Understanding Montana Property Taxes

Everyone knows real estate prices have skyrocketed in Montana, but it still came as a shock when residents opened their 2023 reappraisal notice from the Montana Department of Revenue. According to the department, residential market values had a 45% median increase statewide! This was due to the sharp increase in real estate prices that Montana saw in 2020 and 2021. Many people assume this means taxes will increase proportionality. However, this isn't necessarily the case. Let's take a deeper look at how Montana property taxes work. 

WHAT DO MONTANA PROPERTY TAXES PAY FOR?

Montana's property taxes provide money for education, infrastructure such as roads and bridges, fire and police stations, and local government services. Montana's tax rate for property taxes is actually lower than national averages. However, since Montana has no sales tax, it generates a large portion of our total taxes from property taxes. Our state and local property taxes make up around 40% of our entire state and local tax revenue. 

HOW ARE PROPERTY TAXES ASSESSED?

How property taxes are calculated can be complicated so it's not always easy to understand what you are paying for and how it relates to your home's property value. We'll break it down for you. 

1) The Montana Legislature creates the different classes of property such as residential, commercial, agricultural land, business equipment, etc. The Montana Department of Revenue determines the market value of the properties. They look at what similar properties have currently sold for to calculate the current market value. 

2) The Montana Legislature assigns a tax rate to each class of property and multiplies that rate by the property's market value, which gives you the taxable value. Since 2018 the tax rate for residential has been 1.35% and for commercial is 1.89%. If they cut the tax rate for any property classes, the total taxable value in the local jurisdiction goes down, as does the amount of revenue for that jurisdiction. To keep revenue levels stable they have to raise mill levies on all property owners. This leads us to the next point.

3) Local taxing jurisdictions (cities and counties) apply mill levies to the property's taxable value to calculate taxes owed. The county government collects the taxes from property owners and is responsible for distributing them. A mill is the tax rate per thousand dollars of the taxable value of a property. It includes a local portion which is used to fund services in the area and a state portion that is used for public schools. 

The Montana constitution and state law require the Montana Department of Revenue to reappraise all property classes periodically and value similar property across the state. For residential, commercial, industrial, and agricultural property classes there is a two-year appraisal cycle. 

DO RISING PROPERTY VALUES MEAN YOU HAVE TO PAY HIGHER PROPERTY TAXES?

Not necessarily. Lawmakers can reduce how much of the valuation is taxable but if they do that for one property class, it would be raised on a different property class or they would have to reduce services. For example, if values rise for all property types, taxes will remain the same because it isn't your property value that you are taxed on but the proportion of the tax base your property represents. However, what we are experiencing in Montana is residential home values are rising faster than other property types so the tax burden is falling more on homeowners because they have a larger tax base.   

As we mentioned above, there is a reappraisal cycle every two years and 2023 saw a dramatic jump from 2021, but we don't yet know what that will mean for upcoming property taxes. Most likely what the state's estimate was won't be what is on your actual tax bill. The tax estimate was based on your current taxable value and LAST year's mill rate (which was based on last year's taxable values). Because property values have risen for each class, the current year's tax base is going to be much larger. This means most taxing jurisdictions should be able to assess fewer mills for taxes.

HOW TO REQUEST AN APPRAISAL REVIEW

If you have questions on the department's assessed value of your property there are a few things you can do. Check to make sure your property information is correct by clicking here. If you have questions, call or email the department (406-582-3400 dorpadbozeman@mt.gov). If you still disagree with the valuation then it's time to submit a Request for Informal Classification and Appraisal Review. To start the process visit mtrevenue.gov to find Form AB-26. If you are requesting an overall valuation change that is not related to a physical characteristic change you will need additional documents:

-The purchase price of the property within 6 months of January 1, 2022 (example - executed buy/sell agreement)
-A fee appraisal within 6 months of January 1, 2022
-Comparable property sales or listings within 6 months of January 1, 2022
-Builder's cost breakdown if it is new construction or a remodel
-Income and expense information if it's for a commercial or industrial property

Our team of agents can help if you are looking for comparable property sales or listings to complete the appraisal review process. Please contact us with any questions you have!

References -
Montana Free Press
Leg.mt.gov

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