                                                                                            May 10 2016


                                           DA 15-0526
                                                                                         Case Number: DA 15-0526

                  IN THE SUPREME COURT OF THE STATE OF MONTANA

                                           2016 MT 105



MICHAEL H. PERETTI and SHELLEY PERETTI,

              Petitioners and Appellees,

         v.

STATE OF MONTANA,
DEPARTMENT OF REVENUE,

              Respondent and Appellant.



APPEAL FROM:           District Court of the Eleventh Judicial District,
                       In and For the County of Flathead, Cause No. DV-13-1210A
                       Honorable Ted O. Lympus, Presiding Judge


COUNSEL OF RECORD:

                For Appellant:

                       Amanda L. Myers, Special Assistant Attorney General, Montana
                       Department of Revenue, Helena, Montana

                For Appellees:

                       Nathan G. Wagner, Datsopoulos, MacDonald & Lind, P.C.,
                       Missoula, Montana



                                                   Submitted on Briefs: March 30, 2016

                                                             Decided: May 10, 2016


Filed:

                       __________________________________________
                                         Clerk
Chief Justice Mike McGrath delivered the Opinion of the Court.


¶1    The State of Montana, through the Department of Revenue (DOR), appeals from

the District Court’s Order and Rationale dated June 29, 2015. We reverse.

¶2    We restate the issues on appeal as follows:

      Issue one: Did the District Court err in reversing the order of the State Tax
      Appeal Board concerning the valuation of the property at issue?

      Issue two: Did the District Court err in awarding administrative trial costs to the
      Taxpayers?

      Issue three: Did the District Court err in ordering DOR to return all taxes paid
      under protest?

                 FACTUAL AND PROCEDURAL BACKGROUND

¶3    This is a dispute between property owners Michael and Shelley Peretti and the

DOR over the appraised value of their .461 acre residential lot with 159 feet of Flathead

Lake frontage in Lakeside, Montana. DOR’s original appraisal for the tax year 2012 was

$1,356,201 for the land and $166,980 for the improvements. The Perettis appealed this

valuation to the Flathead County Tax Appeal Board (County Board) in May 2012. They

contended that the appraised value failed to account for a deterioration of market values

and that DOR relied upon comparable sales from exclusively residential areas unlike the

commercial location of the property at issue. The County Board heard the appeal in

January 2013 and reduced the value of the land to $1,192,500 and the value of the

improvements to $125,000.

¶4    The Perettis appealed that decision to the State Tax Appeal Board (“STAB”),

contending that the appraised value was still too high, requesting a reduction to $900,000

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for the land and $60,000 for the improvements. STAB conducted an evidentiary hearing

in September 2013.

¶5    STAB heard this appeal pursuant to its statutory responsibilities, §§ 15-2-201

and -301, MCA. Montana law requires that property be assessed at 100% of its market

value, which is the value at which it would change hands between a willing buyer and

seller. Section 15-8-111, MCA. The relevant time for determining the market value of

the property at issue here was as of July 1, 2008. Admin. R. M. 42.18.124(b).

¶6    The Perettis presented the testimony of James Kelley, a licensed real estate

appraiser. He described the land as residential property that was close to commercial

properties and condo developments. He opined that this proximity diminished the value

of the land for residential purposes and assumed that no purchaser would keep the

existing improvements nor would a purchaser build a high-priced home so close to town.

Kelly used only a few other comparable properties in his analysis, relying heavily upon

the sales of two non-lakefront properties. He determined that prices had increased 13.5%

per year during the valuation period, while also contending that prices had declined. He

concluded that the land at issue should be valued at $960,000 and that the improvements

had no value.

¶7    The Perettis also presented the testimony of Edwin Berry, who had “math and

physics credentials and experience in modeling land valuation computer software.” He

criticized the computer-based land pricing model that DOR used to determine property

values. He opined that DOR’s results were “demonstrably weak” because they relied on

a formula that “produced an R2 of just 17.98% suggesting inaccurate value projections.”

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STAB allowed the property owners to present Berry’s testimony even though the Perettis

had refused to provide any meaningful information about him or his testimony prior to

hearing, despite requests that they do so.

