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The current method values South Dakota agricultural land at $52 billion, whereas the most probable value is closer to $46 billion with actual use slightly below $43 billion. (Amanda Radke/Special to Agweek)

South Dakota seeks update to ag land tax laws

HURON, S.D.—On Nov. 27-29, ranchers met in Huron for the South Dakota Cattlemen's Association 70th Annual Convention and Trade Show.

With a full slate of speakers discussing topics such as fake meats, sustainability, the economics of cattle backgrounding, transportation, Beef Quality Assurance, and managing feedlot heat stress, it was a full house as producers listened to the latest research and industry news that could assist them in being more profitable in their operations.

Another topic on the agenda was agricultural land property taxes. Michael Held, South Dakota Farm Bureau lobbyist, provided an update on how South Dakota's Agricultural Land Assessment Tax Force is seeking to update current laws to tax land owners on the highest and best use of agricultural land.

"The present system doesn't allow for three classes of property — agricultural, residential and commercial," said Held. "Yet, all three classes of property would benefit the school formula, and everybody's payable taxes would be reduced by a significant amount."

Currently, agricultural land is categorized using the Natural Resource Conservation Service Land Capability Classes, with soils rated 1-3 considered cropland; soils rated 5-8 as non-cropland; and a ranking of 4 could be classified in either direction.

The challenge for landowners is the soil classification doesn't necessarily match with the best use for the land. Other factors besides soil type, such as precipitation and topography, determine whether designated cropland is ultimately used for grazing or farming. Opponents of this change say individual land management practices shouldn't determine taxable land value.

South Dakota State University's ag land "Highest and Best Use" study highlights the challenge with the current law.

Per the study, "NRCS soil ratings provide measures of soil productivity/capability, but are less accurate in predicting the most probable use of ag land, particularly in western South Dakota. NRCS ratings do not accurately measure highest and best use."

The current method values South Dakota agricultural land at $52 billion, whereas the most probable value is closer to $46 billion with actual use slightly below $43 billion.

As the 2019 South Dakota Legislative Session draws closer, Held said the Tax Force is recommending the state add additional data and alter the method that determined "Highest and Best Use" of land. This additional data would capture dimensions (financial feasibility) and current use patterns (probable use) that are not considered by NRCS, which only considers soil ratings in its determinations.

"These recommendations, if implemented, would require a change to the existing state statutes," said Held. "Some are questioning the constitutionality of such a change. Gov.-elect Kristi Noem supported a change in agricultural land classification eight years ago, which would have allowed grassland of 10 years and longer to be eligible to be valued as non-cropland. We'll have to see where she stands on this issue now as this legislation is introduced in the upcoming session."

Currently, the Tax Force is considering a pilot program of six to 10 counties that would determine the economic impact of adding additional information on each piece of property. Held says an investment in updating data systems to reflect 2018-2019 land specifications is needed; however, it would be time consuming and limiting as many counties haven't done recent GIS mapping due to funding limitations.

"To update maps in just 11 counties, it would cost $650,000," said Held. "This is tough because these counties either don't have the money or the priority to update the soil maps; however, it's important to remain current on the mapping to have better opportunities moving forward."