State consultant recommends cropland tax assessments remain unchanged

Farm Forum

PIERRE — South Dakota shouldn’t change two pieces in its complex formula for setting taxable values of cropland, an economist told the Legislature’s task force on agricultural assessments Monday.

Burton Pflueger, a professor at South Dakota State University, testified that the annual earning capacity for cropland isn’t out of line at 35 percent of the annual gross return from the land. He reached a similar conclusion about the capitalization rate of 6.6 percent that is applied to the earning capacity in order to determine the agricultural income value.

In his analysis, Pflueger looked at various sources of information for South Dakota, North Dakota, Minnesota and Nebraska. He recommended that any change in those two factors wait until all counties have caught up in their cropland assessments.

State law currently limits how much the total value of cropland in a county can go up or down in a year. The restrictions apply through taxes payable in 2019. Counties are expected to be in full compliance for 2020.

The task force’s chairman, Sen. Larry Rhoden, said certain pieces of the formula were “backed into” so they didn’t artificially increase tax revenues. The 35 percent landowner share and 6.6 percent capitalization rate were two of them.

“Yet, those numbers, by happenstance, were pretty close to what the actual numbers should have been,” said Rhoden, R-Union Center.

Pflueger said he agreed with Rhoden’s observation.

Several different approaches can be used to calculate landlord share percentages, Pflueger said in his presentation. He noted that some approaches “may, arguably, indicate that the factor be higher than what is currently used in the formula.”

For 2013, the landlord’s share of yield in the neighboring three states for corn was 32.13 percent in North Dakota, 43.05 in Nebraska and 45.39 in Minnesota.

The 2013 share rate for soybeans was 35.27 percent in North Dakota, 43.31 percent in Nebraska and 43.13 percent in Minnesota.

South Dakota law specifies the SDSU economics department should supply information to the task force.

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