Here's the latest in a case we've been tracking, the City of Missoula, Montana's takeover of a privately-owned water system. Last year, the Montana Supreme Court held that the city could exercise its power of eminent domain to take the property for a "more necessary" public use. The court allowed the city to take the company, and on remand, the lower court determined compensation. But the case is not yet final, and the final order of condemnation has not issue. Which means that title and possession still remain with the water company and not the city.
The follow up, Mountain Water Co. v. Montana, No. 16-0469 (May 16, 2017), involves the question of who is responsible for paying property taxes. After the city instituted the taking, the water company asked the Montana Department of Taxation agree that the company was not liable for the payment of property taxes. The city objected, arguing it was too early, and that under a Montana statute, the city would only be liable to pay the taxes after it obtained possession or title. The statute, in case you were wondering, reads like this:
The condemnor must be assessed the condemnor’s pro rata share of taxes for the land being taken as of the date of possession or summons, whichever occurs first. The condemnor must be assessed for all taxes accruing after the date of possession or summons, whichever occurs first.
The Department agreed with the city, and the water company continued to pay the taxes under protest while the condemnation wound its way through the courts. Eventually, the company sought a separate declaratory judgment that the city would be on the hook for these already-paid taxes, once the city obtained possession. The trial court agreed.
The Montana Supreme Court held that "[t]he statute simply established a tax proration date that is more favorable to condemnees than under general law, and provided no additional or alternative process to accompany this simple process." Slip op. at 9. The general rule is that the "taking" occurs when there is a transference of legal title, the condemnor takes possession, either actually or constructively. Until that time, the property owner remains liable for taxes. After that time, the condemnor. The statute altered that rule in a "potentially 'better deal'" for property owners, because "[i]nstead of prorating taxes as of the time of possession or the vesting of title in the taker, the legislature chose the date of possession or the date of summons. Slip op. at 10.
But, the court explained, there is a difference between who has the responsibility to pay property taxes, and who ultimately is on the hook for the taxes:
While the statute may shift to the condemnor responsibility for an “incident of ownership”—property tax—that accrues prior to the condemnor’s taking of the property, it did nothing to alter the principle, as stated by the above authorities, that the obligation to pay the taxes does not transfer to the condemnor until the taking actually occurs. The owner “remains responsible” until then.
Id. Thus, only after the title transfer to the city (sometime in the future) is the water company off the hook. Until then, it must pay. This, according to the court "makes common sense" because although the condemnation action may eventually be successful, that day may never come. In that case, the owner never having lost possession or title, would be up to date on its property tax payments. This also solves the Department's administrative problem regarding which entity it sends the assessment to during the interregnum: keep sending it to the water company until the condemnor officially owns it.
Mountain water may -- if the city eventually takes it property -- be entitled to a refund. But not "at this time." Slip op. at 11.
Mountain Water Co. v. Montana, No. 16-0469 (Mt. May 16, 2017)
