The Montana Supreme Court ruled Nov. 22 in favor of the state in a dispute between the Montana Department of Revenue and the counties over state education equalization mills.

The Montana Department of Revenue directed counties to collect 95 mills for the statewide tax that supports public education funding.

The Montana Association of Counties argued that the state’s mills are also subject to state law which limits increases to the amount actually assessed in the previous year plus half the rate of inflation. That’s the same cap local governments are subject to when adjusting property taxes.

The dispute went to the state’s highest court in October and on Nov. 22 the court issued it’s opinion, finding that “Montana counties must levy taxes according to DOR’s methodology for calculating statewide mills. MACo’s reading of the statute is irreconcilable with the Montana Constitution and clear intent of the Legislature and we defer to DOR’s longstanding understanding that it shares authority with local jurisdictions to ‘bank’ mills,” under state law.

MACo and the counties argued that the state was subject to the same cap on increasing property taxes that applied to local government agencies and that the DOR could not bank mills the way local government agencies can.

County authorizes legal defense for state education mill dispute

If a local government doesn’t take their full allowable mills one tax year, they are able to bank those mills and apply them in a subsequent tax year. The counties argued that the DOR was not a governmental entity under the statute allowing the banks mills.

The court points out that MACo states DOR is a governmental entity under the law to calculate the mills to be levied, so by it’s own argument the department is also a governmental entity under the law to bank mills the same way a local government would.

“Finally, on questions of statutory interpretation, we generally defer to a state agency when its interpretation has ‘stood unchallenged for a considerable length of time…,'” according to the court opinion.

DOR has banked mills each year between 2001 and 2017, then again in 2019 and 2021, when its calculation yielded a number of mills that exceeded the statutory cap. DOR used those banked mills to reach the statutory cap in 2018, 2020 and 2022, according to court documents, and used the same methodology for the current tax year.

“DOR’s methodology has been untested for two decades, and its interpretation of the statute is consistent with the
State’s constitutional directives,” the justices wrote. “We therefore hold that DOR may continue to determine statewide mills by carrying forward any mills exceeding the cap in one year, and then require counties to apply those mills to reach the cap in subsequent years. DOR’s interpretation of its taxation authority is consistent with the Montana Constitution and the Legislature’s directive to equalize funds for public education across Montana.”

Many counties opted to levy the lower number of mills this year, including Cascade County.

County opts to levy fewer education mills, likely setting up state lawsuit

In October, Cascade County Commissioners voted 2-0 to set their levy at 77.9 mills. Commissioner Joe Briggs was out of town.

Briggs told The Electric on Nov. 22 that “we will need to decide on how we are going to handle this. Although several options were discussed should this occur, no formal decision was made this far.”

As of Oct. 11, 38 other counties had opted to mill 77.9 mills instead of the full 95, according to Diane Heikkila, Cascade County treasurer.

Paige Miller, of the county treasurers office, said during the October meeting that she was concerned with levying the full 95 mills since it would be subject to protests and her office could be flooded with protests while they’re trying to collect taxes, overwhelming her office.

Cascade County Commissioners applied the same tax cap methodology to the vocational-technical education levy and opted for the lower amount of 1.3 mills, versus 1.5 as directed by the state.

That means a reduction of $44,596 for the Montana State University, according to the county.

Only five counties are levied for votech as those are funds are only collected in counties with a votech college.

Grulkowski said that since those votech colleges were no longer funded locally but through the state and they also collected tuition, she was fine will levying the lower amount.

Cascade County officials consider whether to reduce education mills in dispute with state

If all counties levied 77.9 mills, it would be an estimated $80 million reduction in state education equalization funds, according to the Montana School Boards Association.

Counties asked Montana Attorney General Austin Knudsen for a legal opinion but his office responded in late September that it would be more appropriate to address the question in court.

Several lawsuits were already been filed in Montana regarding the dispute.

In Yellowstone County District Court, the Montana Department Revenue is being sued for overtaxing.

In Missoula County, the state is suing the county for lowering the mills levied.

On Oct. 10, the Montana Quality Education Coalition filed suit asking the Montana Supreme Court to issue an emergency order requiring counties to collect the full 95 mills.

Justice Laurie McKinnon issued an order Oct. 11 granting counties 30 days to respond.

Cascade County Commissioners met Oct. 4 to discuss whether to levy the full 95 mills or reduce the amount to 77.9.

Phoebe Marcinek, a deputy county attorney, said that there were a number of factors for commissioners to consider, including the risk of litigation, funding for schools and how to make up the money if they mill the lower amount, are sued by the state and loose.

The difference equates to $3.7 million in Cascade County, Marcinek said.

County tax appeal board denies $189.5 million Calumet protest

Carey Ann Haight, chief deputy attorney for civil, said that commissioners essentially had two options, levy the full amount and be sued by taxpayers, or levy the reduced amount and be sued by the state.

In Missoula, the state sued for declaratory relief, asking the court to issue a determination on the statutory interpretation. Haight said that decision won’t be issued before Cascade officials have to make a decision and while it would offer guidance, wouldn’t be binding for Cascade County.

“The potential for Cascade County to be sued either way is real and very likely,” Haight said.

Haight and Marcinek said that if the commission levies 77.9 mills, the Montana Association of Counties will provide legal defense.

If the county opts for the full 95 mills, MACO won’t provide a defense and the county would have to handle the matter itself.

MACO is the county’s insurance provider.

If commissioners levied the lower amount and lost a lawsuit from the state, they could use a judgment levy to collect the $3.7 million difference from taxpayers. The county has used that option once before when it lost a lawsuit, the lawyers said. The process for a judgment levy is spelled out in state law, Marcinek said.

Or, commissioners could make up the $3.7 million from existing county funds to give to the state, she said.

The lawyers considered levying the full 95 mills, keeping the $3.7 million in reserve until the legal issue is resolved, then give it to the state or reimburse taxpayers. Haight said she wasn’t sure of that was possible or how it would work, but it was an idea being discussed internally.

Haight said in October that no matter how the Missoula or Yellowstone cases are decided, the matter would likely end up before the Montana Supreme Court and be addressed in some way during the next legislative session.

The county treasurer’s office sent tax bills to the printer Oct. 13, so said they need the decision by Oct. 11 to make any updates.

Commissioners were scheduled to make a decision during their regular Oct. 10 meeting but due to a public notice issue pushed it to a special meeting on Oct. 11.

Marcinek said during the Oct. 4 meeting that the state has statutory obligations to fund public schools so if the county levied fewer mills for the equalization fund, schools wouldn’t get less funding, but the state might have to pull funds from somewhere else if there were a shortfall.

Brian Patrick, business operations manager for Great Falls Public Schools, said in October that up until now the state education equalization funds went into the state’s general fund.

During the last legislative session, the state created a special fund for the equalization mills and if counties levy less than 95 mills, Patrick said it may not impact GFPS this year, but thinks the impact will reduce the guaranteed tax base of school funding long-term.

“Reducing the income to the 95 mills jeopardizes the guaranteed tax base system. If the legislature chooses to drop GTB rates in an attempt to make up the loss of $160 million in revenue, they would have to drop the rate from 254 percent to 154 percent. The difference would be made up by local taxpayers in areas with low taxable value, resulting in the possibility of a lawsuit against the State for underfunding education,” according to the Montana Association of School Business Officials in October.

Patrick said that the less the state funds of that percentage, the more local taxpayers will have to pay.

Patrick said it would benefit the district to have additional state money to help with bond payments and several other areas that would have lowered local taxes.