SB 4:Correcting an Injustice in Taxation

by Catherine Carter

Senator Jim Peterson (D-District 4) has introduced SB 4, “An Act to provide for the assessment of certain agricultural land as noncropland.” The intention of this bill is to restore fairness to the land assessment process, and to preserve grassland that protects water and wildlife (Peterson letter to Capitol Journal
Grassland serves to prevent erosion, filter water before it enters lakes and streams, replenish the aquifer, and preserve wildlife, aside from supporting cattle and other range animals. Some West River grassland occurs on good quality soils where rainfall is adequate to grow grass and some perennials, but inadequate for row crops. The current system of land assessment uses only soil type to determine the value of the land, and does not even consider whether water is a limiting factor in the use or value of the land. The result of the current land assessment process is that some west river grasslands are assessed as cropland and taxed at levels equal to or even greater than what the land is worth in terms of rent or income.

SB 4 is an effort to correct this injustice.

Some equalization directors argue that they have to assess the land at the value of its “highest and best use.” The term “highest and best use” is just a real estate term, not a moral or philosophical term, unless of course one’s philosophy is strictly commercialism. It mandates that appraisers assess land at the level of the use that would return the greatest profit to the owner (assuming the use is legal, physically possible, and economically viable) Under this standard, the argument is made that the highest land value can be acquired by irrigating the land and putting in row crops, so the land is assessed at this value.

However, not only is irrigation costly, but water availability is an issue in many areas. Aquifer depletion is rapidly becoming a serious problem, especially as the rate of depletion has increased in recent years (Konikow 2013 ). (SD has recently begun a project to evaluate the age of the stored water and the recharge rate of its aquifers.) The topography of west river land also often impedes irrigation and poses an increased risk of erosion, further diminishing land value and impairing streams and rivers. Some land is just too steep and irregular to make row crop production practical or even possible. So physical and economic constraints militate against using these grasslands for row crops, and the environmental fragility of the region, and the contribution of grasslands to water protection, conservation and wildlife habitat, support their continued use as non-cropland.

The argument that we need to tax all land at the value of its “highest and best use” falls short of embracing higher policy. Exclusive dependence on the “highest and best use” in setting taxation schemes often fails to consider fairness, practicality, environmental variation (e.g., rainfall or the lack thereof, and topography), community values, protection of water resources and the importance of environmental preservation to all citizens. Nevertheless, even the “highest and best use” standard of assessment would allow consideration of factors that prevent or make it economically unsustainable to use a property for its hypothetical best use. SB4 would correct a system that inadvertently omitted consideration of such factors.

Lance Nixon points out that the Corn Growers Association and the revenue department oppose SB 4 on the grounds that a reduction in tax rates for these grasslands will shift the tax burden onto other property owners, or may reduce state and local revenue. However, Peterson reminds us that a major shift has already occurred, from commercial and home property to agricultural land. Agricultural land has almost doubled in value in just the past 4 years, increasing by 16% to 34% annually in some years , much faster than the rate of increase in homes and commercial properties. Some county mill levy rates have even fallen due to the increase in agricultural land values. The extreme rate of increase in crop land values has declined somewhat in 2014-16 (due to decreasing crop prices), but range and pasture land values continue to increase at double-digit rates , so non-cropland assessments are still out-pacing commercial and home property in terms of rate of increase in value.

The current land assessment procedure is unrealistic, unfair, and contrary to the public interest. Maintaining water quality (by filtration), preserving water (by not contributing to aquifer depletion), maintaining soil by preventing erosion, and preserving wildlife habitat are important contributions to all citizens of SD, and should not be penalized by unjust taxation based on hypothetical but impractical and environmentally indefensible land assessments.



  1. Thank you for this analysis! The concept of taxing land use based on the highest potential of the soil seems to force landowners to second guess the intent they may have for the use of their land. Conversion of native grassland is way up in the eastern side of the state as well, where water quality in local waterways is terrible. This would ease the tension between the trend of row crop land conversions while at the same time fostering some land use practices that could increase conservation and pollution mitigation efforts. Great post.

  2. Bill Powers says:

    It seems to me that according the “highest and best” use, one would not be irrigating in much of west river. Only those close to the river irrigate, and I presume that they do so because it is economically viable. Economic viability is an important aspect of “highest and best.” As long as the land is zoned agricultural, not irrigating is the “highest and best” use for much of this land. Were it otherwise, farmers would be irrigating and growing row crops. They wouldn’t be concerned, for the most part, whether preserving them as grasslands protects the water quality. The difficult part comes with changing capabilities. Many land owners in west river have traditionally ranched, and have been doing so for a hundred or more years. With changing seed characteristics it may be that they can grow corn profitably, perhaps more profitably than raising cows. The current “highest and best” rules would entail that they ought to give up ranching and start growing corn. And perhaps, over time, this would happen. But their costs of ranching would go up over night. The real estate values are based in part on what the land might sell for and that depends on what you can do with it. It might seem more fair to value land based upon how it is currently being used. I don’t know what to say about that. It just ain’t that way. One point that struck me in this article we ought to be concerned with. We ought not complain about a certain segment of our society having greater power when it is they that provide the greater resources. If it is commercial agriculture that is paying for much of our public welfare, it is only reasonable that what they want gets full attention. In large measure this is because we have no state income tax. Our democracy is an odd place. It only seems fair that they who provide the funds ought to have more say. Yet we are committed to everyone having a voice, no matter their ability or their relative importance. One way to deal with this is a kind of leveling: try to equalize everyone’s resources, abilities, or whatever measure of better conceivable. This attitude can lead to a kind of Harrison Bergeron attitude, one that we would all likely disapprove of. Something different is required. A transformation of individuals would be nice. Lacking that, we enforce some kind of institutionalized power structure that approximates the end we imagine. That’s what politics is apparently about. Anyway, just thinking.

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