South Dakota ranchers lose property tax suit
Meade County ranchers who sued the county over what they believe are high property taxes, recently learned that they lost their case.
On May 13, 2022, Judge Eric J. Strawn determined that the property taxes the appellants paid were neither unconstitutional, nor was the data applied incorrectly by the county. The judge pointed out that many of the issues of concern would require legislative action.
Bill Kluck, of Mud Butte, South Dakota, was one of the appellants, under his ranch names Echo Farm and Cattle LLC, Sulphur Camp and Cattle Creek. The others were Deb Nachtigall, Trask Real Estate, LP, and Jon Jordan. Kluck said it seems like suing the state would have made more sense since it is state law that governs the manner by which the county board of equalization assesses taxes, but in this case, suing the state was not an option.
He also said that he realizes the County must follow a protocol set forth in state law to determine taxes, but that the state has wiggle room to improve its formulas because much of their methodology is done through rules and guidelines and is not necessarily set in codified law.
Meade County chief deputy states attorney Ken Chleborad said that the county maintains that “The legislature tells us what we have to do. We’re told what data to use, and that’s the data we use. We apply it in a particular mathematical way and it produces a particular result.”
The ranchers believe the court failed to consider several of their points. One of their main claims was that, although the state property tax, since 2008, has been considered a “production-based” tax, it truly is not tied to production, they say. Kluck offers the example that, in 1991, production value of Meade County ag property was $60 per acre on average. In 2021, it was $416 per acre. “This is an increase of six to seven times. Did anyone’s production increase this much?” he asks rhetorically. State statistics showed a 500-550 pound calf to be valued at $80.68 cwt in 1991, while in in 2021, the value was $161.15 cwt, or only about twice as much, far less of an increase than the “production value” of ag land.
Another complaint is the fact that the state uses soil types as part of the formula to determine property taxes, and in some cases, then assumes the property owner should utilize the “highest and best use” of the soil, rather than using his or her judgement of what works best on their operation. For example some of the “crop rated” soil is not in a location where it can be cropped, or is too small of a parcel to be cropped, or is otherwise unsuitable for cropping. Therefore the soil is used to produce grass, but is taxed at a higher “crop” rate.
The state has a formula it uses to determine the average “production value” of ag land in each county, which takes into account soil type. Then the county uses soil type when determining each landowners’ tax assessment. “It’s such a nightmare for assessors,” said Kluck. “I might have more crop rated soils than my neighbor, but it might not produce any more. But it’s assessed differently.”
It was argued in the legislature this spring, and has been pointed out by ranchers including Kluck that one point of contention is the “type 4” soil which is considered for tax purposes to be a “crop rated” soil, but in many cases is not farmable.
Along with this, the ranchers in the suit said that accurate data is often unavailable or difficult to obtain, and in these cases, the data that is used is skewed or inaccurate. Kluck offers the example that Meade County boasts about 2,100,000 acres of ag property. About 700,000 are crop rated, but only about 300,000 are “cropped.” Most of these “cropped” soils are in perennial haycrops such as alfalfa or tame grass, said Kluck. According to state statistics, only about 30,000 of these acres are irrigated. Yet, “yields from the irrigated hay are applied to the general accounting for cropped acres,” said Kluck. In drought years such as 2012 and 2021, when dryland yields were little to nothing, the irrigated acres become the only figures reported, which tremendously skews “production” data for all “cropland” acres, he said. “In 2012, a very dry year, statistics showed spring wheat yields at 50 bu/acre, because the only wheat reported was on irrigated soil. Please remember that crop yields are being applied to about 400,000 crop rated soils that are in native grass or have returned to grass.”
Ag use sales
The suit claimed that some sales being considered “ag use sales,” which are affecting the value of ag land, are not truly ag sales. “In our testimony, we pointed out one property that sold for $16,900 per acre was considered an ‘ag sale,’” said Kluck. “I put property up for auction that did not receive a $525/acre average bid, but it was later deemed by the county to be valued at $1,100 per acre. Adjoining property sold for $469 per acre.”
Kluck said he and the ranchers also argued that the law allows the state Department of Revenue to use AUMs, rental rates, and calf prices or a combination, to establish grass rated soil’s value. “Years ago, NRCS helped me determine the appropriate AUMs (animal units per month) or carrying capacity for my ranch. This would be an appropriate way to determine a production-based tax.”
State law says that NRCS data will be used to determine production for each county (10-6-33.32). But in the trial, a witness for the state testified that NRCS data could not be used, said Kluck.
