We learned this week that the Department of Revenue settled a property tax dispute with NorthWestern Energy, which will lower the overall market value of its centrally-assessed property from what DOR had originally certified as the value for 2016. We thought this would be a great opportunity to do a quick refresher course on property taxes, how they are assessed, and what this will mean for you and your community.
First, let’s go through some basic information on property taxes.
NorthWestern Energy is the state’s single largest property taxpayer, and the company is a centrally assessed taxpayer. Centrally assessed property is property owned by a company operating as a single entity and connected across county or state borders. This includes things like railroads, telecommunication lines, power lines, natural gas or oil transmission lines, and airlines.
How are property taxes calculated?
The Montana Department of Revenue is in charge of appraising – or valuing – property in the state every other year (for centrally assessed, it happens every year). This amount is called the market value. The Department determines the market value for the entire company and then assigns pieces of that value to counties and local jurisdictions based on the percent of property (or mileage) in that jurisdiction. The Legislature has assigned a tax rate to each type (or class) of property, including types of centrally assessed property. The market value is multiplied by the tax rate to determine the taxable value. On a local level, individual local taxing jurisdictions (this would be city and county governments, local school districts, and some smaller special districts, like fire districts) determine the amount of revenue it can levy (with strict limitations) to help fund schools and local government operations, called mill levies. A mill levy is a tax rate per thousands dollars of taxable value of property. Once the taxable value is determined, each local taxing jurisdiction applies the mill levies to the property’s taxable value to determine the property taxes owed.
How each local government and school determines the number of mills it can levy is based on complicated formulas, which are primarily tied to the local government’s or school district’s current budget, the overall tax base in the jurisdiction, and some slight modifications based on inflation and growth. In this case, the Department of Revenue had already certified the total tax base for each local taxing jurisdiction, so counties and local governments had already set their mills.
So what happened with NorthWestern property value?
Toward the end of 2014, Northwestern Energy purchased eleven hydro facilities from PPL Montana for about $870 million. NorthWestern has also reported increased acquisition of natural gas assets and a series of upgrades to its system. All of these changes impact the value of the company. The Department of Revenue took into account this additional value for purposes of 2016 property taxes, and certified taxable values for counties reflecting this increased value.
NorthWestern Energy informally disputed the Department of Revenue’s new market value, and from statements made in the press, it sounded like this could have been headed toward a formal protest, which bottles up a good portion of the tax owed and puts schools and local communities in a very tough spot. The final settlement on this year’s tax bill reduces NorthWestern Energy’s total tax bill by about 8 percent.
What does this mean for local communities?
For those taxing jurisdictions that include NorthWestern Energy property, they will see their overall tax base go down and will generate less property tax revenue (at the current level of mills). Of the 1,300 taxing jurisdictions in Montana, about 900 will be impacted by this settlement. The below chart shows the difference in taxes assessed, for all taxing jurisdictions located in that county. (This is not what the county government gets, but for sake of simplifying the 1,300 taxing jurisdictions, we’ve lumped them together by county to give a sense of where impact is greatest.) For most, the percent change in total taxes assessed is less than one percent. However, for a community or taxing jurisdiction with a large NorthWestern Energy presence, the impact is greater – between two and five percent change.
Because this settlement will have such an impact on some communities, the Department will allow local taxing jurisdictions to request a new certification of the tax base. In that case, it can then go back and change its mills to make up the loss in revenue. This would mean a potential increase in property taxes for all property taxpayers in the jurisdiction.
What are we hearing so far from communities?
Some local jurisdictions have said they will absorb the loss in revenue – through the use of reserves or possibly cutting back services. But for some communities, this loss of tax base will have real implications for budgets and how it provides services in the community, and it may need to request recertification to recoup much-needed revenue.
| Taxing Jurisdictions, by County | Total Taxes Assessed OLD | Total Taxes Assessed NEW | Total Loss in Taxes Assessed |
| Silver Bow | $11,635,288.29 | $10,664,193.57 | $971,094.72 |
| Cascade | $18,603,125.80 | $17,050,525.62 | $1,552,600.18 |
| Yellowstone | $13,706,083.20 | $12,562,176.39 | $1,143,906.81 |
| Missoula | $13,711,590.68 | $12,567,233.83 | $1,144,356.85 |
| Lewis & Clark | $12,317,248.25 | $11,289,248.17 | $1,028,000.07 |
| Gallatin | $14,225,641.93 | $13,038,366.65 | $1,187,275.29 |
| Flathead | $2,577,940.40 | $2,362,778.01 | $215,162.39 |
| Fergus | $1,532,402.26 | $1,404,495.06 | $127,907.20 |
| Carbon | $2,187,585.02 | $2,005,004.84 | $182,580.19 |
| Phillips | $532,145.80 | $487,728.83 | $44,416.97 |
| Hill | $2,705,893.67 | $2,480,061.72 | $225,831.95 |
| Ravalli | $3,333,848.23 | $3,055,589.58 | $278,258.65 |
| Lake | $360,846.58 | $330,730.86 | $30,115.72 |
| Beaverhead | $1,787,316.24 | $1,638,140.34 | $149,175.89 |
| Choteau | $1,067,011.18 | $977,961.96 | $89,049.22 |
| Valley | $695,582.32 | $637,530.73 | $58,051.59 |
| Toole | $1,220,192.07 | $1,118,351.81 | $101,840.26 |
| Big Horn | $1,036,157.18 | $949,673.12 | $86,484.06 |
| Musselshell | $644,020.93 | $590,265.90 | $53,755.03 |
| Blaine | $1,542,463.84 | $1,413,726.46 | $128,737.38 |
| Madison | $2,256,830.43 | $2,068,482.58 | $188,347.85 |
| Pondera | $1,043,510.89 | $956,406.27 | $87,104.62 |
| Powell | $2,610,254.80 | $2,392,404.65 | $217,850.15 |
| Rosebud | $3,932,046.66 | $3,603,879.12 | $328,167.54 |
| Deer Lodge | $6,903,301.07 | $6,327,145.64 | $576,155.43 |
| Teton | $1,428,065.07 | $1,308,883.39 | $119,181.68 |
| Stillwater | $2,941,713.38 | $2,696,202.13 | $245,511.25 |
| Treasure | $142,054.04 | $130,198.73 | $11,855.31 |
| Sanders | $3,507,675.36 | $3,214,928.04 | $292,747.32 |
| Judith Basin | $819,317.92 | $750,933.98 | $68,383.94 |
| Glacier | $3,531,799.52 | $3,237,032.47 | $294,767.04 |
| Sweet Grass | $969,683.22 | $888,747.61 | $80,935.60 |
| Broadwater | $1,345,749.33 | $1,233,435.81 | $112,313.52 |
| Wheatland | $967,110.59 | $886,390.77 | $80,719.82 |
| Granite | $1,102,485.27 | $1,010,477.93 | $92,007.34 |
| Meagher | $847,705.29 | $776,957.40 | $70,747.89 |
| Liberty | $335,967.32 | $307,922.34 | $28,044.97 |
| Park | $2,519,028.78 | $2,308,789.97 | $210,238.81 |
| Jefferson | $2,226,369.06 | $2,040,550.93 | $185,818.14 |
| Golden Valley | $484,522.01 | $444,080.26 | $40,441.75 |
| Mineral | $771,609.70 | $707,216.77 | $64,392.93 |
MBPC is a nonprofit organization focused on providing credible and timely research and analysis on budget, tax, and economic issues that impact low- and moderate-income Montana families.