PIERRE, S.D. (AP) — South Dakota's new farm property tax system should be changed to speed up increases in the taxable value of some land, a legislative task force recommended Tuesday.
The panel will ask the 2012 Legislature to relax a cap on annual increases in taxable values, a move that would allow the taxable value of land in many counties to more quickly rise to its actual value to produce income.
However, members of the Agricultural Land Assessment Implementation and Oversight Advisory Task Force said bigger annual increases in taxable values will not necessarily mean corresponding increases in tax bills for farmers and ranchers in many counties. Because total property tax revenue in counties, townships and school districts cannot increase each year by more than the rate of inflation, up to a maximum of 3 percent, those local governments would have to reduce tax rates as taxable values increase.
The panel rejected another proposal that would have changed how taxable values are calculated for cropland.
When the new system was put in place two years ago, many counties started with taxable values for cropland that were far below the land's actual value as calculated by its ability to produce income. The annual cap on increases must be raised so taxable values can catch up to actual land values, which would allow cropland to be treated fairly compared with grassland, task force members said.
Cropland valuations need to increase more each year so they are closer to actual values by the time the annual cap expires, task force member Dave Knudson of Sioux Falls said. Otherwise, farmers and ranchers will see huge increases in assessed values when the cap ends, he said.
But Pierre lawyer Ron Olinger, a task force member, said even if tax bills don't increase by the same amount as land valuations, farmers and ranchers will be upset to see larger annual increases in land valuations.
"When people start getting these new valuations, they're not going to be particularly happy," Olinger said.
Property taxes used to be based on the selling prices of comparable farm land, but that system was scrapped because there were not enough agricultural sales to set a valid market price. The new system sets taxable value based 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 crop land is calculated according to income based on an eight-year average of yield and crop prices.
The law now limits changes in each county's taxable values to 10 percent a year until 2017, when values would be set according to whatever the formulas determine.
The task force voted 12-2 to approve a proposal that would allow an increase in taxable value of 15 percent to 25 percent a year, depending on how far a county's taxable value is lower than the land's actual ability to produce 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 task force also considered a proposal to change the valuation method for crop land so it would be based on cash rent, just as grassland is, but a coalition of agricultural groups opposed that move as too big a change in a new system.
"The productivity system is in its early phases, and it's not the time for major adjustments," said Sioux Falls lawyer Matt McCaulley.
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