A legislative audit released Thursday revealed that the Montana Department of Revenue is missing an estimated $300 million in new construction value each year. This oversight is attributed to delays in property inspections, which result in lost tax revenue for local municipalities and the state, creating budget shortfalls and property tax inequities.

The audit offers five recommendations aimed at addressing this issue: requiring local permitting agencies to send copies to the department, improving the statewide permitting process, utilizing aerial imagery to inspect hard-to-reach properties, prioritizing inspections of properties that haven't been reviewed in over six years, and developing a plan to retain more staff.

Department of Revenue Director Brendan Beatty partially or conditionally agreed with the recommendations, noting that many would require additional funding from the legislature to implement.

The report highlights the department's reliance on local permits to identify new construction and the challenges in obtaining these permits, especially in rural areas. The department also depends on appraisers to find new constructions, but due to staffing shortages, this task is not always prioritized. As a result, over a third of Montana properties have not been inspected in more than six years, with 15% going a decade without an inspection.

The report shows that the department typically identifies $1.5 billion annually in new construction, including $300 million in new residential construction, but still misses an additional $300 million worth of new construction each year for various reasons.

“We estimate the department captures 72 percent of residential new construction through permits, captures 14 percent through sales verifications, and misses about 14 percent each year,” the report stated.

While the total missed new residential construction from 2018-2023 was valued at $1.2 billion, the impact on total residential value was relatively small, amounting to about 1% of the total residential value in 2023, or approximately $16.2 million in taxable value. Nevertheless, the missed revenue has a significant effect on municipalities and school districts, with the unidentified new construction potentially causing a tax revenue shortfall of $8.25 million, including $100,000 for state universities and $1.5 million for education equalization.

“The department believes the portions of these recommendations within our control can be accomplished within one year,” said Beatty. However, he also noted that the governor’s office had not included funding for some of the requests in the upcoming budget.