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Ag Land Evaluation Excludes Small Local Farming

The Legislature's Ag Land Assessment Task Force gets me to notice a tiny portion of our agricultural land assessment rules that show South Dakota thinking like Earl Butz, telling farmers to get big or get out... of agricultural land classification.

The evaluation of ag land is currently a contorted potential income tax, but the important part here is that ag land is taxed much less per acre than residential land. SDCL 10-6-31.1 says that land must meet two of these three criteria to be taxed at the lower agricultural rate (farmers, legislators, let me know if I'm boiling them down correctly):

  1. A third of the gross family income must come from agricultural activities on the land;
  2. The principal use of the land is agriculture;
  3. The land in question is at least 20 acres (although counties can increase that minimum up to 160 acres).

The interim committee is considering rewording that statute to make the principal-use criterion mandatory and requiring the land additionally meet either the one-third-income or minimum-size requirement.

I understand that some of the angst over ag land assessment comes from Pennington County, where evidently some Black Hills residents have kept taxes on their scenic parcels low by harvesting a little timber and calling themselves tree farmers.

But consider this situation: suppose the Governor gets serious about rural development in his second term and retools Dakota Roots to recruit young families to take up small-scale farming. We encourage young couples to buy small farms, less than ten acres, to grow real food for local sale and consumption. These young farm couples dig in for some local-level garden farming, but at least one member of the family maintains professional employment teaching, lawyering, doctoring, carpenting, what-have-you to ensure some income stability.

Under either version, current or amended, of our tax rules, those intrepid young small farmers get hit with an extra tax burden. It seems odd to tax farmers more just because they have chosen to work on a smaller scale. It seems contradictory for our income-tax-averse Republican Legislature to impose a higher tax rate on farmers based on their income.

Our property tax code should be able to distinguish between farmers engaged in real farming and Black Hills retirees tricking the county by chopping a few trees. But if we can't write a law to recognize that difference, we shouldn't punish small farmers who choose to sell their goods to their neighbors at the farmers' market instead of Smithfield, ADM, and Bel Brands.

We could avoid all this land-evaluation rigamarole if we just replaced our antiquated property tax with an income tax. Short of that, we could write a tax code that encourages young people to get into farming without feeling like they have to commit to the Big-Ag cycle of corporate serfdom and debt.

Related: The Legislature may be inching toward turning the agricultural land assessment into something even closer to an income tax. At their Tuesday meeting, the ag land assessment task force voted unanimously to commission SDSU economists to study the impacts of assessing ag land on actual use instead of ideal use. (Hey, isn't that Rep. Charlie Hoffman's good idea?)

32 Comments

  1. Tim 2014.11.22

    "I understand that some of the angst over ag land assessment comes from Pennington County, where evidently some Black Hills residents have kept taxes on their scenic parcels low by harvesting a little timber and calling themselves tree farmers."

    Don't expect republicans out here to do anything about this unless the state forces them too. They take care of their own out here, while expecting us city dwellers to make up the difference with our property taxes.

  2. Jeff Barth 2014.11.22

    Minnehaha County has raised the Ag land definition from 20 to 40 acres.

  3. caheidelberger Post author | 2014.11.22

    Commissioner Barth, are there any small farmers'-market farms in Minnehaha County that operate on less than 40 acres?

  4. caheidelberger Post author | 2014.11.22

    Now Tim, there's something that's got me wondering: who's making the fuss? Basically, someone is asking Pennington County to tax certain rural folks a whole lot more than their current levels. Who's pushing this issue out there?

  5. Jeff Barth 2014.11.22

    I know of one 38 acre parcel that was affected.

    Prior to the change for example we had folks on 20.3 acres with palatial homes and tree lined driveways who had the Ag tax rates as they had a miniature horse in the backyard.

    I have always thought that the true value of land should be the basis of property tax not some funky formula dreamed up in the backrooms of Pierre.

