State lawmakers are considering proposals that some say would prevent people from taking advantage of the state’s property tax policies.
They want agricultural tax rates reserved for what they call ‘legitimate’ ag operations. Critics say the change would tax small farmers off their land.
State law says a person can qualify for agricultural tax rates if they make a certain amount from agriculture--either $2,500 or ten percent of their land’s assessed value.
Republican Representative Kirk Chaffee, from Whitewood, spent 35 years as an assessor in Meade County. Chaffee says the concept works well for large tracks of land—think farms and ranches.
“That ten percent sounds reasonable until you apply it to a land that’s assessed at $50 an acre,” Chaffee says.
The tax -- five bucks an acre.
Chaffee says the intent of classifying ag land for tax purposes is meant to apply to thousands of acres, not just a handful. He says since a change in state law four years ago, some people have taken advantage of the much-reduced tax rate.
Chaffee wants to fix that by changing the qualifications for the ag rate. One bill under consideration requires a person to make $2,500 each year, for 3 out of 5 years, or have 20 acres of land in production.
“Agriculture if you think in terms of a tractor rather than a garden hoe,” Chaffee says.
However, some farmers in South Dakota harvest timber.
Bill Coburn stands next to a chest high pile of timber wood scraps, called a slash pile. Even on a cold winter day the slash he’s burning makes a warm fire.
Cobern is president of a non-profit called South Dakota Family Forests, a group of 110 forest landowners with small tree farms. Most are taxed at agricultural rates. Cobern is worried the legislative action could strip small Black Hills tree farmers from qualifying for ag status.
“Almost like a poison pill for our membership,” Cobern says.
One of the legislative proposals would have create a new tax classification called ‘timberland.’ But it would require tree farmers to have at least 160 acres of land. Cobern says that would wipe out about 80 percent of the Family Forest members. They would have to sell their land. That bill was tabled.
Coburn worked in the timber industry for 40 years. He says the industry gets anywhere from 20 to 30 percent of timber volume from non-federal lands.
“Suddenly, you take that away and you have all these areas being subdivided and everything else, the volume of timber they need to keep their current infrastructure in place is going to be seriously impacted.”
Cobern says that would also lead to forest fragmentation that can damage wildlife habitat and increase pressure between wildland and urban areas.
“If you looked at what’s happened to California, Colorado, Montana, all these areas and they put homes in all these forested areas. Then they lose hundreds of homes in a subdivision, and they can’t fight the fire because the forests are too thick, and the houses are too close. That’s where we’re heading. This legislation is pushing that to happen here, more than it is already.”
The bills are designed to prevent families from claiming ag eligibility by putting some cattle on nearby property owned by a spouse. Leslie Coyle is the Director of the Property Tax Division with the state Department of Revenue. Coyle calls those a "circular transaction."
“We have seen that,” Coyle says. “Unfortunately, folks will do some creative financing out there to qualify for agriculture status.”
There is no state data showing how many landowners are mistakenly receiving the lower ag tax rate.
For Representative Chaffee, it’s an issue of fairness. He says Black Hills landowners losing ag status is a concern. But his primary goal is to have a good tax policy.
“When you have a good tax policy you have assessments that are uniform. That there’s some equalization between them and that at the end of the day they are fair,” Chaffee says. “They can look at this property and the neighboring property that may not have had their property in the family for 100 years. But at least they are paying the same, or close to the same kind of property tax.”
The bill before the Senate even has some in the timber industry concerned.
That's because the industry relies on other people or entities owning timberland in the Black Hills.
Ben Wudtke is with Black Hills Forest Resources Association, which represents Black Hills timber companies.
He says roughly 25 percent of the timber industry’s stock comes from private forest ownership.
“And when you consider the impact the timber industry has for the local communities in the black hills, keeping those folks employed,” Wudtke says. “Keeping those salaries running into the local communities is always important. To keep that going we rely on timber from all ownerships, including private land, in the Black Hills.”
Governor Kristi Noem says her office is monitoring the bill. She says she wants the state’s agricultural producers to be taxed appropriately. She says homeowners and commercial landowners should be taxed appropriately as well.
