September 19, 1986

Mr. Burleigh E. Boldt 
Davison County State's Attorney 
Davison County Courthouse 
Mitchell, South Dakota 57301

OFFICIAL OPINION NO. 86-37

Tax incentive formula applied to building following construction

Dear Mr. Boldt:

You have requested my official opinion based upon the following factual situation:

FACTS: 

Construction began on a commercial building in May, 1986.  On January 1, 1986, the building, for assessment purposes, is considered 60% complete with an estimated value of $72,000.  The building will be 100% complete as of January 1, 1988, at which time it will have a total estimated full and true assessed value of $120,000. 

In 1986, Davison County adopted SDCL 10-6-35.1 and 10-6-35.2 for all commercial, industrial and nonresidential agricultural structures using the 25%, 50%, 75%, 75%, and 75% formula.  The county is still using the above percentages. 

The South Dakota Legislature rewrote SDCL 10-6-35.2.  In particular, they excluded the following sentence: 

The assessed valuation during any of the five years may not be less than the assessed valuation of such property in the year preceding the first of the tax years following construction.

Concerning these facts, you have asked the following questions:

QUESTIONS: 

1.  Does the phrase 'following construction' mean following the beginning  of construction or the completion of construction? 

2.  If 'following construction' means following completion of construction and the assessed valuation may not be less than the assessed valuation of 1987, what is the assessed value of the property for 1987?  In other words, should the property be assessed on $72,000 or $120,000 as the full and true value? 

3.  Can SDCL 10-6-35.2 be amended by the County Commissioners at any time?

The law concerning discretionary formula for reduced taxation of new structures and additions was enacted first in 1970.  It has been changed over the years to permit a discretionary system for either county commissioners or governing boards of municipalities.  The statute formerly provided that a percentage reduction was specified for each year following completion of the structure or addition. The new statute enacted as Chapter 84, Laws of 1986, rewrote the entire section §  10-6-35.2 and that reads as follows:

10-6-35.2.  Such structures shall, following construction, be valued for taxation purposes in the usual manner.  However, the board of county commissioners of such county wherein such structures are located, may in their discretion adopt any formula for assessed value to be used for tax purposes.  The formula may include for any or all of the five tax years following construction all, any portion or none of the assessed valuation for  tax purposes.  The assessed valuation during any of the five years may not be less than the assessed valuation of such property in the year preceding the first year of the tax years following construction. 

Thereafter such property shall be assessed in the same percentage as is all other property for tax purposes.

Thus, rather than having a fixed percentage formula, the board of county commissioners may adopt as stated any formula for assessed value which may include 'for any or all of the five tax years following construction, any portion or none of the valuation for tax purposes.'

IN RE QUESTION NO. 1:

It is my opinion that the phrase 'following construction' means the completion of construction since property is assessed by an assessor during the time it is being constructed, already based on the percentage of completion. The discretionary formula relates to an incentive for completion of business structures rather than the process of building the structure.

IN RE QUESTION NO. 2:

If the building is 60% complete on January 1, 1987, and at that point has an  assessed valuation of $72,000, then that would be the value that should be used for 1987.

IN RE QUESTION NO. 3:

It is my opinion that the board of county commissioners can amend the tax discretion formula at any time but that amendment would not relate to property which was already under a prior discretionary formula, and with the qualification that the property may not be assessed at less than the assessed valuation of the property in the year preceding the first year of the tax following construction.  The discretionary percentage could be set at zero for the five years, however, it must be remembered that the adoption of this formula by the county commissioners requires automatic application to all similarly situated property in the county, Opinion 76-25, with which I concur. Therefore, if it were set at zero for five years, the commissioners would lose the assessed valuation on all property that was similarly situated after that period of time.

It is also my opinion that the same formula as is adopted for similarly situated property under §  10-6-35.2 will be automatically applicable to property under §  10-6-35.19.  In this connection I have also considered Official Opinion 78-11 and adhere to that opinion as written.

Respectfully submitted,

Mark V. Meierhenry
Attorney General