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Basing Ag Property Tax on Actual Use Fair, Good for Grasslands

Charlie Hoffman, pheasants, and I all like grasslands. The current South Dakota Legislature does not… or at least not enough to support the idea of taxing grasslands on their actual use rather than on the possible use of their soil for crops. The 2015 Senate rejected a bill that would have studied (not implemented, just studied) the idea of actual-use assessment of agricultural land.

The Legislature’s interim task force on ag-land assessment wants to take another shot at more sensible ag land tax policy by proposing that long-standing grasslands be taxed as non-crop land:

Thirteen members of the panel met for the final time in 2015 and proposed that some grassland should be assessed as non-crop regardless whether the soils are rated for crops.

The property would need to have been in grass for at least 30 years to qualify for the special treatment.

Property owners likely would see taxes go down on grasslands that met the requirements. Land with crop-rated soil typically carries high assessments than land with non-crop soil.

The proposal doesn’t provide for how to make up any reduction in revenue [Bob Mercer, “Ag Land Panel Endorses Changes,” Aberdeen American News, 2015.12.08].

Mercer reports that the Stockgrowers, the Cattlemen, and the Farm Bureau all support this grassland proposal. The Corn Growers say no:

South Dakota Corn Growers lobbyist Matt McCaulley opposed it, saying there would be a tax shift to other agricultural landowners.

McCaulley acknowledged some corn is grown on non-crop soil and those lands are assessed as non-crop [Mercer, 2015.12.09].

Taxing landowners based on the quality of their soil is like taxing workers based on their college degrees. Taxing a farmer more for a never-tilled pasture based on the fact that the soil underneath could grow great corn or beans is like taxing a dad’s income at 25% instead of 15% just because I could make six figures with my master’s degree in information systems instead of making significantly less teaching and writing. Taxing a farmer less for an irrigated, fertilized cornfield just because SDSU says his soil is bad is like giving Mark Zuckerberg and Bill Gates the Earned Income Tax Credit just because they didn’t finish college.

Of course, we could simplify this issue by replacing this Rube-Goldberg property tax with a straightforward income tax, but oh my, simplicity makes people in Pierre freak out.

Absent the supreme fairness of a progressive income tax, we can settle for the fairness of taxing land based on actual use. That fairness and the benefits of grassland for the entire ecosystem are worth whatever minor revenue shifts may take place. Legislators, put this bill in the hopper and say yes!

17 Comments

  1. larry kurtz 2015-12-08 09:12

    Since East River is already a wasteland could the legislature do this just for West River?

  2. Rorschach 2015-12-08 09:22

    Maybe that empty lot I own in town should be taxed as grassland too. I look forward to the tax break I will get on that quarter acre of grassland. But then I’m not a millionaire, so I don’t suppose the legislature will give me a tax break on my grassland.

  3. jake 2015-12-08 09:33

    A great topic, Cory. I notice Stan Adelstein has posted lateley on same. Your comment on taxing ag property on ‘potential’ instead of ‘actual’ usage is no diff than taxing usage of college degrees for earning a living/profession.. I never could understand the rancher/farmer vehement attitude against an income tax, as the industry is so much ‘Peaks and Valleys’ of income. Property taxes have to be paid from your income–whether you make enough to pay them or not. Paying more income tax in a highly good year is always going to be offset by those poor years of drought, insects, low prices etc etc. This adamant opposition against a well-done income tax in this state has led to the influx of educated thieves milking well-intentioned government programs from agriculture through education. A small state like ours has such a high percentage of these high-level government ‘tit’ feeders it is pathetic! I quiver to think that we the instances we have seen come to light in EB-5 and the Platte murders/suicide debacle of the state Education Dept may be just the tip of scandal icebergs in SDakota!!

  4. Craig 2015-12-08 09:42

    If you tax land based upon actual use, then you need to hire a bunch of state employees to run around and survey the land annually to verify what each acre is being used for. If Farmer John is struggling through a drought and converts some of his land into grasses he will expect a tax reduction. On the flip side a few years later when he tills a thousands acres of grassland and plants corn and soybeans, he would need to pay more.

    Seems like an unneccessary complication to the tax system if you ask me. Regardless of what a farmer/rancher does with their land the land itself is still worth a specific amount. A rancher may have more use for hay for his feedlot and resists the temptation to convert his land – but a few years later he sells that land for a massive amount because he knows it is prime crop land and the buyers know it too. So he profits substantially due to his land being assessed much lower than the true market value.

    CRP payments would likely need to be adjusted as well since landowners wouldn’t need to be compensated as much for land which is taxed less. Seems like it could snowball and any land that isn’t specifically used for crops would be taxed less meaning every other peice of land would be taxed more. Who really benefits in the end?

  5. caheidelberger Post author | 2015-12-08 12:02

    Rohr, have you been growing grass there for 30 years? Is that lot zoned agricultural?

  6. caheidelberger Post author | 2015-12-08 12:06

    Craig, what’s the difference between dispatching state employees to check actual use and dispatching them to take soil samples all over kingdom come and calculate soil quality?

    I’m willing to do away with both exercises and simplify tax collection with an income tax. Don’t tell me how you used your land; just tell me how much money you made, then send the state X%. Heck, that’s even simpler than sending out the county assessor to guess the land’s value. Consider that even property tax is based on a guess: how much would this land sell for? Income tax is based on a real number, the money the taxpayer made. Isn’t a tax based on a real number better than a tax based on someone’s guess?