  6. Jeff Barth 2014.11.22

    It seems every new "formula" outside of actual value causes distortions after a year or two leading to more Legislative study... and a new "formula".

  7. Tim 2014.11.22

    I find research at RCJ much harder now that I don't have a subscription anymore, there were several articles a year or so ago pointing out things like what Jeff talks about, they just threw a fit at the thought of paying their fair share of taxes.

  8. bearcreekbat 2014.11.22

    Lawrence County also changed it to 40 acres. My mother owned a 35 acre tract and qualified for the break only in one year after most of her income came from a tree harvest. The next year she lost the break due to no tree harvest. The irony is that this 35 acres was, and still is, used every year for cattle grazing, but my mother did not receive any actual income by permitting the grazing, so no tax break. By the time cattle grazing was recognized as an agricultural activity, the County raised the acreage requirement to 40 acres and my mother was then out of luck, as the majority of her income came from her $500 per month SSA benefit, along with a small stipend from her savings.

    She came out okay though as we paid her property taxes so the lack of a break did not hurt that bad. Had she been without our support she would have lost her land, which she inherited from her father and lived on until her death.

  9. caheidelberger Post author | 2014.11.22

    So how much leeway do commissioners have to override statute here? Commissioner Barth, if someone in BCB's mom's situation came to you and explained the situation, could the county grant her land conditional ag status, even though it doesn't meet the statutory definition?

  10. Les 2014.11.22

    There are many in bcb's position, Cory. There may be other angles than this but, I believe it is the developer and other power strokes looking to force sales of all these wonderful little properties.
    .
    This is contrary to some opinion here that it is retirees. Most have been in the families for generations. There are exceptions but that is how I see it in the Black Hills region where those values can be so high.

  11. Les 2014.11.22

    Regardless, this is a forced liquidation of these properties as no one on their little acreages will make appreciable income with legal crops. Other than the very few retirees out there.

  12. Jaka 2014.11.22

    Cory and all, you are going into another maize and I credit you all for the journey! "Fair' taxation can and does exist, just not in SD! Without taxing income on a more fair basis we will always be behind the curve here. I've never understood our hatred for an income tax--esp. from the 'ag' sector! Understanding human nature, I've always understood that the most 'fair' tax is always on the other guy! The cyclical nature of ag markets is such that when prices are good, one can pay---when prices are in the toilet and one loses money you don't have to. But the poor and working guy on minimum or slightly more pay scale pays the fuel taxes, property/school taxes (even thru rent) sales tax etc (most every dollar of a paycheck pays taxes to the state ya know!) whereas all the deductions given to the ag sector (and others) leave some room.l Ag property tax can be out of sight, yes, and the pain is bringing some attention--but in this state it will be smoke and mirrors is my guess...

  13. Jeff Barth 2014.11.22

    We really can't allow disparate treatment.
    There is an Elderly Tax Freeze available to older people with low incomes. They can only have property up to a certain value though. Something like $150,000. Thirty five acres in the right location could be worth millions.

    Les, if all that land went on the market at once the value would drop and so would the taxes.

  14. Les 2014.11.22

    Fortunately, we don't all go broke simultaneously, Jeff. I agree a forty with or without ag production needs a higher rate than ag. But it shouldn't match development property unless it's sold and platted for that. It's not right to force liquidation so commissioners can rake the cash and developers can make the profits through development.
    .
    I see many of those properties in Pennington for example, who live closer to the outhouse than the penthouse.

  15. David Losure 2014.11.22

    A progressive income tax would be a much more equitable way for the state to raise revenue than the property tax system we have now. I don't understand why the ag community is against it. I wouldn't mind paying my fair share when times are good in ag, but getting a break on my taxes when prices (and my income) are down. Shifting the tax burden away from property and on to income would help avoid situations where retirees get taxed off their land, and would also ensure that doctors and lawyers in Sioux Falls and Pierre would wind up having to pay in their fair share.

  16. caheidelberger Post author | 2014.11.23

    Les, I wondered if there was a development angle here. It strikes me that the ag assessment is a way to promote conservation.

