Taxing the land: Court rules Meade Co. taxes fair, ranchers disagree
The South Dakota Supreme Court has ruled against a rancher seeking property tax relief.
Meade County, whose longtime director of equalization helped formulate the current agricultural property tax assessment protocol, has been at the heart of the state property tax debate for the past several years.
In a county with 360 farming/ranching operations and a total population of 22,000 people, many of the farmers and ranchers feel like their tax burden, which was about 40 percent this year, is unfair, with their population representing 1.6 percent of the county’s residents.
Ranchers in that county have filed a number of lawsuits in recent years, claiming unfair assessments.
In 2010, South Dakota switched from a property tax system based on land values, to one based on productivity.
Recently, the state Supreme Court ruled against Pat and Rose Mary Trask of Wasta, who alleged that their 2016 tax assessments lacked uniformity and violated the constitutional mandate that tax assessments not exceed actual value of the land.
The court concluded that this was not the case.
Pat Trask says that the state ought to be determining ag property taxes based on “actual production” of the land. The state says they will make the determination based on the soil type on his and other farmers’ and ranchers’ land. Jim Lintz, a Hermosa rancher the former legislator who championed the “productivity-based” legislation in 2009, testified in court to this very point.
“What we said, and we proved it with testimony, is that the statuatory script was not followed, and the reason it was not followed is because the state department of revenue and their attorneys bullied the county officials,” said Trask.
“They use a very magnified liberty. When the statute says the criteria for determining taxes include soils, precipitation, location, tillable or non tillable.” The determination of tax assessments based on soil only, brought the Trasks to believe their taxes were established using “fantasy” numbers.
“They utilize soil information from a soil manual which said on its cover that it is only a general guideline and it’s not to be used for taxation purposes,” said Trask.
Not surprisingly, cropland is taxed at a different, higher rate than non-cropland. Cropland assessments are determined based on county-wide production, commodity prices and soil type, while non-crop land is taxed based on rental rates and soil types.
Trask says 23 percent of his outfit is cropland, and 77 percent non-crop. In 2016, the county said that 61 percent of the ranch was cropland, and 39 percent non-cropland.
Trask’s taxes where too high, he said.
The county assessor did take Trask’s complaints into account, to a degree, and the family’s taxes were assessed at a much lower rate than the “top cropland,” rate.
“Through (Kirk) Chaffee’s (Director of Equalization) discretionary crop and soil adjustments and the Board’s additional reductions, the Trasks’ final assessed value of $512 per acre is not appreciably higher than the top-dollar value for non-cropland of $435 per acre,” says Chief Justice Gilbertson, on behalf of the South Dakota Supreme Court.
Lesley Coyle with the South Dakota Department of Revenue explained in a TSLN interview last December that county directors of equalization can make adjustments for topographical conditions with access issues, erosion or other situations that make soil that is rated as “crop” soil difficult to raise crops on.
In order to assess property taxes statewide, the state calculates a “top dollar” value for each county, based on rental rates (obtained by South Dakota State University), according to a South Dakota Department of Revenue brochure.
The county assessors use the “top dollar” value for the highest rated non-crop soil in the county, then assign values for lesser rated soils based on that figure.
Trask says his land is being assessed on “fantasy” figures or “potential” productivity.
Another Meade County rancher, Bill Kluck who was a party to a different lawsuit claiming unfair taxation, and is again suing the state over a similar concern, said there are many more factors that determine the productivity of property than just the soil type. Rainfall, temperature, humidity and soil location and erodability being a few of those.
Kluck also points out that the state has the legal option to include cattle values as well as AUM carrying capacity in its equation to determine taxes due, but chooses not to do so.
Coyle said the legislature is discussing the possibility of changing the formula to actual use rather than “highest and best use.” Research has shown, however, that this would lower the total amount of property taxes taken in statewide.
Coyle said the state does not have information that suggests that the current system is confiscatory.
Kluck also says that since the state is supposed to be operating under a “production-based” system, by assigning a value to all parcels of land and calculating taxes based on these values, the state is deviating from very foundation of the concept. While the state has operated under a “production-based” system for 10 years, the law still states that land that is assessed at
Kluck also points out that while neither livestock production nor income for Meade County ranchers has increased substantially since 2011, taxes have.
According to USDA, 500-600 pound feeder calves were worth, on average $136.94/cwt in 2010, and $165.94/cwt in 2019, approximately an 18 percent increase. Kluck says many Meade Co. producers have seen a 300 to 400 percent tax increase in that same time period.
Trask complains that central control, not local control, is how property tax assessments are made.
He believes rental rates more accurately reflect actual productivity on western South Dakota agricultural land, than do soil ratings.
When property taxes are raised, rents will typically be raised by a similar amount compensate, which can result in a cycle of higher and higher taxes, said Kluck.
Additionally, the soil handbook that is used for assessing is not intended to be used for taxation purposes. In fact the cover of the handbook says so.
The Trask family made a “determined argument” that their taxes ought to be based on actual production, said the chief justice. However, he said that these concerns must be taken up with the legislature.
Trask says this is bogus, saying the issue is “screaming for judicial correction.”
“We are left to embrace the requirement of ranchers and farmers paying taxes on production they don’t have, based on fictitious future income they will not receive. We cannot pay taxes or pay bills with pretend ‘fantasy’ or ‘potential’ income based on ‘fantasy’ or ‘potential’ productivity value. We always pay our real estate taxes. We have paid real estate taxes for decades, and our parents have paid real estate taxes for decades before us. That is not the issue. The issue is can we afford to pay real estate taxes that are inflated on ‘fantasy’ or ‘potential’ productivity value and income,” said Trask.
The court is expected to take up Kluck’s suit next January, after numerous delays.
The state Department of Revenue was unable to conduct an interview for this story.