The Scenery Tax

Remember the “scenery tax”? We used to joke that it was the tax we paid in the form of low incomes for living in a place as remote and beautiful as Montana. Well, now we are paying higher property tax because our scenery has become a marketable commodity for the people who have been buying up our state. Scenery is a real factor in the increase in home values and property taxes. But how do you value something like location? The market is a pretty good way to do that. Buyers value scenery and are willing to bid up the price of a parcel of land to get some of it.

Scenery is an intangible concept that actually has a property value that attaches to the adjacent land. It is the combination of the tangible parcel of land and the view it commands that is valued together for tax purposes.

Now, Montana has a law that exempts intangibles from taxation, but it sure doesn’t exempt scenery. Let’s look back 128 years ago to when the taxation of intangibles was OK.

That takes us to the U. S. Supreme Court’s decision in Adams v. Ohio (1897). Adams Express Company was a business not unlike today’s UPS and FedEx, it received packages from customers for delivery in one office and shipped them to another office on the railroads of the day. The Ohio State Auditor’s office was responsible for the taxation policy that valued the property of Adams and other shipping companies. They assigned taxable values to the intangible part of the business, namely the network that enabled Adams to move packages around on the railroads.

That the railroads were tangibly linked was obvious, the trains ran on continuous rail from one point to another. Adams argued that because there was no physical connection between their freight offices they should not be taxed as if there were one; the offices should each be valued as a single building on a single piece of land. Ohio contended that it was the value of the company’s network that was also to be taxed because without the organization the network provided there would be no sense in having the office buildings in the first place.

The Supreme Court held for the State of Ohio:

“Whenever separate articles of tangible property are joined together not simply by a unity of ownership, but in a unity of use, there is not unfrequently developed a property, intangible though it may be, which in value exceeds the aggregate of the value of the separate pieces of tangible property.

Whatever property is worth for the purposes of income and sale it is worth for the purposes of taxation….”

That last sentence makes sense, and is, in fact, the way we value real estate for the purpose of taxation. It is not the way we value the property of, for example, cellular communications carriers.

Cell towers are the structures that enable communication, but the process that gives them real value, electronic communication, is not taxable, it is a tax-exempt intangible. The towers themselves are valued as stand-alone masses of metal without regard to the very purpose for which they are erected, which is to communicate with one another. If you could buy a single cell tower it would be at a discount because it would be good for not much, but when you also buy its ability to communicate, you are talking real money. So, as the Court wrote, “Whatever property is worth for the purposes of income and sale it is worth for the purposes of taxation….”

If the state can see fit to exempt the transmission of data between cell towers from taxation, surely it can find a way to exempt the scenery tax on homes. Or vice-versa.