The Lake County commissioners have agreed to settle a lawsuit that alleged the Montana Department of Revenue erroneously gave property-tax exemptions to the Confederated Salish and Kootenai Tribes, costing the county tens of thousands of dollars in tax revenue.

The county sued the state in November 2018 in Lake County District Court, alleging a "lack of internal oversight" led state officials to erroneously apply a temporary tax exemption to certain CSKT lands within Lake County's borders. The exemption can last up to five years, taking some of the tax burden off tribes while they apply to the federal government to hold land in trust.

"These tax-exempt properties shift the burden of property tax payments from these properties to the remaining taxpayers in the county," the county said in its lawsuit. "As local governments receive a majority of their operating revenue from property taxes, it is imperative that Lake County attempt to verify and confirm that properties moving from fee status to exempt status truly qualify for exemption as temporary or permanent."

The county commissioners announced they had reached a settlement on Friday. According to the agreement signed earlier this month, the Department of Revenue will stop granting temporary tribal tax exemptions within Lake County until June 30. The county has 30 days to submit a list of properties where it disputes the validity of the tax exemptions, and during the next 30 days the parties will work together to resolve the tax status of those properties. Any further disputes could result in litigation or arbitration.

The county also will seek back taxes for "properties that may have been improperly exempted," the commissioners said a statement.

"We were headed towards oral arguments and possibly a trial here in the middle of January," Commissioner Gale Decker said in a phone call Monday. "And then we contacted the new administration and the new director of the Department of Revenue, and they were interested in coming up with a settlement."

IN AN email, Department of Revenue spokesman Sanjay Talwani said the department and the county "have agreed to meet in good faith to discuss alleged errors in the processing of temporary tribal property tax exemptions. The department looks forward to working with Lake County to reach a mutually agreed-upon resolution."

The Salish and Kootenai tribes were not party to the county's lawsuit. A CSKT spokesman didn't return messages seeking comment Monday.

The Legislature created the tax exemption and then-Gov. Brian Schweitzer signed it into law in 2011. The commissioners point to a fiscal analysis that accompanied the bill, which indicated about 20 properties across Montana would qualify for the exemption each year, and the impact on statewide tax revenue would be minimal, less than $16,000 a year.

According to the commissioners, the Department of Revenue granted exemptions for 75 properties within Lake County's borders in 2012. More than 150 properties within the county have received the exemption over the past eight years. Decker said that amounts to a nearly $100,000 hit to the county's annual budget.

"Several special districts, such as irrigation and solid waste, also lost revenue as those fees were removed from many of the properties by the DOR at the same time the property taxes were removed," the commissioners said in their statement. "Fees are not taxes and should not have been removed."

The law requires tribes receiving the tax exemption to certify each year that they have pending applications for trust ownership before the U.S. Bureau of Indian Affairs. The commissioners alleged paperwork supporting the tax breaks was often incomplete.

State Sen. Greg Hertz, R-Polson, who is sponsoring a bill to repeal the tax exemption, faulted the Department of Revenue as well as the federal government, saying tribes' applications for trust ownership should take less than a year.

"Unfortunately, the Montana Department of Revenue has not worked very well with Lake County, when Lake County has asked them for a list of properties that are being put into possible trust status," Hertz said. "They just kind of disappear off the tax rolls. Lake County's got to do a little footwork to figure out which ones are getting dropped off."

Hertz's bill is now before the Senate Taxation Committee, but no hearing had been scheduled as of Monday.

Reporter Chad Sokol can be reached at 758-4434 or csokol@dailyinterlake.com