April 28, 1988

Thomas E. Graslie 
Harding County State's Attorney 
Box 427 
Buffalo, South Dakota 57720

Official Opinion No. 88-16

Repeal of severed mineral interest taxation--SDCL 10-10A

Dear Mr. Graslie:

You have requested an official opinion from this office regarding the following facts:

FACTS: 

The 1988 legislature repealed Chapter 10-10A of the South Dakota Codified Laws regarding taxation of severed mineral interests.  No emergency measures were attached to the legislation and the effective date for purposes of repeal is July 1, 1988.  It appears under current law that the valuation of severed minerals will be determined for the first half of 1988 because the repeal is not effective until July 1, 1988, but the mill levy against the value of severed mineral interests is not determined until September or October of 1988 which is after the July 1, 1988, repeal date.

You have asked how Harding County should implement the valuation and taxation of severed mineral and surface estates before July 1, 1988, and after July 1, 1988.

SDCL 10-10A, as presently on the books, provides for a method for the assessment and separate taxation of severed mineral interests, that is any property interest in minerals in lands which are owned separately from any fee interest to the surface of the property upon or beneath which the mineral interest exists, § 10-10A-1.  The law provides a method by which the per acre value of the severed mineral interests may be determined by the county director of equalization and also provides for equalization of that assessment and an appeal procedure, § § 10‑10A-3, 10-10A-2.1.  The law then provides that when the  per acre value of the severed mineral interest is determined, that amount shall be subtracted from the full and true assessed valuation of the surface interest providing that that reduction may not be more than fifty percent of the value of the surface interest, § 10-10A-4.  Thus, the land itself as well as any severed interest is assessed annually for tax purposes on January 1st, § 10-6-2.  That assessment is the beginning of the total tax process which then proceeds to the equalization of the valuation under SDCL 10-11;  the fixing of local levies, SDCL 10-12;  the preparation of the tax lists by the county auditor;  SDCL 10-17;  the spreading of tax levies and finally, the due date for taxes which is the first day of January of the year following the assessment levy or extension of the taxes, SDCL 10-21-4.

In the situation concerning the severed mineral interests, § 10‑10A together with the assessment and equalization process is on the books until July 1, 1988, when it is repealed by Senate Bill 17.  There was no emergency clause.

Severed mineral interests therefore become exempt from taxation on July 1, 1988.  However, at that point in time, pursuant to SDCL 10-10A-4, the assessor will have already subtracted the assessed value of the severed interest from the full and true value of the surface interests.

In the case of McFarland v. Keenan, 77 S.D. 39, 84 N.W.2d 884  (1957), our Supreme Court held that where property had become tax exempt after  the assessment date but before taxes were levied the property was exempt and the taxpayer was entitled an abatement of the taxes.  The Court clarified that statement in the later case of Salvation Army v. Barnett, 80 S.D. 379, 124 N.W.2d 365 (1963), in holding, "It is our conclusion that the date the tax lien attaches is controlling so far as it concerns the allowance of exemption from taxes."  Taxes are declared to be a lien on real property from and after January 1st of the year following that in which they are assessed, § 10-19-1. The Court indicated there is no single levy date but many dates spread over many months when taxing bodies may adopt their separate levies.

On the last Tuesday in March of each year the townships make their levy, § 10-12-26.  School districts are required to levy by the first of September, § 10-12-29;  levies by counties are made on the first Tuesday in September, § 10-12-8.  The Court then proceeded to hold that the date that the tax lien attaches is controlling so far as it concerns an allowance of exemption.  Thus, the date of the particular levy by the subdivision is not important, it is the tax due date of January 1 following, which determines the taxable or exempt status.  Obviously on January 1, 1989, the severed mineral interests are exempt from taxation since the statute upon which their assessment and taxation was based was repealed effective July 1, 1988, without any provision likewise repealing the mandatory reduction in value of the surface interest required by SDCL 10-10A-4.

It is my opinion therefore, that SDCL 10-10A must be complied with by the assessor in making the assessment of property in 1988 and all actions taken under that chapter must be followed until its repeal on July 1, 1988.  After that time taxes will be spread against whatever valuations remain upon the assessment rolls and tax lists of the county.  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.

Respectfully submitted,

Roger A. Tellinghuisen
Attorney General