Montana Revenue Dept. Says Property Taxes Could Rise Again

Montana Department of Revenue staff told a legislative committee Monday that next year’s reappraisal cycle could produce a partial repeat of last year’s jarring tax spike as the state’s surging real estate market continues to translate into higher residential taxes.

The department expects the market value of the average Montana residential property to be reappraised at 21% higher when it completes next year’s reappraisal cycle. A staff economist said Monday that if the Legislature doesn’t rebalance state tax statutes, the higher values will likely result in the average residential tax bill rising by 11% next fall while taxes stay roughly constant or fall on other types of property.

Last year’s reappraisal cycle saw the median residential property value increase by about 40%, producing a 21% increase in the median tax bill, according to a Montana Free Press analysis of revenue department data.

Most property taxes in Montana are calculated proportionally to a property’s share of a town, county or school district’s overall tax base, meaning a $600,000 house will, in theory, pay twice as much of the local school’s electricity bill than a $300,000 house next door. As such, when residential property values rise relative to other types of property (stores or farm fields, for example) residences end up shouldering a greater share of the tax burden.

Monday’s presentation by department staff, an exercise required by state law in advance of each reappraisal cycle, also detailed how lawmakers could tweak conversion rates embedded in the state tax code to rebalance the tax system by shifting less burden onto homes and more onto property classes that have seen slower value growth. Those rates determine how much of a property’s market value is converted to taxable value, the figure that is actually fed into the broader property tax formula.

Currently, for example, residential properties have 1.35% of their market value converted to taxable value. Revenue department staff have calculated that dialing that rate down to 1.11%, would reduce residential taxes and increase taxes on other property types enough to, on average, offset the effect of rising home values for the upcoming reappraisal cycle.

Other findings from the department’s Monday committee presentation include the following:

The revenue department expects commercial property values to rise by 8.3% and agricultural property values by 5.4% in next year’s reappraisal cycle.

While eastern Montana counties were generally spared the dramatic residential appraisal increases seen across western Montana in the last appraisal cycle, the department expects many of them to catch up this time around. Residential property values in Scobey’s Daniels County, for example, are expected to rise by 31% in the new cycle, while values in Bozeman’s Gallatin County rise a comparatively moderate 10%.

As such, eastern Montana communities would likely see the highest tax bill increases next year if lawmakers leave the tax statute governed by current law. The department projects that residential property taxes in Carter County, for example, could rise by 23%. In Fergus County, around Lewistown, they could rise by 17%.

While Republican Gov. Greg Gianforte and prominent lawmakers from both parties have said addressing rising homeowner property taxes is a top priority when the Legislature convenes early next year, it’s unclear precisely what form those efforts will take or how much of past or future tax increases they might offset.

Gianforte and some legislative allies have, for example, pitched a “homestead exemption” proposal that would seek to lower residential property taxes on primary residences, including long-term rentals, by raising taxes on second homes and vacation rentals. Gianforte said last week he believes that approach, which would involve tweaking the market-to-taxable conversion rates, could reduce homeowners’ property taxes by 15%.

A tax bill that rises by 11% next year on top of last year’s 21% typical increase would place a 34% cumulative increase on the property owner.