Land value based on soil type a sore spot in SD
PIERRE, S.D.—While the South Dakota Legislature looks at studying changes to the way it 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, S.D., in July 2018 filed a lawsuit in Brown County challenging a system that 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.
At 75, Hundstad still farms about 800 acres with his son, Kevin.
The Hundstads have pasture land in the higher, northwest part of Brown County, which is overlain by "glacial till," rocks. Their homestead is in the southeast part of the county, where the James River cuts through where the rocks are overlain with deep, rich soil of an ancient lakebed.
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.
The U.S. Soil Conservation Service in 1961 placed soil in eight major categories. The Department of Revenue set a policy that he says "arbitrarily" classifies the soil types into two groupings 1, 2, 3, 4—it's cropland—and 5, 6, 7 or 8, non-cropland, regardless of how it's used.
Hundstad says the absurdity was especially clear on his artesian pond, underlain by a soil called "Beotia-Winship," the best in the county and rated 1.00. 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.
"If only the squeaky wheel—me—gets mine fixed, but my nine closest neighbors didn't complain, who is the better citizen? The complainer?" The ones who didn't complain are paying some of his taxes, and Hundstad says that isn't fair.
Top of the butte
Hundstad attended a meeting in early February in Roberts County at Sisseton, S.D., 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."
In the South Dakota Legislature, a bill called SB 4 authorizes a pilot study to compare a new system—based on data from a previous South Dakota State University study — versus the existing system. (Originally SB 4 repealed a number of laws in the land valuation. But that was "hoghoused" — essentially replaced with the pilot program.)
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 went to the Capitol in early February to argue against SB 4 in its original form, which he says initially would have gotten rid of what he considered necessary laws that allowed slope and obstructions to prevent land from regularly being called cropland.
The amended bill has passed the Senate in February and passed the House on Wednesday, March 6, sending the bill Gov. Kristi Noem.
Hundstad, a Democrat, says he has hope that 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.