Legislators look at another change for valuing agricultural properties

By Bob Mercer

State Capitol Bureau

PIERRE – This winter the Legislature will consider changing South Dakota’s system for setting the taxable values of agriculture property.

Farm and ranch properties would be valued according to their actual use as cropland or non-cropland, rather than on the productivity potential of their soils.

The Legislature’s continuing task force on agricultural assessments recommends the change. House Bill 1006 is already pre-filed for the legislative session that opens Tuesday.

But Gov. Dennis Daugaard and the state Department of Revenue – which will follow the governor’s direction – haven’t signaled yet where they will stand.

“The administration has not yet taken a position on this bill. The governor is in the process of evaluating all pre-filed bills over the next couple of weeks,” governor’s spokesman Tony Venhuizen said.

Two years ago the department’s assistant secretary, David Wiest, spoke against the change. Wiest told the task force that the productivity system should be given more time.  The task force let the issue rest.

In October the task force voted 9-2 to endorse the change to actual use. Six of the task force’s eight legislators have their names on the pre-filed bill.

However, four of those six are Democrats, which immediately raises a political red flag in a Legislature where Republicans hold big majorities in the House of Representatives and the Senate.

Its prime sponsor in the House is Rep. Jim Peterson, D-Revillo. Now 70, Peterson has spent much of his 12 years in the Legislature trying to get fairer tax treatment for crop-rated soils that are kept in grass because their topography is so problematic they can’t or shouldn’t be farmed.

“This change would not change the valuation of tillable land but will only decrease the value of grassland currently assessed as tillable,” Peterson said.

“The time to make this common sense change is now when the overall assessed valuation is going to increase by close to 20 percent for the next two years. Do we want to preserve grassland with all its’ wildlife benefits?” he said.

If the bill gets through the House, its lead sponsor in the other chamber is Senate Democratic leader Jason Frerichs of Wilmot.

He thinks this is the best chance since a grassland-valuation bill introduced by then-state Rep. Kristi Noem, R-Castlewood, and Peterson made it through both chambers in 2010, but in different versions, and was shelved in the end at the request of the Rounds administration.

“The issue fits nicely with the push for more pheasant habitat,” Frerichs said. “South Dakota Corn Growers are about the only farm opposition to actual use. Wildlife, grasslands, cattle are on board.

“Since this bill has equity cutting either way – valued at grass but farmed, and valued at crop and kept in grass – it makes sense,” he said.

The task force chairman, Sen. Larry Rhoden, R-Union Center, has his name on the bill as a co-sponsor but let Frerichs be the main Senate sponsor. Rhoden is a running for the Republican nomination for U.S. Senate. The Senate Democratis assistant leader, Billie Sutton of Burke, is also a co-sponsor.

The other co-sponsors from the House are Rep. Julie Bartling of Gregory and Rep. Justin Cronin of Gettysburg. Bartling is the House Democratic assistant leader. Cronin is the House Republican assistant leader.

Before the switch to productivity, the previous system set taxable values based on recent sales of comparable lands. But county directors of equalization often met difficulty finding enough sales they could use.

The productivity system took effect for taxes payable in 2011. It is based on soil types for each parcel of property.

The general rule is better crop soils are rated higher. Then annual averages for crop production and crop prices for each county are applied.

Actual use means just that. Agricultural land used for crops would be valued as cropland, while agricultural land kept in grass would be valued as non-cropland.

Land with crop-rated soils that remain in grass would be valued as non-cropland under actual use.

One of the problems for the productivity system is that crop prices and crop production were very high in the first few years it took effect.

Land values, especially for cropland, went up dramatically, but the taxable values didn’t go up as fast, because of state restrictions limiting the annual increases.

Consequently cropland is being valued at what amount to varying discounts in almost every county.

Those limits on annual increases expire after 2017 for non-cropland and after 2019 for cropland.

Also skewing the process is the eight-year database used for calculating agricultural income values for each county. The high year and the low year are deleted.

So when prices were strong for corn, for example, land values didn’t go up as fast, but now that corn prices have weakened, there is remains an effect on values from the stronger years.

Only four counties are at full agriculture income value for cropland this year under the productivity method. They are Hutchinson, Lincoln, Stanley and Yankton. But that’s an improvement. None were last year.

The reverse is true for agricultural non-crop land. All but three counties are at full value this year. They are Brookings, Corson and Lawrence. That too is an improvement. A year ago 14 weren’t.

The concern is what happens to land values – and taxes – for cropland under the productivity valuation system when the annual-increase restrictions end after 2019.

Only about two-thirds of counties are expected to be at full value by then, and owners and operators could face spikes in their tax expenses.

Eighteen counties are behind 50 percent or more on cropland values: Brown, Butte, Campbell, Clark, Corson, Day, Dewey, Edmunds, Fall River, Faulk, Jackson, Lawrence, Meade, Perkins, Potter, Shannon, Walworth and Ziebach.

The Ag Unity coalition of different farm and ranch groups who send lobbyists to the legislative session has taken a position on changing to actual use, according to Brenda Forman, the executive director for the South Dakota Association of Cooperatives.

She said with different groups for and against it’s unlikely Ag Unity will take a stand. “We will visit about it one of our first meetings,” she said.

“At this point due to the difference of opinion among ag groups I do not think it will pass just yet,” Forman said.

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