The three pieces of legislation proposed by the task force will:
1. Request funding - $151,000 to be exact – for a South Dakota State University study to determine how the numbers and dollars would come in, if ag property taxes were to based on actual use rather than highest and best use.
2. Re-write the criteria that determines whether smaller parcels of land qualify as ag land.
3. Put a cap on capital outlay of 3 percent or inflation, whichever is greater, plus new growth (amounts to a 4.4 percent maximum increase on a statewide basis)
South Dakota property taxes are high.
Frustrations among landowners might be higher.
A legislative task force has met to work out details that they hope will help get them headed down a road that will work for more taxpayers.
The chairman of the task force, state Senator Larry Rhoden (R-Union Center) said the task force has asked the legislative research council to draft three pieces of legislation that they hope to introduce in the 2015 session.
Regarding the SDSU study, Rhoden said that he is supportive of taxing land based on actual value rather than “highest and best use” but that it can be a difficult issue to find consensus on. He’s hoping the study will give legislators hard and fast numbers to use in discussing the topic.
One Meade County rancher said that a change to actual use is critical. Bill Kluck said his taxes have doubled since 2009 and will go up again this year. He said that about two-thirds of his ranch is considered cropland for tax purposes even though, as far as he knows, it has never been farmed.
The determination is based on soil evaluations and Kluck said a lot of the “best” soil on his ranch according to the state, is actually hardpan next to creeks. “It is just insane. It doesn’t make sense. That soil might be good in eastern South Dakota where they get lots of rain but it isn’t worth a hoot out here where you don’t get enough rain for it to grow anything on it.”
Kluck believes that county assessors are not all implementing the rules in the same manner. He said he rents rangeland from his brother that, while technically is in another county, is located right across the fence from his own ranchland. His brother, whose Butte County property consists of about 20 percent more acreage than his own place, pays less than half the property taxes that he does in Meade County.
Rhoden said almost all of the ag organizations support the actual use concept so he’s hopeful that the study will help move that idea forward.
Rep. Jim Peterson, a Grant and Duel County farmer – said that five years ago the legislature enacted a law to assess property taxes based on productivity rather than land values. Forty-three other states use some kind of productivity basis for their assessments.
A productivity formula, which takes into account crop prices, is used to set each landowner’s taxes on tillable property.
On nontillable soil, local reported cash rents are used to determine assessments.
Soil typing is not easy or exact.
“Then you to go to soil types,” Peterson (D-Revillo) said. “The highest (valued) soil type can be different in every county, some counties have over 100 soil types but there are many more than that.
“To get everybody on board, we used the productivity value for assessing tillable land and to get cattle guys to agree we used cash rent for pasture ground.” But the problem, he said, is that they didn’t establish criteria for identifying what constitutes non-tillable acres ground so a significant amount of pastureland is designated “tillable” which puts it in a higher tax bracket.
Peterson said that about five years ago, he and Kristi Noem, then a member of the state house of representatives, worked together to move through a bill that addressed this topic. “The bill identified actual use as anything in grass for 10 years, and not hayed during that time.” Peterson said the bill was well supported but they allowed it to die after the state revenue department made a commitment to address the issue internally. “Well, they didn’t to it. The director left,” Peterson said.
One of the few taxes in the state that is not limited in some way is the capital outlay fund, said Peterson. Schools use the capital outlay fund for building and improving structure and other capital, and in more recent years, law changes have made 45 percent of each school’s capital outlay available for general expenditures.
“Basically that tax is growing much faster than anything else. Land values are growing much faster than any other property values.”
Peterson said the Aberdeen school district has increased their capital outlay taxes by 25 percent per year in the last two years, and will continue to do so. For the first three years after the productivity law change, school districts were limited to a 10 percent increase in capital outlay. The Aberdeen school district assessed this maximum amount, and is now assessing a higher allowed maximum of 25 percent.
“A lot of school districts have gone up 60 percent for capital outlay on ag land,” he said, explaining that even if school districts do nothing, if ag land valuations increase by 60 percent, so do capital outlay taxes. Homes that are owner-occupied and other property have not increased on a statewide average basis.
In fact, ag land valuations across the state under the productivity model increased ten percent per year the first three years, then seventeen percent and thirteen percent the fourth and fifth year.
The task force proposed to lock in a dollar amount for capital outlay, and allow an increase of only 3 percent per year, or the rate of inflation, whichever is greater, plus new construction.
School districts are currently able to set their own tax rate for capital outlay, and when property values increase, the taxes automatically do too. Property value increases wouldn’t affect capital outlay assessments.
Peterson explained that if the proposed legislation passes, school districts will still have the opportunity to opt out of the cap on capital outlay limitation. If the school board chooses to opt out, the residents of that particular school district can accept the opt-out or refer the issue to a vote of the people.
Kluck said achieving a consensus statewide on property tax issues is difficult because every county handles things differently and many people worry about their taxes going up with any changes.
On the ag land designation topic, Rhoden said the group discussed a number of different topics. Timbered property, which isn’t common in South Dakota, needs a different criteria than other ag land, since income from timber can’t usually be derived every year. In the past, the landowners have had to prove that two of the following three criteria were met in order to obtain an ag land designation: The principle use of the land was agricultural, one-third of the family income was derived from the land, and landowners had to meet a minimum land amount which varies county-by-county, from 20 to 160 acres. Defining that ag is a “principle use” can be difficult and getting one-third of the family income from timbered property is unlikely year in and year out, Rhoden said, so the group is hoping to find a method that works for all situations
Task force members are:
Senator Larry Rhoden (R-Union Center),Chair; Representative Justin Cronin (R-Gettysburg), ViceChair; Senators Jason Frerichs (D-Wilmot), Al Novstrup (R-Aberdeen), and Billie Sutton (D-Burke); Representatives Julie Bartling (D-Gregory), Mark Mickelson (R-Sioux Falls), and Jim Peterson (D-Revillo); and Public Members Walt Bones (Chancellor), Kirk Chaffee (Sturgis), H. Paul Dennert (Columbia), Curt Everson (Pierre), Tom Hansen (Huron), and Lyle Perman (Lowry).
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Outtagrass Cattle Co. cartoon by Jan Swan Wood for the Oct. 23, 2021, edition of Tri-State Livestock News