September 19, 2023

Committee introduces bill to fix blind spot of farmland classification and taxation

A legislative committee has introduced a bill that supporters say will correct a “blind spot” in how the state determines whether farmland should be taxed as cropland or ranched land.

But opponents say the move will lead to higher taxes for everyone else.

The current system works well but there is a “narrow blind spot” for certain situations, testified Jeremiah Murphy, lobbyist for the South Dakota Stockgrowers Association. “It’s infuriating for some of these landowners to be taxed as if they were growing crops when history says – 20 years or more – that the best use of this land is for grazing.”

Many opponents testifying before the House Agriculture and Natural Resources Committee agreed that the current system needs to be improved. But they say this bill will unfairly shift the tax burden to others.

“This bill will reduce prairie taxes in western South Dakota, it will,” said Nathan Sanderson, director of the South Dakota Retailers Association. “But it also means that the owner of Philip’s cafe and Murdo’s grocery store, as well as the older retired couple on a fixed income who live in a small rural community in a western South Dakota town , are going to pay more property taxes.”

Proponents say the bill fixes a tax change that has hurt ranchers and farmers since 2008, when the legislature moved to a production rating system to assess farmland.

Agricultural land is classified as cropland for agriculture or uncropped land for livestock. This determination is based on a soil classification system. Taxes are generally higher on agricultural land.

House Bill 1039 allows farm landowners to request that their property be classified as uncultivated land – regardless of the land classification – if it meets a new criterion. The land must be 1,950 feet above sea level and must be native grassland or land not harvested or used for grazing animals in the last 20 years.

The committee voted 10 to 3 last week to support the bill.

Change needed

Ranchers say the current soil classification system sometimes fails to capture the reality on the ground.

According to Senator Jessica Castleberry, R-Rapid City, a landowner with cropland quality soil might not be able to plant if they are at a higher elevation, resulting in less rain and a shorter season.

Another example is cultivated grade soil that is inaccessible due to uneven terrain.

Murphy said land with Class IV soils really has to be decided “on a case-by-case basis,” not a formula that determines whether it’s best used for ranching or agriculture.

Ranchers and lawmakers first raised this issue in 2010 with a more aggressive bill co-sponsored by Rep. Kristi Noem. Murphy said the bill was introduced after the Department of Revenue asked for time to fix the problem with its current tools.

But Murphy said the issue has not been resolved.

Castleberry used an analogy to describe the current system:

“My business is a kindergarten, but it’s located inside what was originally a grocery store,” she told SDPB. “It would be like the Department of Revenue telling me that I had to operate a grocery store out of my place of business because that would be the ‘best use’ of the property and either way I would be taxed as a grocery store, whether I was running one or not.”

Negative impacts

Opponents said land categorization, valuation and taxation should be based on neutral formulas.

“Common sense and the South Dakota Supreme Court all teach us this: the owner cannot control the valuation of his property by a management decision, the actual use,” said David Wiest, deputy secretary of the department. of Income. “And it doesn’t matter whether it’s a house, a commercial building or agricultural land.”

Weist also said a state law is already trying to address
situations where categorization and assessments are unfair – including the situation that concerns supporters of the bill. The law states that landowners can request an adjustment to the assessed value of their property if they use the land differently from how it is classified.

Wade Pogany, director of the state school board association, said schools and special education programs in areas with eligible ranches would take a “significant” hit due to lower taxes.

The bill was introduced by Rep. Trish Ladner, R-Hot Springs. She said she doesn’t know how much farmland would be eligible for reclassification under the bill.

Rep. Roger Chase, R-Huron, is a farmer who voted against the bill. He said it was “totally irresponsible” to send the bill to the House floor without knowing that number or data on the fiscal impact on others.

The Chamber is waiting to debate and vote on the unitary bill of which it receives a financial analysis.