The Montana Department of Revenue is reportedly missing $300 million annually in new construction value due to lagging property inspections, impacting tax revenue and budget allocations for local municipalities. A legislative audit highlights these losses, urging legislative and departmental action to address the shortfall. Recommendations include improved statewide permitting processes and utilizing aerial imagery for hard-to-reach inspections. Additionally, the report suggests measures to inspect properties not reviewed in over six years and retain staff.
Brendan Beatty, Director of the Department of Revenue, partially concurred with the recommendations, noting that implementation is dependent on legislative funding. The audit will be presented to lawmakers this month, who will discuss new permitting requirements to enhance the process.
The report indicates the department relies on local permits to assess property improvements, impacting tax obligations. However, staffing shortages have deprioritized inspections, with over one-third of Montana properties not inspected in over six years. Additionally, 15% of properties have gone a decade without inspection.
The department should assess all properties at full market value as of January 1 each year, which includes any new construction from the previous year. Despite identifying $1.5 billion in new builds annually, auditors found a $300 million gap. “We estimate the department captures 72 percent of residential new construction through permits, 14 percent through sales verifications, and misses about 14 percent each year,” the report stated.
New residential construction has surged, yet the department missed approximately $1.2 billion in taxable value from 2018-2023. Although this represents only 1% of total residential value, it equates to $16.2 million in lost taxable value.
Local jurisdictions have diverse permit requirements, especially in urban versus rural areas, but many are not centralized. The absence of a legal requirement for local jurisdictions to share permits with the department exacerbates this issue, leading to significant revenue losses for municipalities and schools.
Undetected new construction potentially results in $8.25 million in lost tax revenue, affecting state universities and education funding. Jurisdictions often set budgets without accounting for new taxable value, leading to potential shortfalls.
The department can penalize property owners who conceal improvements but relies on voluntary reporting for new construction. With property values increasing, the report underscores the importance of more effective inspection processes.
To address these challenges, the audit suggests collaborating with the Department of Labor and Industry to optimize permit data use, investing in aerial imagery for inspections in remote areas, and enhancing staff capabilities. Beatty conveyed optimism about implementing these recommendations with adequate legislative support.
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