If there's a property tax freeze, why do my taxes go up? By David Lias As the March 15 opt-out election date approaches, a question gets asked repeatedly: If we�ve been under a tax freeze, why do property taxes continue to rise?
The answer may be surprising to some people.
The only person to offer a tax freeze to South Dakotans was Gov. George Mickelson.
In 1989, as the South Dakota Legislature crafted a major rewrite of property tax laws by removing taxable percentages, adjusting statutory levy limits and establishing minimum requirements for assessments according to market, Mickelson successfully introduced legislation that froze individual property tax bills for two years � payable in 1990 and 1991 � unless improvements were made to property.
Actions taken in recent years under the administration of Gov. William Janklow have limited the growth of property taxes in the state.
Tax reduction program
The result is the Property Tax Reduction Program. According to the South Dakota Department of Revenue, the program isn�t designed to keep property taxes from ever going up.
Local taxing districts are limited to increasing taxes from year to year by the maximum of the cost of inflation and the percentage increase in the tax base due to new construction.
Schools are limited to the maximum property tax levies as set by state statute.
The South Dakota Legislature, before adjourning last week, lowered general fund levies for schools from $3.32 to $3.19 per $1,000 of assessed valuation for agriculture property.
The general fund levy for owner-occupied real estate was reduced from $5.34 to $5.13 per $1,000. Commercial property�s general fund levy was reduced from $11.45 to $11 per $1,000 in taxable value.
The only way to raise taxes above these limitations is through an opt-out. If the opt-out is challenged by citizens, or, as in Vermillion�s case, if it is referred to a citizens� election by the school board, it must receive a majority of votes at the polls to be approved.
Judging by phone calls fielded at the Plain Talk and at the school administration office, some people believe the school district has always raised the revenue it needs simply by increasing the taxable value of real estate property in the county.
Counties may experience increases in taxable values, but those raises aren�t designed to generate more taxes.
Rising values cuts rate In fact, according to the state Department of Revenue, if property values rise county-wide, the rate of tax for each thousand dollars of property must decrease.
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Simply put, the greater the value of the property county-wide, the smaller the rate of the tax.
The result is that even though the value of property may increase, taxes can only increase up to 3 percent annually. People who remodel or improve their property may experience an increase in taxes because of a subsequent increase in property value.
In the first phase of the property tax reduction program, the budget requests of school districts were capped, meaning a school district with a budget request of $5 million in 1995 could not be allowed a budget request greater than $5 million in 1996, with the exception of additional dollars made available through new construction.
A mill levy for owner-occupied property was established in 1997, when uniform tax rates were applied for the general fund in every school district from Sioux Falls to Mobridge to Spearfish.
No more than inflation
Uniform tax rates for schools are limited and often reduced each year so that growth in the value of local property does not increase school budgets more than the rate of inflation. The amount of the rates depends on the property�s classification.
State revenue department data shows these trends have been happening in the Vermillion School District.
The general fund mill levy for ag property in the school district has decreased from $10.65 per $1,000 in value in 1996, to $3.32 per $1,000 in 2005.
The levy for non-ag property has declined since 1996, from $16.50 to $11.45 per $1,000 this year.
The mill levies for these properties were so high in 1996 because they were the only two classifications of property levied for school taxes at the time.
Beginning in 1997, non-agricultural property was classified as either �owner-occupied� or �other (commercial)� for taxing purposes.
Since 1997, the levy for owner-occupied property in the school district has decreased by 42 percent, from $9.20 per $1,000 of value, to a low of $4.49 in 2004. This year, the levy increased by nearly a dollar, to $5.34.
The reduction in levies is necessary to limit the amount of funds the Vermillion School District receives under the state�s current tax system because taxable value of real estate in Clay County has been increasing.
Owner-occupied property in the school district has consistently increased in value from year-to-year, from $107,944,747 in 1996 to $151,870,980 in 2004 � a jump of 41 percent.
The value of commercial property was $75,749,764 in 1994. It has been on a virtual roller coaster since, climbing one year, declining the next. In 2004, the value of this class of property totaled $85,931,462, an increase of 17 percent since 1994.
The taxable valuation of agricultural property in the district climbed from $63,219,008 in 1996, to $82,425,390 in 1999. It then began a slide for the next two years, and started climbing again in 2002 and 2003.
It decreased slightly in 2004, to $88,630,735.