¶8     STAB allowed DOR to submit a post-hearing rebuttal to Berry from its Region 1

Manager, Scott Williams. Williams explained that Berry’s opinions incorrectly assumed

that DOR used a “single variable to create the linear regression” while it was clear that

DOR used three variables. Further, Williams stated that the true R2 value was 83.33%,

indicating a reliable formula. Williams was unable to determine any reason for some of

Berry’s calculations except that they “steadily lowered the valuation in his clients favor.”

¶9     DOR appraiser Dan Lapan explained the agency’s computer-assisted land

valuation program, which in this case gathered information on 29 waterfront land sales

that had occurred “in the neighborhood” since the last appraisal.      The result showed a

“$9,801 average front foot value for lakefront property.” He also discussed two other

sales of lakefront property proximate to commercial areas that maintained values of over

$9000 per front foot. He opined that the information DOR relied upon showed that

proximity to commercial property did not reduce lakefront property values, and that

lakefront values had not fallen since the valuation date (June 1, 2008). Lapan also

produced photos of one of the comparable properties heavily relied upon by Kelley,

showing that it was “steep [and] boulder-covered” and not at all comparable to the “flat

and easily built-upon” property at issue.

¶10    STAB issued its findings of fact and conclusions of law on November 1, 2013.

STAB concluded that while DOR’s appraisal is presumed to be correct, the Department

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bears a burden to provide “documented evidence to support its assessed values.” STAB

found that DOR’s explanation of its “comprehensive computer assisted data” that

included 29 comparable sales was “more persuasive than the three comparable sales used

by Mr. Kelley.” STAB found that the Perettis presented no evidence to support their

contention that the location of the property had a negative effect on its value. STAB

found that DOR’s evidence was “generally more persuasive” than the owners’ evidence

as to value. STAB further found that Kelley’s reliance upon post-valuation date sales

was not allowed by Montana law and that his assumptions that the existing buildings had

no value were subjective assessments of what a future buyer might do. STAB concluded

by finding that Kelley’s testimony was limited and subjective and was “less credible”

than the evidence presented by DOR.

¶11   STAB found that Mr. Berry “completely misunderstood” the DOR computer

model and that his criticisms were “not accurate.” STAB found that Berry “discarded

sale and trending data points until he got the result he sought,” which was a lower value

for the property. STAB found that Berry “misinterpreted” the reliability of the DOR

system, and that his “critique of the DOR valuation model [was not] credible.”

¶12   STAB upheld the County Board’s determination of the value of the property. The

Perettis petitioned for judicial review in November 2013. The parties completed briefing

in July 2014, and the District Court entered its order reversing the STAB decision on July

1, 2015. The District Court disagreed with STAB’s weighing of the evidence and its

determinations of witness credibility.       The District Court determined that the

methodology of the DOR “resulted in a severely skewed assessment” of the value of the

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property, and that Mr. Lapan’s testimony was not credible or persuasive as to important

issues. The District Court similarly determined that Mr. Williams’ testimony was not

credible regarding important issues that he covered in his testimony.

¶13    The District Court concluded that STAB committed clear error by finding that

DOR’s valuation of the property was more persuasive than Mr. Kelley’s valuation. The

District Court evaluated and weighed the testimony from the STAB hearing and found

that the County Board property value upheld by STAB was clearly erroneous. The

District Court ordered STAB to accept the $960,000 valuation from Mr. Kelley’s

testimony, and ordered DOR to return any taxes that the Perettis paid under protest.

                               STANDARD OF REVIEW

¶14    This is an appeal from a decision of a district court conducting judicial review of a

decision of the State Tax Appeal Board concerning a Department of Revenue appraisal of

real property for property tax purposes. In such cases the appraisal reached by the

Montana Department of Revenue is presumed to be correct, and the burden is upon the

taxpayer to overcome this presumption, Farmers Union Central Exchange v. DOR, 272

Mont. 471, 476, 901 P.2d 561, 564 (1995). Courts should not act as an authority on tax

matters because tax appeal boards “are particularly suited for settling disputes over the

appropriate valuation of a given piece of property, and the judiciary cannot interfere with

that function.” DOR v. Grouse Mtn. Development, 218 Mont. 353, 355, 707 P.2d 1113,

1115 (1985).

