Feeding the machine: Meade County, South Dakota, landowners say property taxes too high
A different method of assessing property taxes in South Dakota was meant to ensure a more fair shake for agricultural producers, but in some cases, it may have had the opposite effect.
Several Meade County ranchers filed suit against their county, alleging that their 2018 assessed taxes were unfair. After several months, a June 22, 2020, court date was recently set for their suit to be heard.
In 2008, the South Dakota legislature approved an amendment to the property tax law. The new property tax assessment system would determine taxes based on the land’s productivity, not on the saleable value of the land, as the previous system had done.
Plaintiff Tom Trask of Elm Springs says that under the pre-2008 system, there were some “limits” set for the assessors. “They had to throw out the high and low and take an average of the middle (assessing land value based on applicable local sales). Now they just start it where ever they want, they have no limit.”
The new system, says Trask, dubbed “the productivity formula” is meant to tax producers based on their ability to produce income in a particular year. Trask’s ranch taxes have increased 200-300 percent in just seven years. In the same time frame, his income has not gone up accordingly, if at all, he says.
In 2008, the state legislature approved legislation to assess property taxes based on “production” rather than sales value, which was the method at the time.
Hermosa rancher and past state legislator Jim Lintz, who championed the productivity change in the late 2000s, said the law is not being implemented the way he had envisioned.
“It’s really not working out how I planned. The logistics were there, they just haven’t implemented it the way we intended it to be done,” he said.
Lintz and many others believed the change was needed because ag land sales were not representative of the land’s income-producing potential. Particularly in more heavily populated counties such as around the Black Hills, ag land was selling at rates far higher than a farmer or rancher could afford, and hope to return a profit.
For the current assessment scheme, the state of South Dakota starts with a “top dollar” valuation for each county, and then uses local soil ratings based on a government soil survey to adjust parcels down from the “top dollar” value.
Lintz did not expect the state to use soil ratings to determine productivity. “When that survey was first done, they said it would never be used for taxation purposes.”
The top dollar is determined by the state. The state determines the average non-cropland value per acre by using an 8-year Olympic average (throwing out the high and low) of rental rates for the county. This “value” is then divided by a factor that represents the “weighted rating of non-cropland soils.” This calculation establishes the top dollar value per acre for the best non-crop rated soil in a county. The best soil receives a rating of 1.0 and all other soils are scaled appropriately, says the state’s Agriculture Land Productivity Formula information sheet.
Even within one parcel of land, there are typically several soil types. The value of the parcel is calculated by multiplying the top value for the county times the soil rating, times then number of acres. When all of the different soil types in one parcel are calculated, the values are added together to determine the total value of the parcel, which is used to determine the taxes due on said parcel.
Bill Kluck, a Mud Butte rancher, and another plaintiff in the case, said that since 2008, his property taxes have gone up about 280 percent, while his net income in 2018 was nearly identical to his net income in 2008.
“Our taxes are supposed to be based on productivity, but my productivity hasn’t increased, and my taxes have,” he said.
“Theoretically, you shouldn’t have an increase in your assessment unless the prices on calves go up, and I’m not seeing that,” said Lintz. “I’m seeing these increases and the market doesn’t justify it.”
If the value of land in a particular county is going up year over year, it would be due to an increase in cash rent data, said Coyle.
“I’ve run about the same number of cattle ever since I’ve had this place. It couldn’t really handle any more cattle,” he said. Kluck said that according to the soil survey, some of his land could be used to raise crops, so it’s being taxed at a much higher “cropland” level. Kluck said that although the soil on those parcels is good, farming won’t work there. “Out here in Western South Dakota, cropping this stuff won’t pay, we don’t get enough moisture most of the time.” And in many cases, even though the soil might be test high enough to raise a crop, the location of it doesn’t warrant plowing it up. The soil could blow, or run off, causing damage not only to the land but to neighboring water sources. “You have to think about the environmental damage. It takes years to get it back to where it was,” said Kluck.
