Protested Taxes: Local Communities Left in Limbo

Jul 17, 2014

Last week, the Montana Department of Revenue announced a settlement agreement with Verizon Wireless related to how the Department would value Verizon’s property for calculating property taxes.  This settlement, along with the recent agreement between the Department and Charter Communications, meant the release of tens of millions of dollars in tax revenue to schools and local governments after years of these funds sitting in protest escrow accounts. This scenario happens all the time with large statewide companies claiming their taxes should be lower, and local governments and schools districts are often faced with the uncertainties on how this will impact budgets.

Yesterday, we explained what protested taxes are.  Today, this post will dig deeper into how these protests impact our local economies.

The process in which a taxpayer can raise questions about the property taxes assessed on his or her property is an important one. It gives the taxpayer a formal way to present issues about improper valuation of property or other issues. It also sets a process for the Department of Revenue and the taxpayer to reach an agreement.

When we think of a tax protest by a residential homeowner, we are generally talking about a few hundred or a few thousand dollars. However, it is an entirely different story when we talk about the tax protests of large statewide, centrally assessed companies. 

In the Verizon case, the company had protested over $32 million for tax years 2009 through 2013, approximately 70 percent of what they owed in those years.  Since 2009, these funds have been sitting in protest tax escrow accounts, and local governments and school districts have been unable to use the funds. (In some cases, local governments and school districts are entitled to use some of the funds, but then they run the risk that if the company eventually wins its tax protest, the local government is responsible for paying interest on any funds returned. It is understandable that local governments and school districts are hesitant to use these funds.)  In the settlement announced last week, Verizon will receive back about $10 million, less than a third of what it was protesting. And after five years, our schools and local governments will finally receive over $20 million in taxes paid by Verizon.

The tax protest by Charter Communications is similar. Over $34 million had been held in protest. Of this, schools and local governments will finally receive about $25 million. That’s about 73 percent of what Charter had been protesting.

Industrial companies have also been known to protest millions in property taxes. One recent case is CHS, Inc., which protested over half of the property taxes assessed in its Laurel refinery since 2009. At the end of the day, CHS received back about $4.7 million, a 15 percent reduction. And after four years of waiting, schools and local governments finally received over $11 million, the lion share of taxes stuck in protest escrow accounts.

Generally speaking, there isn’t much disincentive for a corporation to protest a significant portion of the taxes it was assessed, regardless of how much that company may believe is in question. As mentioned above, a local government may be responsible for paying interest on protested taxes that it spends.  There is no similar consequence for a company that protests a far greater amount than it receives back in the end. There is little stopping Charter or Verizon from protesting nearly all of its taxes even if it believes only a small portion is in error. As a result, local economies are in limbo – sometimes for years – for settlements to be reached and funds to flow back into communities.  

It is also important to note that when a company gets a cut in property taxes, it often means that the tax responsibility is shifted to other property taxpayers, namely homeowners and small businesses.

Clearly, it is important that all taxpayers – homeowners, small businesses, and large corporations - are taxed in a fair and accurate way that ensures due process. However, it is worth thinking through how we can make sure our local governments aren’t stuck waiting for the funds it needs to keep our schools running, police on the streets, and other government systems working for the community.

Montana Budget & Policy Center

Shaping policy for a stronger Montana.

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.