¶15    The role of a district court conducting judicial review of an administrative decision

is limited to a review “confined to the record” of the agency, and the court does not act as

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a trier of the facts. Section 2-4-704(1), MCA; Mercer v. McGee, 2008 MT 374, ¶ 22, 346

Mont. 484, 197 P.3d 961. A district court should review a STAB decision to determine

whether the Board’s findings of fact are clearly erroneous and whether its conclusions of

law are correct. A finding of fact is clearly erroneous if it is not supported by substantial

evidence; if the trier of fact misapprehended the effect of the evidence; or if a review of

the record leaves the court with the “definite and firm conviction” that a mistake has been

made. We apply these same standards when reviewing the district court’s decision on

appeal. Robinson v. DOR, 2012 MT 145, ¶ 10, 365 Mont. 336, 281 P.3d 218. A district

court may not substitute its judgment for the judgment of STAB as to the weight of

factual evidence, § 2-4-704(2), MCA; may not engage in a “wholesale substitution” of its

opinion for the opinion of the agency, O’Neill v. DOR, 2002 MT 130, ¶¶ 22-23, 310

Mont. 148, 49 P.3d 43; and may not re-weigh the evidence on questions of fact, Benjamin

v. Anderson, 2005 MT 123, ¶ 37, 327 Mont. 173, 112 P.3d 1039.                  “Assessment

formulations” by STAB should be upheld unless there is a clear showing of an abuse of

discretion. O’Neill, ¶ 23.

                                      DISCUSSION

¶16    Issue one: Did the District Court err in reversing the order of the State Tax
       Appeal Board concerning the valuation of the property at issue?

¶17    It is clear that the District Court’s decision rests upon a re-weighing of the

evidence submitted at the STAB hearing, and a re-determination of the credibility of

witnesses heard by STAB. While the District Court explains its decision in terms of

whether the STAB decision was “clearly erroneous,” it is clear that there was substantial


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evidence in the record to support STAB’s decision. Under Montana law, a district court

sitting in judicial review of a STAB decision may not re-weigh the evidence or

re-determine witness credibility to achieve a different result.       Mercer, ¶¶ 21-22;

Benjamin, ¶ 37. Montana law “does not contemplate a wholesale substitution of the

District Court’s opinion for that of the agency.” O’Neill, ¶ 23; § 2-4-704, MCA.

¶18    Administrative findings of fact may not be disturbed on judicial review if they are

supported by substantial evidence in the record. Substantial evidence is more than a mere

scintilla of evidence but may be less than a preponderance of the evidence when viewed

in a light most favorable to the respondent. Taylor v. State Fund, 275 Mont. 432, 440,

913 P.2d 1242, 1246 (1996); Benjamin, ¶ 12. Findings of fact can be based upon

substantial evidence despite the fact that there was evidence that may have supported a

different result. Benjamin, ¶ 55.

¶19    The STAB adequately described the evidence that it relied upon in reaching its

decision as well as describing why it could not rely upon the evidence produced by the

Perettis. STAB found that DOR’s appraisal was based upon a proven computer model

that incorporated data on the verified sales of 29 other properties to reach the appraised

valuation. The DOR appraisal, under established law, was presumed to be correct and

the Perettis bore a substantial burden to disprove it. Farmers, 272 Mont. at 476, 901 P.2d

at 564.    Taxpayers have not demonstrated that STAB’s determination of witness

credibility was clearly erroneous. The District Court decision to reverse the STAB

decision is therefore reversed.



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¶20    As to Issues two and three, because we reverse the District Court and reinstate the

STAB decision on the taxable valuation of the Peretti property, we also reverse the

District Court’s award of costs to the Perettis and its direction that the DOR refund any

taxes paid in protest.

                                    CONCLUSION

¶21    The District Court is reversed and its Order and Rationale is vacated. The STAB

decision is reinstated.


                                                /S/ MIKE McGRATH


We Concur:

/S/ MICHAEL E WHEAT
/S/ BETH BAKER
/S/ JAMES JEREMIAH SHEA
/S/ JIM RICE




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