House passes change in valuation of farm land
Source: Sioux City Journal
February 11, 2008
PIERRE, S.D. (AP) -- A proposed major change in the way farmland is valued for property tax purposes was approved Thursday by the South Dakota House after supporters said the current system no longer works.
Representatives voted 45-22 to pass HB1005, which would value agricultural land based on its ability to produce agricultural income. The bill next goes to the Senate.
The current system uses the selling price of farms and ranches to set the taxable value of comparable land, but House Republican leader Larry Rhoden of Union Center said the current system is broken.
Many counties don't have enough sales in a year for comparison purposes, or sales prices are highly inflated and cannot be counted when determining other property assessments. Land sells for far more than its agricultural value in the Black Hills or when it is located near cities and can be used for development.
The proposed new method would improve the fairness and accuracy of assessments, Rhoden said.
"The time for change is now," said Rhoden, who said the measure would raise the assessed value of his ranch and other agricultural land in Meade County.
In changing to assessments based on productivity, the bill also would get rid of the so-called 150-percent rule. That rule provides that land selling for more than 150 percent of its assessed value cannot be used to determine the value of comparable land.
Opponents said they are reluctant to pass the measure because no one knows for sure how it will work.
Rep. Keri Weems, R-Sioux Falls, said people can understand the current assessment system, but the new method would use a complex formula to determine valuations based on income produced on the land. "How do you go forth and explain that?"
"It's really moving toward a gross income tax, and that also concerns me," Weems said.
Rep. Al Novstrup, R-Aberdeen, is the sponsor of a competing measure that seeks to keep the current system intact. His bill, HB1252, was rejected by a committee, but he hopes to persuade the full House to debate the measure next week.
Novstrup said Rhoden's bill would use a complex formula that could easily be manipulated by the Legislature and other state officials. He said the formula would be based on false numbers and could shift the tax burden from agricultural land to homes and commercial property in the long run.
Rep. Don Van Etten, R-Rapid City, said he also fears the measure could raise taxes on homes and commercial buildings. He said he would rather continue to base valuations on market values, with special provisions for areas near towns and in the Black Hills.
But Rep. Ryan Olson, R-Onida, said the bill would help farmers and ranchers by making sure they are not taxed off their land just because land prices rise. Their income is based on yield and prices, not land values, he said.
"It taxes the ability of the land to produce. It's a more fair way to tax," Olson said.
The House last year rejected a similar measure that would have used cash rents as a method of assessing the taxable value of farmland.
This year's bill, written by a special committee that studied the issue last summer, would determine the value of grassland and cropland under a formula based on the land's ability to produce agricultural products and income. The new system would not take effect until additional work had been done on some aspects of the formula.
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