May 25, 1989

Robert A. Haivala
Harding County State's Attorney
Box 515
Buffalo, South Dakota 57720

OFFICIAL OPINION NO. 89-15

Tax Freeze and Mineral Interest Assessment

Dear Mr. Haivala:

You have requested an official opinion on the following factual situation:

FACTS:

In 1988 the South Dakota Legislature repealed SDCL 10-10A, a statute which apportioned values of real property, for assessment purposes, between surface owners and owners of severed mineral rights. With the repeal, the surface owner now becomes responsible for the assessments on the full value of the real property regardless of whether there were any severed mineral interests or not. The County Assessor, by January 1, 1988, had completed new assessments on the surface owners.

During the 1989 Legislative session, the Legislature passes Senate Bill 121 that states in part that the amount of property tax shall not exceed the total amount of property tax on property levied in 1988 and payable in 1989. Section 4 of the Bill allows additions, improvements or change of use of property which were not assessed in 1988, shall be assessed without regard to limitations of the act.

QUESTIONS:

1. Does the assessment of surface owners for the full value of the property, as is mandated by the repeal of SDCL-10-10A, violate sections 1 and 2 of Senate Bill 121?

2. In the alternative, does assessing the surface owner on full value of the property fall under the Section 4 exception as provided in Senate Bill 121?

Senate Bill 121 was the tax freeze legislation introduced in the 1989 Session. By law, the total amount of property tax dollars levied on any property for county, civil, township, school or other taxing district purposes shall not exceed the total amount of property taxes on such property for that district levied in 1988 and payable in 1989. Thus, if I as a property owner had X number of dollars levied on my property in 1988 I may expect to pay not more than that same amount in the next two years, with certain exceptions.

The questions you raise deal with those exceptions. In Section 4 of Senate Bill 121, any additions, improvements or change of use either actual or legal of property which were not assessed in 1988 shall be assessed without regard to the basic limitations of the Act.

SDCL 10-10A provided a method of taxing severed mineral interests and in Section 10-10A-4 required that the per acre value of the severed mineral interest multiplied by the number of acres in the mineral interest should be subtracted from the full and true assessed valuation of the surface interest. The amount determined to be the tax owing from the formula attributable to the severed mineral interest would be paid by the owner of the severed mineral interest. SDCL 10-10A-2. Therefore, the taxes levied on any piece of property which had severed mineral interests in 1988 consisted of the taxes on the severed mineral interest as well as the taxes on the value of the surface owner. Therefore, normally it would have been permissible to avoid the tax freeze by merely relating the total amount of taxes on a given piece of property to the taxes which were to be levied in 1988.

In point of fact, however, SDCL 10-10A was repealed by Chapter 85, Session Laws of 1988, effective July 1, 1988. Since all the levying of taxes takes place after July 1, 1988, there were no taxes levied in that year on the severed mineral interests. Therefore, the only taxes levied on the "property" were those which were levied on the value of the surface. In this connection see Official Opinion 88-16 which considered the effect of the repeal of the severed mineral interest taxation, SDCL 10-10A. In the conclusion it was pointed out:

By the repeal of the tax against severed mineral interests, while leaving in place the reduction in valuation of the surface owner, the legislature must have realized that it was giving a tax break to the surface owner, but by not replacing the funds lost by that action from any other source it automatically will increase the burden upon the surface owners.

I continue to hold to that opinion and find that now the situation has not changed and the value on the property may not be increased.

The answer to question 1 is that an assessment of the full value of the surface owner's property does not violate section 1 and 2 of Senate Bill 121 since, regardless of the value that is placed on the property, the taxes levied against that property may not be more than the taxes levied on the same in the years 1988 payable in 1989.

As to question 2, it is my opinion that so far as the surface owner is concerned there has been no change of use of his property, either actual or legal, nor has there been any addition or improvement to his property--it is merely a fact that the Legislature failed to recognize the effective date of tax legislation and as a result has hampered the collection of taxes in Harding County and elsewhere where there are severed mineral interests. I would remind you that under Section 13 of 1989 SB 121, a 2/3 vote by the County Commissioners would allow the increased tax to be imposed assuming no referendum.

Respectfully submitted,

ROGER A. TELLINGHUISEN
ATTORNEY GENERAL

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