State Dept. of Revenue v. Heidecker

State Dept. of Revenue v. Heidecker, 2013 MT 171 (July 2, 2013) (5-0) (Morris, J.)

Issue: Whether the district court properly interpreted the “effectively prohibit” language in § 15-7-20295), MCA with respect to the restrictive covenants attached to Heidecker’s property.

Short Answer: Yes.

AffirmedFacts: Heidecker bought a 240-acre parcel of land in Gallatin County in 1980. Heidecker has lived in one of two houses on the property since 1980. Heidecker’s uncle lived in the other house until 1995, when Heidecker sold it to the Crisps. Heidecker has rented out the land continuously for grain and hay production since about 1980.

In 1995, Heidecker subdivided a 30-acre parcel of the property into Bridger Lake Meadows subdivision. Heidecker adopted covenants for the subdivision, which reflected his desire “to create thereon a residential community.” The covenants provide that each lot shall be used for private residential use only. Construction is limited to one single family home and an attached garage, and agricultural uses are limited.

Heidecker discussed the covenants with an area manager for the DOR at the time he created them. He was concerned the covenants could trigger a property tax reclassification of the property from agricultural to residential. The DOR manager agreed that adopting the covenants would not necessarily trigger a reclassification, but selling them for residential purposes would. Heidiecker has never sold any lots in the subdivision, and the property continues in hay and grain production.

In 2009, DOR reclassified Heidecker’s property from agricultural to residential. Heidecker requested informal review and DOR denied the request due to the covenants. Heidecker appealed to the Gallatin County Tax Appeal Board, which upheld DOR’s reclassification.

Heidecker appealed to the state tax appeal board (STAB), which determined that Heidecker’s property satisfies the test for agricultural land because in the aggregate it is 240 acres, less a few acres for two residences, and is actively devoted to agricultural use. STAB concluded the covenants did not “effectively prohibit” agricultural use of the property, as covenants are agreements among neighbors that can be enforced only by those neighbors, and no neighbors have ever objected to the agricultural use of the land. STAB deemed the continuous agricultural use “clear proof” that the covenants have not effectively prohibited agricultural use.

Procedural Posture & Holding: DOR petitioned for judicial review of whether STAB properly interpreted “effectively prohibit” in § 15-7-202(5), MCA. The district court found that the covenants failed to effectively prohibit the agricultural use of the land. DOR appeals, and the Supreme Court affirms.

Reasoning: Section 15-7-202(5), MCA, provides that land may not be classified or valued as agricultural “if it has state covenants or other restrictions that effectively prohibit its use for agricultural purposes.” DOR argues the district court should not have looked beyond the statute’s plain language to the actual use of the land, nor attempted to glean the landowner’s intent. The plain language of the covenants prohibits agricultural use. But no lot owner seeks to enforce the covenants, the only lot owners acquiesce to agricultural use, and the land has been used to continuously grow crops. Nothing in the statute requires the court to ignore those facts.

This outcome comports with the principle of Montana’s property tax system that “[a]ll lands must be classified according to their use or uses.” § 15-7-103(2), MCA. If the use of the land changes, DOE may evaluate whether the covenants effectively prohibit agriculture.