By Chet Brokaw
The Associated Press
PIERRE, SD (AP)--South Dakota must change the way it determines the taxable value of farm and ranch land because current practices eventually may be declared improper, a state lawmaker said Jan. 20.
"We're sitting there on a bomb," said Rep. Jim Lintz, R-Hermosa.
Lintz urged the House Taxation Committee to approve a measure that says the taxable value of farm and ranch land should be determined by its ability to produce agricultural income.
The panel delayed a vote on HB1005 until a subcommittee takes a closer look at the bill's provisions.
The taxable value of agricultural land is now generally set by considering the selling price of comparable land in each county. But assessments can be skewed when some land is sold at high prices for housing or business development, recreation or other uses.
The reliance on comparable sales is not working very well to set reasonable taxable values, Lintz said.
"We need to correct it before it gets worse," he said.
A current state law says sales for prices that exceed 150% of the value for agricultural purposes will not be considered in determining the taxable value of comparable land. But many lawmakers say that law may be unconstitutional.
Lintz said Custer County is assessing land at between $100 and $200 an acre, which fairly reflects its value when used for agricultural production. Land is actually being sold for $2,000 to $2,600, but those sales do not affect valuations because they exceed 150% of the land's value for raising crops or livestock, he said.
At some point, state officials might rule that such assessment practices are unfair, Lintz said.
A rancher could not make a living raising cattle if he paid $2,600 an acre for grazing land because annual property taxes would be about $1,000 for each cow the land can support, Lintz said. "Are you going to tell the people of South Dakota you have to be wealthy to own property?"
The bill would determine the income-producing ability of land on the basis of how much it yields and the selling price of crops and livestock, averaged over a period of years. The income capacity then would be used to determine what land is worth when used for agricultural production in each county.
Surveys of soil types would be used to adjust the taxable value for different land within each county.
A pilot study on the proposed new assessment method would be done in Brown, Codington, Corson, Custer, Hand, Meade, Moody, Tripp and Turner counties.
Cottonwood rancher Larry Gabriel, a former House member, agreed that the current system is not working. Taxable values in his area jumped 61% last year but dropped 25% this year, he said.
Gabriel said a new system based on income capacity should be designed to prevent big changes in assessments and taxes from year to year.
Rep. Bill Napoli, R-Rapid City, said he is worried that the proposal might shift a greater tax burden to urban property. It might lower property taxes on agricultural land while raising taxes on all other property, he said.
Gabriel said a new system should allow a gradual change in the taxable value of agricultural land based on changes in how much farmers and ranchers can earn.
Jim Fry of the state Revenue Department said the measure might cause a shift in taxes among various kinds of property in South Dakota.
Fry said the proposal might shift taxes between crop and grazing land. And schools, counties and cities in rural areas could wind up in financial trouble in the event of a long-lasting downturn in the farm economy, he said.
The proposed change would involve the collection of numbers that would be used for computer calculations, Fry said.
"This moves away from an appraisal problem to really more of a giant math problem," he said.
Rep. Al Waltman, D-Aberdeen, said South Dakota is the only Midwestern state that still uses comparable sales to determine the taxable value of agricultural land.