS Inc. v DOR, 2013 MT 100, 299 P.3d 813
(2013). “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, 303 P.3d 1279 (2013). As such, this matter will be reviewed without
merit to the DCTAB hearing and subsequent decision. Jd.

The Board must determine, based on a preponderance of the evidence, whether the
Department of Revenue accurately properly classified the property. As a rule, the
Department’s appraisals are presumed to be correct and the taxpayer must overcome this
presumption, but the Department of Revenue also bears a minimum burden of providing
documented evidence to support its assessed values, Farmers Union Cent. Exch. v.
Department of Revenue, 272 Mont. 471, 901 P.2d 561, 564 (1995); Western Airlines,
Inc., v. Michunovich, 149 Mont. 347, 353, 428 P. 2d 3, 7, cert. denied 389 U.S. 952, 19

L. Ed. 2d 363, 88 S. Ct. 336 (1967).

CONCLUSIONS OF LAW AND BOARD DISCUSSION
To whatever extent the following conclusions of law may be construed as findings of

fact, they are incorporated accordingly.

We find that the Coles’ property meets the criteria for classification as qualified
agricultural land. The Coles are required to show by a preponderance of the evidence
that the Department’s decision was erroneous, Dep't of Revenue v. Burlington N. Inc.,

169 Mont. 202, 214, 545 P.2d 1083, 1090 (1976), Farmers Union Cent. Exch., Inc. v.

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Before The Montana Tax Appeal Board
MONTANA DEPARTMENT OF REVENUE v. COLES

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), and
the Coles produced convincing testimony and evidence, virtually none of which was
refuted by the Department’s witnesses or evidence, that their land is sub-irrigated,
extremely lush and wet during the grazing months, and capable of sustaining 31 AUM

required to be classified as qualified agricultural land.

The Department is defending the carrying capacity determination simply by pointing to
the result of the mass appraisal, the NRCS soil survey, without any regard for on-the-
ground facts about the Coles’ land. The Department 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.” But the 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. Mr. and Mrs. Coles overcame this presumption with their evidence and
testimony and have shown that their land can carry cattle at a rate higher than 31 AUM,
which is the threshold at which the Department must classify the land as “qualified
agricultural land.” Mont. Admin. R. 42.20.620(9)(a).

Furthermore, as a matter of basic appraisal practice, Mr. Davis characterized the
Department’s approach as a “mass appraisal” which builds a computer model of grazing
quality based everything except, arguably, the most important data item: the soil, grass
and the irrigating profile of the specific land in question. Ms. Hamilton referred to
carrying capacity that the NRCS computer spit out as “scientifically supported values,”
but we find it impossible to believe that this is the case, given what the Coles have
shown us, and given that their presentation was generally unrebutted by the Department.
Mr. Davis further described the need for the Coles to provide “scientific data” to make

their case in the form of a paid scientist. But Mr. Davis also admitted that he did not

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Before The Montana Tax Appeal Board
MONTANA DEPARTMENT OF REVENUE v. COLES

visit the property even when he was at the property entrance, and he stated that he had
no idea not only whether the Coles’ property was sub-irrigated, but whether any of the
neighboring properties were either. The Department has never found that the Coles
have grazed their land in a way injurious to soil or vegetation, and we find nothing in
statute or regulation which requires a landowner to hire a soil scientist to rebut a
classification of grazing land based on the NRCS mapping data. In fact, under Montana
law, the Department is required to take input of “any information provided by the
taxpayer” including but not limited to local climate data. Mont. Code Ann. § 15-7-
103(3). What the taxpayers provided here was ample to overcome the presumption that
a Department’s classification of land is correct. Our opinion is that the LCTAB was

correct, and that Coles’ property can support at least 31 AUM. |

Finally, we recognize the DOR is not equipped to perform fee appraisal style analysis of
every agricultural application they receive as they conduct their work under standards of
mass appraisal. However, it is the role of this Board to arbitrate the testimony and
evidence presented at hearing before us. We have found that the Taxpayer presented a
variety of evidencary documents and credible testimony which overcame the DOR
presumption of correctness. This is an occasion the tax appeals system is designed for,
when the standard methods of mass appraisal somehow misses the facts of the situation.
In this case the facts presented show the land produces more than $1500 per year of

value so we find for the Taxpayer.

Before The Montana Tax Appeal Board
MONTANA DEPARTMENT OF REVENUE v. COLES

| ORDER
27. |The Montana Department of Revenue’s appeal in this matter is DENIED, and the
Department is ordered to classify the subject property as Agricultural Land.

Ordered December 22, 2020 | Dey ‘a Megl

David L. McAlpin, Chairman \
MONTANA TAX APPEAL BO

leflond Phare,

Stephen A. Doherty, M M enfter”

Eric Stern, Mémber
MONTANA TAX APPEAL BOARD

Notice: You may be 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. Mont. Code Ann. § 15-2-303(2).

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Before The Montana Tax Appeal Board
MONTANA DEPARTMENT OF REVENUE v. COLES

Certificate of Service

I certify that I caused a true and correct copy of the foregoing Findings of Fact, Conclusions of
Law, Order and Opportunity for Judicial Review to be sent by email and by United States Mail
via Print & Mail Services Bureau of the State of Montana on December 22, 2020 to:

Dave Burleigh

Legal Services

Montana Department of Revenue
P.O. Box 7701

Helena, MT 59604-7701

Leroy & Patricia Coles
P.O. Box 4112
Butte, MT 59701

Lewis & Clark County Tax Appeal Board
c/o Shana Olds

316N. Park Rm 113

Helena, MT, 59623

Kory Hofland

Property Assessment Division
Montana Department of Revenue
P.O. Box 7701

Helena, MT 59604-7701

Hunthebe,—

Lyshy wi Cochran, Legal Secretary
MONTANA TAX APPEAL BOARD

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