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Published January 19, 2012, 01:42 PM

S.D. legislative panel endorses ag property tax bill

PIERRE, S.D. — A South Dakota House committee endorsed a proposal Thursday that would speed up increases in the taxable value of some farmland, and would in many cases raise actual tax bills.

By: Chet Brokaw , Associated Press

PIERRE, S.D. — A South Dakota House committee endorsed a proposal Thursday that would speed up increases in the taxable value of some farmland, and would in many cases raise actual tax bills.

The Legislature rejected a similar bill last year, but the Agriculture and Natural Resources Committee unanimously voted Thursday to approve a plan to relax a cap on annual increases in taxable values for farm and ranch land. That would allow the taxable value of land in many counties to rise more quickly to its actual value to produce income.

The bill, which makes changes in the state’s new property tax system for agricultural land, next goes to the full House.

Committee members and state tax officials said larger annual increases in taxable values will not necessarily lead to corresponding increases in actual tax bills for farmers and ranchers, and the impact will vary from county to county.

However, Sen. Larry Rhoden, R-Union Center, who is the head of a legislative task force that recommended the change, said the new system would result in agricultural landowners in some counties paying higher taxes and nonagricultural property owners paying less. It also could mean cropland would shoulder a bigger share of the tax load than grassland does, he said.

“It’s an appropriate shift,” Rhoden, a rancher, said after the committee hearing.

The new system for setting the taxable value of agricultural land was adopted several years ago to improve the uniformity and fairness of property taxes across the state.

Rep. Paul Dennert, D-Columbia, a farmer, says the bill needs to pass so taxable values can increase faster to match the actual value of land. If taxable values do not increase faster each year, farmers and ranchers will face a much bigger increase all at once when the phase-in period ends.

Rep. Mike Verchio, R-Hill City, says he is generally against any tax increase, but voted for the bill because rural legislators support it.

“Inevitably, there will be some tax increases, in actual dollars, that will happen here,” Verchio says.

An actual tax bill is the result of the taxable value set for land and the tax rate applied to that value. Different rates, limits and other conditions apply to property taxes levied by counties, school districts and other local governments.

Property taxes had been based on the selling prices of comparable land, but that system was scrapped because there were not enough agricultural sales to determine a valid market price. The new system, put in place two years ago, bases taxable value on income produced by the land.

The taxable value of pasture land is based on average cash rent over an eight-year period. The taxable value of cropland is calculated according to income, based on an eight-year average of yield and crop prices.

The current law limits changes in each county’s taxable values for agricultural land to 10 percent a year until 2017, when values would be set according to productivity formulas.

The bill would allow an increase in taxable value of 15 to 25 percent a year, depending on how far a county’s taxable value lags behind its actual value for producing income. For example, if a county’s taxable value is set at less than half its actual value, the annual increase in taxable value could be 25 percent. The measure also would extend the deadline for assessing land at its true value until 2019.

David Wiest, deputy secretary of the state Revenue Department, says that when the current system took effect, many counties started with taxable values for cropland that were far below the land’s actual value to produce income. Annual increases in the ability to produce income also have risen by more than 10 percent in recent years because of yield and crop prices, he says.

A report by the Revenue Department shows that all but one of South Dakota’s 66 counties would need to increase the taxable value of cropland by more than 10 percent this year to get to actual value as determined by productivity. Most counties already can set the taxable value of grassland at its actual value without exceeding the 10 percent limit.

Copyright 2012 The Associated Press.

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