Property Tax Proposal – Production Based Assessment

Current trends in South Dakota’s Property taxes

	Acres of Ag Land	# of Owner-occupied Homes
2000	44,000,000	197,940
2006	43,700,000	216.212
% Change	Loss of 0.7%	Gain of 9%
Taxes Paid	Down 0.36%	Up 3.97%

§ $848 million in taxes collected in 2007

§ All property taxes are used locally

ü 59% - education

ü 25% - counties

ü 13% - municipalities

ü 3% - townships and special assessments

§ The number of owner-occupied homes has increased 9% since 2000, but the share of owner-occupied tax burden has increased less than 4%.

§ South Dakota has lost 300,000 acres of farm and ranch land to other uses since 2000, a 0.7% drop. At the same time, the share of taxes paid by ag land has diminished only 0.36%.

§ In 2006, about 75% of land sales across the state were not useable because of the non-ag-Z rule, the 150% rule or because of the 70 acre rule. Only 200 land sales were actually used to calculate last years tax base for the 43.7 million acres of crop and pasture land across the state.

House Bill 1005

§ HB 1005 will base Agriculture assessments on the land’s average earning capacity

o Crop production will be based on average crop production, or

o Rangeland will be based on average carrying capacity for livestock.

o SDSU economics department would compute the average annual earning capacity of land, using a rolling eight-year average. The lowest two years and the highest two years of every 8 year period are not calculated into the average. This will help to adjust for spikes or dips due to droughts or bumper crop years.

§ HB 1005 requires each Director of County Equalization to make adjustments to the county average to account for variations unique to each property based on location, soil survey, statistics, climate, topography, etc.

§ Establishes a safety net provision: no agricultural land value within a county may increase more than 15% per year for the first 3 years of the new taxation system.

§ HB 1005 will repeal the 150% rule for owner-occupied and nonagricutural property.

o On average, owner-occupied assessed values would increase statewide 5.38%

o On average, nonagricultural assessed value would increase statewide 4.93%

o “Safety net” provision: no property’s assessed value may increase more than 5% per year above normal increases because of the 150% repeal.

§ HB 1005 creates a 12-member advisory committee to work with the Dept of Revenue to develop rules for implementing the system. Eight legislators and four individual taxpayers will be on the committee.

Key Points

§ Agriculture is not getting a tax break with HB 1005. This is simply a more reliable assessment system. The goal of HB 1005 is not to shift taxes to any other class of property.

§ Local budgets are not impacted by this proposal. HB 1006 is a companion bill that will protect school capital outlay, special education, and pension funds are protected by the companion bill.

§ A productivity based assessment is a more accurate reflection of the true value of crop and pasture land. It is more stable and more equitable method of determining the taxable value of ag land.

§ This taxation system is intended to be revenue neutral meaning that the total amount of taxes collected shouldn’t change.

Dakota Rural Action has not taken an official position on this legislation. Our Legislative Committee has decided to track this legislation, educate our members about its impacts and not oppose the efforts being made to support this bill by other groups in the state. If you have opinions about this bill, please share your thoughts to help DRA make an informed opinion based on our members’ involvement.