December 29, 1989

Wm. Mark Kratochvil
Brookings County Deputy States Attorney
501 3rd Street
Brookings, SD 57006

OFFICIAL OPINION NO. 89-36

Discretionary property tax formula application

Dear Mr. Kratochvil:

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

FACTS:

Brookings County has not adopted a discretionary formula under SDCL 10-6-35.2. The city of Brookings, although it has had a discretionary formula since 1973, recently re-adopted and clarified its formula. The newly adopted municipal discretionary formula excludes residential property. Brookings County is now considering adopting its own discretionary formula.

Concerning these facts you have asked the following questions:

QUESTIONS:

1. Can the city of Brookings exclude residential structures from its discretionary formula?

2. If your answer to 1, above, is in the negative, how should the Brookings County Director of Equalization interpret and Is it entirely void or subject to other application?

3. If the county adopts a discretionary formula, does such adoption eliminate the city's discretionary formula?

4. If the city's discretionary formula is considered void, and the County adopts a discretionary formula, will the city be entitled to adopt a discretionary formula?

SDCL 10-6-35.1 through 10-6-35.4 constitutes a formula for tax incentive assessment of real property for ad valorem taxation. The formula applies to all new industrial or commercial structures, or additions to existing structures having a true and full value of $30,000 or more. SDCL 10-6-35.1. Such structures are first valued for tax purposes in the usual manner. Thereafter, the tax official applies a percentage adopted by the Board of County Commissioners, which may be all, any portion, or none of the assessed valuation for tax purposes during the next five-year period. SDCL 10-6-35.2. If the Board of County Commissioners has not adopted a formula pursuant to 10-6-35.2, the governing board of a municipality may, in its discretion, adopt all or any part of the formula for assessed value for structures located within, or within three miles of, the corporate limits of the municipality, pursuant to SDCL 10-6-35.2. SDCL 10-6-35.4.

Since Brookings County saw fit not to enact a discretionary formula ordinance, the city of Brookings, pursuant to SDCL 10-6-35.4, was empowered to do so. The city, however, was limited by the terms of state law. Resolution No. 77-89 in part provides: ". . . the term `commercial structures' as that term is used in SDCL 10-6-35.1 and in Resolution No. 78-89 (adoption of the discretionary formula) includes buildings, such as wholesale and retail stores and storerooms, and office buildings, but does not include residential buildings such as apartments used as dwellings for one or more families or persons, . . . "

Although the city has attempted to exclude apartment houses from the ordinance, it is my opinion that they are commercial structures, even though used only for residential purposes. The owners are involved in commercial, profit-motivated businesses. Black's Law Dictionary, Fifth Edition, defines "commercial property" as "income producing property (e.g. office buildings, apartments, etc.) as opposed to residential property." I concur with that definition as applied to these facts. This opinion is consistent with that of Official Opinion No. 77-53, wherein my predecessor opined concerning apartment houses sought to be excluded by a municipality from such a discretionary formula: ". . .the language of SDCL 10-6-35.1 indicates to me that all such property is thereby specially classified and consequently all eligible to be treated equally under the discretionary formula. . . . I do not read these statutes as allowing county commissioners or governing boards of municipalities to accept or apply the special tax benefits to commercial buildings (excluding apartments) or just industrial buildings or structures, without including all of the structures fitting within the purview of SDCL 10-6-35.1."

IN RE QUESTIONS 1 AND 2:

Brookings City may not exclude commercial residential property from its discretionary formula. This result leads to the answer to Question 2:  the County Director of Equalization should apply the city's discretionary formula, as adopted by Resolution 78-89, to all new industrial or commercial structures or additions, to existing structures, including residential commercial structures, and ignore the unauthorized language contained in Resolution No. 77-89.

IN RE QUESTIONS 3 and 4:

It is my opinion that the county, itself, may adopt a discretionary formula even though the city has previously adopted one. The county's formula would be applicable according to its terms on all property in the county except that property presently covered by the city formula would continue to enjoy the application of that formula until the expiration of the five years following completion of the particular property. Property constructed after the adoption of the county formula would be assessed and taxed under that formula. If the county has a formula in place, the city may not adopt or re-adopt another formula.

Sincerely,

ROGER A. TELLINGHUISEN
ATTORNEY GENERAL

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