“Another aspect of ag production that the law doesn’t address is an overall decline in production countywide,” Kluck said. “NASS data shows that in western South Dakota, dairy cow numbers have dropped from 70,000 in 1991 to 49 head in 2021 sheep numbers are about 1/3 what they were in 1991, and hog numbers are about 1/10 of 1991 figures. Total cattle numbers are down at least 10 percent, and actual cropped acres in Meade County are also down. All of this considered, do you think that in this 30-year period, our production has increased six to seven times? Could confiscatory taxes be part of the reason for this decline? Do you think the court was biased to the county and state? We just do not have the production to pay these taxes.”
One other important point Kluck said the court didn’t seem to take into consideration when making its ruling was the testimony of one of its own witnesses. “Dr. Elliott, the state agribusiness specialist under South Dakota State University extension, testified as a witness for the state. He testified that in his study, commissioned by the South Dakota legislature, he found that Meade County assessments are 48 percent higher than the statistics would support, but this fact was not mentioned in the court’s findings.
Chleborad pointed out that in the judge’s “conclusions of law,” Judge Strawn said, “The quality of data from Dr. Elliott, NASS, or from some other entity raised by appellants as statistically calculated, unverified, and otherwise inaccurate is an issue to be addressed with the legislature. The legislature has made no effort to direct Dr. Elliott or SDSU in their work, by statute, or through administrative rules. The legislature has mandated the use of these sources and the legislature can change that mandate.”
Tax Task Force
In addition, rulings by the tax task force are to be reviewed by the rules and review committee, and Jon Jordan testified that this is not happening. This was also not mentioned in the court’s findings.
The judge ultimately ordered that “the decision of the Meade County Board of Equalization regarding the assessed value of the subject property is affirmed in all respects.”
Fall River County
Joe Falkenburg, chairman of the Fall River County Commission said his commission recently approved a resolution asking Governor Noem to consider some changes to tax law. The resolution is below.
FALL RIVER COUNTY RESOLUTION #2022-21
WHEREAS, to comply with the laws regarding Sales Ratio residential properties in the Hot Springs and Edgemont school districts saw market value increases of over 20% this year, and
WHEREAS, property taxes on residential real estates constitute over 50% of the taxes collected in Fall River County, and
WHEREAS, the portion of property taxes paid to the school is over 50% of the total tax bill for most residents of Fall River County outside city limits and 30-50% for residents living within city limits, and
WHEREAS, the school general mills and special education mill set by the State Legislature for 2022 pay 2023 have only decreased 3-4%, and
WHEREAS, the Hot Springs and Edgemont School Districts must take the maximum mill in order to demonstrate maximum local effort in order to qualify for State school funding, and
WHEREAS, this will constitute an increase in the school portion of the taxes of over 20% for these owners within a single year, and
THEREFORE, the Fall River County Board of Commissioners requests that the Governor consider the following solutions:
1. That ‘maximum local effort’ for the school funding be considered EITHER the mill levy set by the State Legislature OR the value of growth plus 5% of last year’s taxes levied by the school. That whichever is lesser would be considered maximum local effort if:
a. The county was in compliance with State law regarding the median sales to
assessment ratio as defined in 10-6-121 in the prior year.
b. The school district was determined to provide ‘maximum local effort’ in the
2. That research into the assessment levels across the State be conducted by the Legislative Research Council using the following criteria: Have each Director report the equalized value of a house with specs provided by the legislative research council. By comparing the exact same structure’s assessment value across the State, it will be possible to see if sale ‘hot spots’ within the State are driving certain areas to pay a larger share towards their schools. If the purpose of the State set mill is to ensure that owners across the State are paying similar amounts towards their schools, then the family living in a thousand square foot house in Hot Springs should be paying a similar amount towards their school as the family living in that same thousand square foot house in Huron. The collection of this data will help either confirm or deny inconsistency across the State and could also be used in setting levels for school ‘maximum local effort’.
3. That the legislature considers extending the benefits of the owner-occupied mill levy to residential rentals where:
a. The dwelling is the primary residence of the lease.
b. The leasee has been in the residence 200 days.
c. The rent, minus utilities, is below the HUD Low Home Rent Limit for that
county or area.
d. That the residence is maintained at a normal or better condition.
e. The landlord annually files a form showing they and their leasee meet these
qualifications using the same deadlines as the owner-occupied program.
Joe Falkenburg, Chairman
ATTEST: Fall River County Board of Commissioners
Fall River County Auditor
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