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Soil Table Update for Ag Property Tax Delayed by Complexity, Turnover, and Revenue Department’s Inability to Anticipate Public Angst

More than five years ago, the Legislature passed 2016 House Bill 1007, directing the Department of Revenue to get SDSU economists to update the soil tables that underpin agricultural land assessments. That bill included an emergency clause, because, well, updating those soil tables was evidently an emergency.

Five years and seven months later, we still don’t have new soil tables. The 2019 Legislature was going to implement the data SDSU came up with to simplify the ag productivity tax (that’s our theoretical-highest-potential-income tax on farm land), but SDSU’s data made legislators nervous, and they hoghoused 2019 Senate Bill 4 to direct Revenue and SDSU to study the impact of updating the soil tables on ag assessments.

The work as dragged on since, and at Thursday’s meeting of the Agricultural Land Assessment Task Force, Revenue Secretary Jim Terwilliger said we still aren’t ready to deploy the new soil tables for taxing purposes.

Terwilliger presented the task force with this memo sent to county directors of equalization on August 9, 2021, summarizing what’s been going on with the soil tables project over the last five years:

  1. 2016: The Legislature appropriated funds to the DOR to contract with South Dakota State University (SDSU) “to update the data used in the soil tables.” 2016 House Bill 1007.
  2. 2016 – 2018: SDSU conducted research regarding new soil tables, studying the NRCS Web Soil Survey and other data.
  3. 2016-2018: SDSU made presentations to the Agricultural Land Assessment Implementation and Oversight Advisory Task Force (Ag Land Task Force) on the status of the research.
  4. 2019: The Legislature directed the DOR and SDSU to “study the impact of changes to the methodology of rating soils for purposes of assessing agricultural land” by conducting a pilot study of several counties. 2019 Senate Bill 4. The pilot study data was reported to the Ag Land Task Force in late 2019.
  5. 2019-2020: SDSU continued to work on the soil tables project, including preparing a first preliminary draft of soil tables for every county.
  6. 2019-2020: DOR Property Tax Specialist Russ Hansen worked closely with SDSU on the new soil tables project. Mr. Hansen had extensive ag land valuation and computer experience, which is very helpful on the new soil tables project.
  7. 2020: DOR received first preliminary draft soil tables from SDSU in the first part of the year.
  8. 2020: DOR Property Tax Specialist Russ Hansen left the DOR in July 2020.
  9. 2020: The first preliminary draft soil tables were sent to all DOEs for DOE review to find errors or anomalies. DOEs were to report errors and anomalies back to the DOR.
  10. 2020: DOR hired Kathy Goetsch as a Property Tax Specialist to replace Russ Hansen, starting in September 2020.
  11. 2020: SDSU worked on second preliminary draft soil tables for several counties.
  12. 2021: DOR Property Tax Division Director Lesley Coyle left the DOR in March 2021. From 2019-2021, Director Coyle was very involved in the new soil tables project.
  13. 2021: DOR received second preliminary draft soil tables for several counties from SDSU in the first part of the year.
  14. 2021: Wendy Semmler was hired as the new DOR Property Tax Division Director in April 2021.
  15. 2021: DOR sent second preliminary draft soil tables to several DOEs for DOE review in the first part of 2021.
  16. 2021: DOR notified all DOEs in May 2021 that the new preliminary draft soil tables will not be used for the assessment of agricultural land in 2022.
  17. 2021: DOR continues to work on the soil tables project [Secretary Jim Terwilliger, Department of Revenue, memo to county directors of equalization, 2021.08.09].

Terwilliger attributed the continuing delay in resolving this emergency to complexity, turnover, and misinformation:

Implementing a new soil table for all 66 South Dakota counties is a major project that is very complex. Hundreds of soils need to be reviewed, multiple data sets need to be studied, and review and testing of soil tables must all occur before going forward. The DOR continues to review the preliminary draft soil tables and to work through questions that have arisen with SDSU. The DOR will not go forward with new soil tables until we are confident that new soil tables are correct.

