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Valuing land based on soil type a sore spot in South Dakota

State Sen. Gary Cammack, R-Union Center, says it is important to fix a system that can charge taxes equal to 30 to 40 percent of annual rental rates for pasture land and where people have to till grassland to pay taxes.1 / 2
James “Jim” Hundstad, 75, a former legislator from Bath, S.D., says he sued his county for describing his farmstead and a pond as “cropland” even though it can’t be farmed.2 / 2

PIERRE, S.D. -- While the South Dakota Legislature looks at studying changes to the way the state values ag land for taxes, the current system also is being challenged in the courts.

The issue is the use of soil type to determine the value of the land, whether it be in the middle of a pasture, under a pond or on top of a remote bluff.

Former state legislator Jim Hundstad of Bath in July 2018 filed a lawsuit in Brown County challenging a system that he says requires taxpayers to continually seek “adjustments” to the value when the overall system of determining cropland versus non-cropland should be fair.

Hundstad served in the state House and then was in the Senate when it passed a law in 2008 changing the valuation system.

Hundstad said he thinks the way the law has been implemented has inadvertently harmed a lot of landowners. He says the effect has been that too much lower-quality land has been over-assessed as cropland.

Hundstad, in the spring of 2018, objected to the county assessing a pond, his driveway and trees as cropland, based on its being the soil type that qualified as crop land. Failing administrative efforts, he filed the suit. The Fifth Judicial Circuit Court is considering the case.

Ruling it right

The 2008 change in valuation was implemented in 2010. Legislators wanted to get cropland valuations away from the “market value” of land -- an average of what land had sold for -- and go to a productivity system. The argument was that only 20 percent of ag properties are sold on the open market in the first place, and there are often too few sales to make it accurate.

South Dakota then was the 44th state to go from market-based to production-based systems. The system starts by dividing land into crop land from non-crop land.

But the state Department of Revenue -- which trains and certifies county equalization directors -- ruled that the assessments should be dominated by soil type. “They said the capability score determines whether it’s cropland and must be taxed as crop,” Hundstad says.

Hundstad says the absurdity was especially clear on his artesian pond, underlain by a soil that is the best in Brown County. But it’s under a pond.

After his challenge of the system, the county “adjusted” his taxes downward but did not take the pond out of the cropland category, which Hundstad says is what state law requires.

Top of the butte

Hundstad attended a meeting in early February at Sisseton in Roberts County, where he heard one woman testify that she had several acres of land behind her home on the top of a butte.

She described it as a “nice flat area,” but it would be impossible to get a plow, seeder or combine on top of it to farm. She even has a permanent grassland easement. She could never raise a crop on it, but the county had to label it “cropland” because of the soil type.

“We don’t have to be an assessor, a farmer, or a lawyer, to know if it couldn‘t be cropland,” Hundstad says. ‘’I think we’ll have a tax revolt across the state because we’re not correctly implementing it, we’re deciding (soil) class determines whether it’s cropland or not.”

Legislative study

The South Dakota Legislature has passed Senate Bill 4 that authorizes a pilot study to compare a new system -- based on data from a previous South Dakota State University study -- versus the existing system.

State Sen. Gary Cammack, R-Union Center, a member of the Taxation Oversight committee and chairman of the Senate Agriculture and Natural Resources Committee, says the study will compare methods when used in 10 counties.

“The big issue is that the productivity tax is based on soil type,” Cammack said. “Assessors have the right to use several reasons for changing those multipliers. It can be precipitation, slope of the ground, accessibility, a host of things. But in a lot of areas, we have grassland being taxed at 30 to 40 percent of the rental rate. Thirty to 40 percent of the gross revenue is going toward taxes and that’s not right.

“We don’t want to see grasslands turned upside down (tilled for cropping) because of tax reasons,” he said, and added, “Native grass and grasslands are so valuable for diversity and wildlife.”

Hundstad, a Democrat, says he has hope that Gov. Kristi Noem, a Republican, can produce a change. “She’s aware of this and I’m confident that she feels as I do that we have to fix this,” he said.