PIERRE, SD – A legislative committee has advanced a bill that supporters say will fix a “blind spot” in how the state determines whether agricultural land should be taxed as cropland or ranchland.
But opponents say the move will result in higher taxes for everyone else.
The current system works well but there’s a “narrow blind spot” for some situations, testified Jeremiah Murphy, lobbyist for the South Dakota Stockgrowers Association. “It is maddening for some of these landowners to be taxed as though they’re growing crops when history says — 20 years or more — the best use of that land is pasture.”
Many opponents testifying before the House Agriculture and Natural Resources Committee agreed the current system needs improvements. But they say this bill will unfairly shift the tax burden to others.
“This bill will reduce taxes on grasslands in western South Dakota, it will,” said Nathan Sanderson, director of the South Dakota Retailers Association. “But that also means that the café owner in Philip and the grocery store in Murdo, and the older, retired couple on a fixed income that lives in a small rural community in a western South Dakota town is going to pay more in property taxes.”
Supporters say the bill corrects a tax shift that’s been hurting ranchers and farmers since 2008, when the Legislature switched to a production valuation system for assessing agriculture land.
Agriculture land is categorized as either cropland for farming or non-cropland for ranching. That determination is based on a soil classification system. Taxes are typically higher on farmland.
House Bill 1039 allows agriculture landowners to request their property be classified as non-cropland — regardless of soil classification — if it meets a new criteria. The land must be at 1,950 feet above sea level and it must be either native grassland or land that’s been unharvested or used for animal grazing for the past 20 years.
The committee voted 10-3 last week to support the bill.
Ranchers say the current soil classification system sometimes fails to capture the on-the-ground reality.
A landowner with cropland-quality soil might not actually be able to plant if they are at a higher elevation that results in less rain and a shorter season, according to Sen. Jessica Castleberry, R-Rapid City.
Another example involves cropland-quality soil that’s inaccessible due to rough terrain.
Murphy said land with Class IV soils really need to be decided on “a case by case basis,” not a formula that determines whether it’s better used for ranching or farming.
Ranchers and legislators first raised this issue in 2010 with a more aggressive bill cosponsored by then Rep. Kristi Noem. Murphy said the bill was tabled after the Department of Revenue requested time to address the issue with its current tools.
But Murphy said the problem has not been fixed.
Castleberry used an analogy to describe the current system:
“My business is a preschool but it is located inside of what was originally a grocery store,” she told SDPB. “It would be like the Department of Revenue telling me that I needed to operate a grocery store out of my business location because that would be the ‘best use’ of the property and that regardless, I would be taxed as a grocery store whether I was running one or not.”
Opponents said land categorization, assessment and taxation should be based on neutral formulas.
“Common sense and the South Dakota Supreme Court all teach us this: The property owner can’t control the valuation of their property by a management decision, actual use,” said David Wiest, deputy secretary of the Department of Revenue. “And it doesn’t matter whether it’s a house, commercial building or a piece of farmland.”
Weist also said a state law already tries to address situations when categorization and assessments are unfair — including the situation bill supporters are concerned about. The law says landowners can request an adjustment to their property’s assessed value if they use the land differently than how it’s classified.
Wade Pogany, director of the state school board association, said schools and special education programs in areas with qualifying ranchland will take a “significant” hit due to lower taxes.
The bill was introduced by Rep. Trish Ladner, R-Hot Springs. She said she doesn’t know how much agriculture land would qualify for a reclassification under the bill.
Rep. Roger Chase, R-Huron, is a farmer who voted against the bill. He said it was “totally irresponsible” to send the bill to the House floor without knowing that number or data about the tax impact on others.
The House is waiting to discuss and vote on the bill unit it receives a financial analysis.