The DOR has experienced key staff turnover that has slowed implementation. Losing Property Tax Division Director Lesley Coyle and Property Tax Specialist Russ Hansen, the two individuals that were the leaders of the DOR’s soil tables project implementation team, set the project back. While new Property Tax Division Director Wendy Semmler and Property Tax Specialist Kathy Goetsch are very capable, neither had been closely involved in the soil tables project. It has taken time for these individuals to get up to speed.

Valuable DOR time has been redirected from working on the soil tables project to dealing with public misinformation. In May 2021, a DOE shared the first preliminary draft soil table for their county with the public. When the DOR sent the first preliminary draft soil tables to the DOEs, the DOR was seeking assistance from the DOEs to help identify errors or anomalies that need to be addressed. When the DOE shared a first preliminary draft soil table with the public (which was not close to final), it only operated to cause angst with the public based on tentative data. The result is that the DOR had to spend valuable time explaining that the first preliminary draft soil table was not final. A second preliminary draft soil table was sent to the county in mid-2021, which did correct some errors that were present in the first draft. Even the second preliminary draft is not final. The DOR needs to focus its limited resources on the soil tables for the 66 counties [Terwilliger, 2021.08.09].

Complexity I can understand as a delaying factor. But turnover? If the Department and the Legislature had resolved this emergency with due alacrity, they’d have finalized and implemented the tables before the Department lost its two key project leaders. If the soil table update turned out to be so monumental, then it should have been toward the top of the list of knowledge-capture projects for the transitions, with the Department giving the departing Hansen and Coyle plenty of time (and maybe even a stipend post-departure) to prepare brief books for their replacements on the soil tables.

And misinformation? That sounds like a failure to anticipate public reaction from the Department. The hoghousing of 2019 SB 4 made clear that the Legislature and Revenue understood clearly that refiguring the soil tables and the resulting tax assessments would raise all sorts of concerns among rural and less-rural taxpayers. That’s why when you release that first draft for public discussion, you make sure that “DRAFT” is stamped prominently on every page of that first release and on the understanding of every director of equalization, and you accompany that draft with a list of top 20 questions you anticipate will be frequently asked when taxpayers see that first draft and flip their lids.

The delay of the soil tables update sounds like a bad case of PPP—and I don’t mean Paycheck Protection Plan. In this case, state government’s poor planning means we will continue to base property taxes for farmers and ranchers on soil surveys that, as Terwilliger notes in his memo, are 20, 30, or even 40 years old.

Hmm… tax farmers on income we speculate they could make on the basis of old soil data that the Department of Revenue is finding incredibly hard to update and deploy, or ask farmers to submit their own actual income data, as they already do every year to the federal government, and tax them based on the single, simple figure known as their taxable income—which do you think would be simpler and quicker?

13 Comments

  1. John 2021-10-17

    South Dakota’s ag property taxing scheme will collapse in less than 10 years. Rural land values will fall, greatly, and the ag property tax base will follow.
    When the nation’s food supply hits the rupture point in 2024-2025, precision fermentation will become the main source of the nation’s food. Instead of “fermenting” food in the bellies of livestock, we’ll ferment our food and proteins in vats – similar to fermenting beer. The dairy industry will collapse. Land values will collapse as the nation will no longer need, or pay for higher cost ranched or feedlot livestock. Our society will not need to dedicate hundreds of millions of acres of land to livestock and livestock feed. This is the technological confluence of artificial intelligence, computing power, and biotechnology. The cost curve of biotechnology / precision biology is exponentially more advantageous than the favorable cost curve of Moore’s Law. Thus, the value of rural land will greatly fall.

    The technological convergence disruption of milk and meat, 52:36 to 59:10; https://www.youtube.com/watch?v=k7dxbegTsTI
    1:04:00 Whole towns or regions will disproportionately affected by disruption. We need to recognize that and establish programs to protect people – not stranded, obsolete industries.
    1:14:20 to :115:43 Companies like Tyson are now saying they are “protein companies” as they shift to precision fermentation. ‘In terms of taste, these are the same proteins made by livestock. These are not genetically modified proteins. Proteins have no genetic materials.’