  7. Nick Nemec 2015-12-08 12:36

    While it might be a tax shift it seems to be a fair tax shift. Especially on land, that has permanent US Fish and Wildlife grassland easements, those parcels can never be broken for farming. Should they pay the same tax as the parcel next door with similar soils but no easement? I should think not, it can never be converted to farmland, and it will never be worth as much as farmland.

  8. Craig 2015-12-08 13:37

    Cory I could be mistaken, but I don’t beleive the state uses soil samples to determine soil quality for taxation purposes. Value is typically calculated by a number of factors but comparable land sales in that particular area seems to be the primary driving force (perhaps coupled with some wild guesses by the assessor many of which are appealed annually).

    I’m ok with the income tax idea, but that won’t do away with property taxes entirely. There will always be some level of taxation tied to property which is necessary to some degree to ensure people don’t “abandon” property or fail to maintain it. At least property taxes ensure there is a cost of owning property in perpetuity.

  9. Rorschach 2015-12-08 13:51

    Yes Cory, Somebody has been growing grass on that lot for 30+ years. No, it’s not zoned agricultural, but why should that make a difference? Why should somebody with 100 acres of Black Hills pasture valued at $1 million pay a lower tax rate than I pay? Wealthy farmers are always trying to find an angle to reduce their property taxes farther and farther below the market value based rates that individuals and businesses pay. I’ve had enough of millionaires asking for tax cuts. People should be proud to support the country that made their prosperity possible. Pay your fair share. Quit expecting other taxpayers to cover for you. And quit your whining.

  10. O 2015-12-08 13:55

    If “actual use” is the framework for taxation, then what is the justification for any taxation on residential property that, even more so than grasslands, produces no income for the owner?

  11. moreland 2015-12-08 19:47

    Perhaps the most apt analogy for grassland valued as cropland is that by that logic any house in town could be taxed as if it were a high-rise apartment. The logic of taxing at highest best use says everything should be developed to the max. Why should government favor that over conservation? Thanks for touching on this topic. There was a nice little bill in the 2011 legislature that touched on this. HB 1203 or 1206…Noem was a prime sponsor, Jim Peterson in the Senate. It flew through the House with a city/country vote split, but Noem & Peterson pulled it before the first Sen. committee. I was a lobbyist, Noem told me “The corn & soy people were going to kill it anyway….” It was hoghoused in the last hours of the session, but still died.

  12. jerry 2015-12-08 21:19

    A real solution to the whole shebang would be to utilize the ground like it was over 100 years ago. Plant real crops that yield real food instead of corn. Take the Farm Bill and make it a real farm bill that actually helps the producers instead of big ag and the insurance industry. It is either that or we eat ourselves to death. https://www.youtube.com/watch?v=3-FlwnSKppk

  13. Lanny V Stricherz 2015-12-08 23:31

    Absolutely great post Rohrshach @13:51

  14. grudznick 2015-12-09 00:09

    Yes, Mr. Rorschach’s post was fascinating and I could not agree with a blogging more than I agree with his. Quitcherwhinging, you rich farmers and tax dodging bossturds out there.

    Did you know that an informal study shows that some of the whack jobs in the insaner than most category are among the worst whiners and lawbreakers when it comes to paying taxes? That really upsets me.

    Why does not Mr. Howie post here, that tax cheating bossturd that owes me my money back?

  15. barry freed 2015-12-09 07:22

    Property taxes should be based on the potential rent, rather than potential sale price.

    People pay more than a fair market value for property for many reasons such as: it is close to the hospital and their life mate was just hospitalized with a long term illness, or they just moved to town and choose to spend more to get housing settled. Ranchers and farmers pay over FMV for a property that adds to what they have with more water, completes a section, or has better road access.

    Rent on the other hand, has to be reasonable or potential renters will rent elsewhere.

    Every Ag property has been classed long ago. It is known exactly, the make up of all land in this State and the people who work land know, or can easily find out, what can be done with it. No research is needed. Everyone can agree that a 50 year old house that has been extensively remodeled is nicer to live in than an original 50 year old house with old rugs and plumbing, hence the rents would be different.

    My neighbor inherited millions and remodeled. My taxes went up because their house value went up. I would like to know how I can get more for my house by telling potential buyers how nice, is the inside of this neighbor’s house. One can’t see that beautiful kitchen from my porch.
    With AG land, someone might be using land in a way that generates more income, but is beyond the land’s capabilities and depletes the soil. They will make more profit, but the taxes should remain the same as the land has not improved, in fact. it has been reduced in value.

  16. caheidelberger Post author | 2015-12-09 10:30

    Barry, your increased assessment due to your neighbor’s wealth and investment is one thing that drives me nuts about property tax. Under no circumstance should you have to pay more tax because of someone else’s wealth. We never say on income tax, “Hey! Your neighbor got a raise or a college degree, so you should pay more income tax.”

    Again, why base taxes on perceptions of wealth? Instead, base taxes on wealth that actually exists.

  17. caheidelberger Post author | 2015-12-09 10:33

    O and Moreland show how both actual use of property and potential use of property are philosophically problematic bases for taxation. Would anyone care to get rid of property tax completely and replace it dollar-for-dollar with income tax?

Comments are closed.