  17. caheidelberger Post author | 2014.11.23

    David, I'd love to roll with you on that progressive income tax. We do it for banks with the bank franchise tax, and Citibank hasn't left South Dakota yet. We're creeping toward it with the current ag assessment scheme, which is really less fair than a simple, straight-up income tax for exactly the reason you cite (why tax farmers on the basis of $7/bushel corn from a couple years ago when this year they are getting $3/bushel?). Property tax can force people off their land, but I have yet to hear of the income tax taxing people out of their jobs.

  18. caheidelberger Post author | 2014.11.23

    "closer to the outhouse than the penthouse"—Les, is that your original phrase? It's pretty good!

  19. Troy 2014.11.23

    Cory as you shift funding of schools away from rich hobby farmers to others, don't increase my taxes as you indulge fantasies of small scale farmers and organic kumbaya gatherings on Saturday morning.

  20. larry kurtz 2014.11.23

    Troy is right: South Dakota is a sacrifice zone.

  21. Nick Nemec 2014.11.23

    I agree with Jeff Barth on this subject, the simple answer is to tax property at its value on the open market. It's a much fairer system than some convoluted formulas dreamed up in Pierre by interest groups with an ax to grind and the ear of willing legislators.

  22. Nick Nemec 2014.11.23

    Or institute an actual income tax.

  23. Les 2014.11.23

    """"I agree with Jeff Barth on this subject, the simple answer is to tax property at its value on the open market"""". Great, Nick. We tax your land at market value. No problem funding education now!
    .
    Ive used it for life, Cory but please understand, pick a lane ain't no more Kurses than this statement is mine.

  24. Les 2014.11.23

    Ive said this before, Nick but I'll say it again. My ag land is .3% of market value....3/10 of a percent. My Black Hills residence is .95% or 9/10 of a percent of market value and I believe your land is light years beyond our West River land in market values.
    .
    I say, get those teaches paying tax. Income tax for all. Look at the revenue our state lost by not capitalizing on the high commodity bubble that recently broke. Your neighbors aren't very happy with you now, Nick. I am.

  25. larry kurtz 2014.11.23

    Les is writing from Texas, people.

  26. Bill Dithmer 2014.11.23

    Wow, I never agree with Troy but there it is. Has South Dakota frozen over?

    The Blindman

  27. Les 2014.11.23

    No, Lar. I spent the morning in Sturgis and the afternoon will be at home.
    Lar on the other hand can be anywhere in the world at any given moment, depending on the ingestion.

  28. Les 2014.11.23

    In my mind, Troy is only right to the extent that when those small properties hit the market and build tax base due to coming through current market sales to new valuations, make that the assessed value.
    .
    The rich guy will always be able to hide income and make those small acreages fit with his LLC's and devices Troy would be much more familiar than I am.
    .
    If we are to pick and choose, singularly on taxation, it is no more than usuing the strong arm of the law to put the burden on someone other than the majority/minority doing the picking and choosing..

  29. Tim 2014.11.23

    Les, I'm shocked, you a republican in SD all these years have not got yours yet? You might be voting for the wrong party, like so many of your right wing friends.

  30. Les 2014.11.23

    You don't make sense tim. Spell it out. Got my what? I don't have any more right wing friends than I have left wingers. Not sure where you go to find them in sd. How do you know how I'm voting? You on the other hand, if you vote, I have no doubt who you are voting for, Tim. You wouldn't vote for Lincoln.

  31. Tim 2014.11.23

    The way you talk here, you have not made your fortune yet, but you say you are a republican. You seem to be one of those people that insist on voting against your own best interests and keep punching R at the ballot box because you refuse to support those damn libbies. I would have no problem voting for Lincoln but then again I have the advantage of history telling me what he stood for. You should have no doubt who I voted for as I have stated it here several times, and by the way, I am proud of my vote and the fact I have never missed an election in my 38 years of being eligible.

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