    The precision fermentation disruption of food and agriculture must prompt South Dakota to modify its taxing scheme. Potential solutions include taxing the trust industry at the near-universal standard of 2% vs the SD give-away rate of 0.8%; and creating a progressive income tax.

    Let the fun begin.

  2. Jake 2021-10-17

    It has always baffled me that South Dakota ag-oriented people (usually danged smart) have always fallen for the SD GOP lies regarding a state income tax!
    They have trusted that GOP party that has lied to them all these years: “We WON’T make you pay a state income tax!” (With one, you pay tax on what you MAKE each year,)

    Instead, the GOP, “SD style” of taxation is “WE will figure out WHAT you COULD make and tax you on that!” By analyzing your soils, WE can determine WHAT you could make, heh heh. BUT, this is us the GOP (not Big Gov’t under Biden) doing the figuring, OK?

    Sort of looks like an engineering grad may expect similar; “uh, sir or ma’am-we KNOW you could make more than that so-we’ll just set YOUR tax higher than the leve you are content with!”

    Isn’t this what will happen when ‘soils testing’ is complete and land taxed accordingly?

  3. Richard Schriever 2021-10-17

    Taxing one on the basis of calculating their “potential” earning, is kind of like charging a college student tuition based on their potential earning with that degree.

  4. grudznick 2021-10-17

    Good points, Mr. Schriever. Like saying to a teacher “You are not in the top 4 of the SILT (Seven Indisputable Levels of Teachers) but you could be if you just worked harder, so we will tax you based on the average level of teacher (level 4) instead of the slackardly level at which you teach.”

  5. Bill 2021-10-17

    Sodic soils have been a nightmare for East River. You could argue they’re more than on par with the northern Coteau lake expansions in the 90s. For the legislature to avoid confronting this issue head-on is disgraceful.

  6. ArloBlundt 2021-10-17

    Well…if it ever sees the light of day, it will blow the lid off in rural South Dakota….why the Republicans want to bring this up is a mystery…its political dynamite. Misinformation??? You haven’t seen misinformation until the farmers get this data and spend a winter tearing it apart.

  7. Cory Allen Heidelberger Post author | 2021-10-17

    Bill, sodic soils—Does that mean higher alkali continent? Is that a condition that’s getting worse? If so, what is changing the soil quality? Is that sodic continent something that the old soil tables were using now for evaluation don’t encompass?

  8. Cory Allen Heidelberger Post author | 2021-10-17

    John, I find the scenario you foresee fascinating. Indeed, if South Dakota’s ag land became obsolete, what use would it have? The market value would plummet obviously, but if major food production went to the pro Tien factories you’re talking about, Mike that free up South Dakota’s land for people interested in getting back to small scale agriculture, making fresh produce and grass-fed beef for local markets?

    Would those protein factories be more energy efficient and ecologically sound?

  9. Mark Anderson 2021-10-17

    Oh Cory, taxing dirt is always difficult.

  10. grudznick 2021-10-17

    Property taxes should be abolished. grudznick and Mr. Anderson agree on this.

  11. Nick Nemec 2021-10-17

    Sodic soils tend to be ones that don’t drain well. Yes, they are excessively alkaline.

  12. larry kurtz 2021-10-17

    Pumping fossil water from aquifers saturates soils with minerals but instead of empowering communities to harvest snow melt and rain water rural communities continue to be dependent on politicians who exploit need so they’re begging the Biden administration for more money while decrying socialism, big gubmint and the US Army Corps of Engineers who manage the Waters of the United States or WOTUS.

  13. mike from iowa 2021-10-18

    Soils that are unfarmable will likely be bought by corporations who, in turn, beg the fed for more subsidies so they can make the soil usable again and compete with the smaller farms that are the good stewards of the soil.

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