Saturday, April 12, 2014

Tax Class 101 (and 8 and 13 and...)

Hey out there, you homeowners and ranchers and business folk and other ordinary, everyday Montanans. Have you been feeling the urge recently to vote to raise your own taxes? I hope so, because if you have, Charter Communications has just the thing for you! It’s a complicated story and it goes like this.

For tax purposes, all property in Montana is placed in one of fourteen property tax classes, so that, for example, homes go in Class 4, agricultural land in class 3, business equipment in class 8, and so forth. And these classes vary by tax rate, which is the percentage of the market value of the property that is actually considered taxable. For example, the taxable value of a home is less than 3% of its market value, while the taxable value of a local utility is 7% of its market value. Given this difference in tax rates, what class your property is assigned to can make a major difference in the taxes you’ll pay, and that can get to be a whoppin’ big deal.*

Especially if you’re Charter Communications. Charter (formerly Bresnan) is a cable company that supplies cable TV, Internet access and telephone service to Montana customers. Back in 2008, the Department of Revenue determined that Charter fit the definition of  a telecommunications company and as such, all its property belonged in Class 13, with a 6% tax rate. Before that, only about 10% of the company’s property was in class 13, while the lion’s share was in class 8, where the tax rate was 3%. So the effect of the Department’s determination was to almost double Charter’s tax rate, and to raise its annual property tax bill by 329%, from $1.7 million to $7.3 million. That’s a lot of dough, so Charter appealed, all the way to the Montana Supreme Court. And the Court, to the company’s dismay, upheld the Department’s decision in a 5-2 ruling last December.

So now Charter is promoting a ballot measure that would reverse the Supremes by putting all the company’s property back in Class 8. Whether or not you will get a chance to vote on this deal is unclear at this point. It has to pass some legal hurdles in the Attorney General’s office first, and then by June 20 it has to get the signatures of 24,175 registered voters to get on the November ballot. But Charter – and as far as I can see, only Charter - stands to gain quite a bit if the initiative passes, and you can bet they will be pulling out all the stops to get those votes. And who knows, they may get a sympathetic reception: after all, doubling somebody’s tax rate with the stroke of a pen does sound a little over the top.

But hold on a second. There’s something here that doesn’t quite add up.

If the effect of Charter’s reclassification was to almost double its tax rate, that should have increased its tax bill by a little less than 100%, no? But the company’s bill went up much more than that, by 329%. Where in the dickens did that extra 229% come from?

Well, it turns out the move from Class 8 to Class 13 didn’t just raise Charter’s tax rate. It also changed the way the Department of Revenue appraised the market value of Charter’s property in the first place.

When it was in Class 8, Charter’s property – its cables and computers and switches and other bits and pieces of equipment – were treated as just that: bits and pieces of equipment, each of which was evaluated on its own, and some of which were apparently undervalued. No account was taken of the fact that all those pieces were interconnected  into a system, and that because that system could generate a lot of revenue for the company, it was worth more than the sum of all those pieces considered in isolation. But when the property was moved into Class 13, all that changed. The way the Department of Revenue then appraised the company captured its “system value.” That means that Charter was worth a lot more than previously thought, and that prior to reclassification it had been significantly undervalued. It also means most of the tax increase that Charter is complaining about results from the fact that its property is now being properly appraised.

So what Charter is asking you for is not just to send it back to Class 8 and reduce its tax rate. It also wants you to vote for its again being drastically undervalued. And that’s just another way of saying it wants to avoid paying its fair share.

Of course Charter is not going to tell you any of this stuff. All they’re going to tell you, over and over again, is that you are going to have to pay for a 300% tax increase in your cable bill. Of course your cable bill itself won’t go up anywhere near that much, but why fret about details.

Another wrinkle that Charter will probably sweep under the rug is that if its scheme works, state and local government tax revenues will fall by several million dollars.  Local governments will recoup the lost revenue by raising everybody else but Charter’s taxes and the state will have less money for local schools. So if you think you’re going to vote for this thing and are starting to count the big bucks you’re going to save on your cable bill, take a look at your tax bill and think again.

*If you really want all the gruesome details about the property tax system, you can find them in the Department of Revenue’s Biennial Report, available on line here.

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