One of Trask’s land parcels is also considered cropland, and is being taxed as such, although the sandy river bottom is covered in cedar and cottonwood trees, and is far too delicate to farm, he said. “It’s being used for the best use possible use – running cows. You can’t even get to it with equipment to clear off the trees.
“They are basically trying to say that this country out here (western South Dakota) will produce the same thing as land east river,” said Trask.
The Department of Revenue is playing God, in a way, Trask said. “They are basically saying that if you were the perfect operator, you could make X amount of money off that parcel of land.” That’s similar to requiring people to pay an income tax based on their IQ, rather than their income, he said, because a person with a high IQ has higher earning potential. “Are they going to say, ‘you could have been making more money, your IQ is high enough that you could have become a medical doctor, but even though you didn’t, we’re going to charge you as if you did?’”
Trask’s taxes average about $3 per acre, he said, and he needs about 30 acres per cow. “That’s means the county is getting $90 per cow. I very seldom make $90 per cow. They are making more off her than I am, and they are making it every year.”
As far as other forms of agriculture, National Ag Statistics shows that dairy cows, sheep and hogs, as well as beef cattle are all far fewer in numbers than 20 years ago.
Inconsistencies abound from county to county says Kluck. One of his neighbors with land on Butte County and some across the county line in Meade County pays $3.38 for land in Meade county but $1.50 to $2 for the Butte County parcels with similar soil type.
Lesley Coyle, the Director of State Property Taxes, says this discrepancy is probably due to mill levies applied.
The mill levy is the local additional tax approved by the county commission or by a vote of the citizens. A “mill” is $1 per $1,000 of value of property.
To figure the mill levy, divide the amount of money that needs to be raised from the real estate tax by the taxable value of the land in the jurisdiction. Then multiply the result by 1,000. For example, say there’s a total of $100 million of property in the area and the government wants to raise $150,000 from property taxes. Divide $150,000 by $100 million to get 0.0015. Then multiply 0.0015 by 1,000 to find that the levy equals 1.5 mills.
Coyle also said that while two parcels may have the same soil type, the actual soil rating could vary. “In some instances you could have the same exact soil type but in one county it might be better, so it would have a higher rating.” But most likely the counties have implemented different mill levies, she said.
But landowners say there’s more to it than that, and even with mill levy differences, the tax differences shouldn’t be so significant.
Lintz said although currently the state does not take into consideration the cattle market when determining productivity, legally it could. But if this change were to happen, Lintz said he’d recommend a factor to consider increases in cost of production, which is not currently mentioned in the rules.
“Even if calf prices do go up, we have to consider cost of production. We might not make any more money,” he said.
Coyle said that the legislature directed the department of revenue to use cash rents to determine the value of non cropland.
The director of equalization for each county determines tax assessments. Landowners with concerns can plead their case before the county commissioners, and adjustments can be made for anomalies or rare topographical conditions, said Coyle.
Is there a better way?
Trask believes an income tax would be a more fair way to fund schools than a property tax.
“If you make money, you pay taxes, if you don’t, you don’t pay. Right now there are guys with huge incomes paying $3,000 or $4,000 per year for a nice house. That’s not fair. There are very few farmers and ranchers and they are taxing the hell out of us.”
The productivity formula is more burdensome than the old system, Trask said.
Another option would be to assess productivity differently.
A recent SDSU study compared taxes based on actual use as well as probable use. Both of these are alternatives to the current “highest and best use” assessment scheme.
Dr. Matthew Elliot, an economist, said in an earlier TSLN story that if the state were to adopt either of the methods he studied, there would be fewer unfarmed acres being assessed at cropland values.
He also said that under either of the systems he studied, the state would take in less property taxes. With the actual use model, they could expect roughly an 18 percent cut and with the most probable use method, most likely an 11-12 percent cut.