SIOUX FALLS, S.D. (KELO) — Although concerns about property values and property taxes have increased in South Dakota, state lawmakers should make no mistake by capping or cutting certain categories of property taxes, he said Professor Ed Gerrish.
Any changes at the state level would affect what happens at the local level, Gerrish said.
“Even a small change (in farmland) could mean millions of dollars,” Gerrish said.
Gerrish has been studying property tax systems and teaching about the South Dakota system for several years as an associate professor of public administration at the University of South Dakota.
A legislative committee called the study committee on property tax assessment methodology had its first meeting Monday. The scope of the study lists property assessments, but today’s agenda also included information from the Agricultural Land Assessment Task Force.
Equalization directors from a half-dozen counties with a mix of situations, as well as agricultural, retail and real estate groups, will testify at the next meeting.
“There’s a perception that people have that property taxes have gone up because property values have gone up, and ironically the opposite is true,” Gerrish said.
“As property values have increased, property tax rates have gone down because the value of things has increased more than state and local spending,” he said.
But then inflation also occurred, he said. Therefore, rising costs affected local governments’ property taxes, Gerrish said.
“The confusing part is that when you increase the value all you do is reduce the tax,” said Lincoln County Auditor Sheri Lund. In fact, there is more property tax revenue spread throughout the county, Lund said.
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All counties and the like are facing inflation, which has increased costs for materials and services.
A population with a growing county may have higher expenses to cover the costs of serving that larger population, Gerrish said.
A county with a declining population can still be expected to maintain a certain level of services, which could cost more money, Gerrish said. A shrinking population can increase costs.
Counties, townships and cities follow state rules governing the amount of taxes that can be levied, Lund said.
The rules also applied to appraised values of properties, such as sales of similar properties. For agricultural land, yields and other income indicators are also used.
Property values, or appraisals, can increase on individual properties if an improvement like a garage is added, said Karla Goossen, Lincoln County equalization director.
If a home was valued at $100,000 and the value increased to $125,000 and the tax burden is 5%, for example, the 5% applies to $125,000 and not $100,000.
It costs money to build and maintain roads and streets, provide public education and pay employees, Goosen said.
Goosen estimated that 65% of the property tax goes to local school districts. If those districts have bonds for building construction, the need for revenue increases.
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The Harrisburg and Tea school districts have more than five bonds each that require property tax revenue, Lund said.
Both school districts are growing and new schools have been built.
Gerrish said there is a demand for high-quality schools in the state.
There are similar demands for amenities like pools that in today’s world have multiple slides and other features, Gerrish said. It takes money to build those facilities.
It’s also not a coincidence that some counties that have been hearing concerns or questions about property taxes or property values have courthouses or jails that need repairs, Gerrish said. Counties may be considering reparations or even combined jails. Many of these buildings are almost 100 years old.
How do South Dakota property taxes compare?
South Dakota ranks 35th out of the 50 states in terms of property taxes, according to the state Department of Revenue (DOR). That information was provided at Monday’s summer study group meeting.
When per capita property taxes are considered, the state ranks 25th, according to the nonprofit Tax Foundation, Gerrish said.
“There’s nothing particular about South Dakota, but each state does it a little differently,” Gerrish said. “And from an academic perspective, it’s also very difficult to study because the way states do it is different.”
States will have different property tax categories, such as agricultural, residential, commercial, or industrial. They can be combined commercial and industrial. The rates, rules or formulas applied to those categories will also vary.
Many states, including South Dakota, subsidize property taxes on agricultural land. Like many states, it’s a complicated structure that includes revenue potential through yields or production, he said.
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When property sales are considered, state taxes on agricultural land are about half of what commercial properties would be taxed, Gerrish said. If a person buys agricultural land for a gas station, taxes would be almost double what would be paid if it had remained agricultural land, she said.
There would be risks if the amount paid through agricultural land was reduced, Gerrish said. “There’s not much room to go lower,” she said.
Limiting assessed values as California does would also be a mistake, he said. California limits annual value increases to 2%. The state once used property taxes to fund schools, but needed to find additional sources because the cap meant revenue couldn’t keep up, Gerrish said.
Gerrish said a tax cut is a change in taxes, since local governments and schools still need to provide the services that people demand and want.
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