STATE OF SOUTH DAKOTA
OFFICE OF
THE ATTORNEY GENERAL
December 15, 1992
Ronald J. Schreiner
Secretary of Revenue
700 Governors Drive
Pierre, South Dakota 57501-2291
OFFICIAL OPINION NO. 92-05
Acreage restrictions of House Bill 1095
Dear Mr. Schreiner:
You have requested an opinion of the Office of the Attorney General regarding the following factual situation:
FACTS:
SDCL 10-11-55 requires me to prepare and publish an annual report on the quality of assessments in the counties. This study is known as the sales to assessment ratio study. During the 1992 Legislative Session, House Bill 1095 was passed and signed into law. Section 2 of this act limits the size of certain sales that can be included in the annual study.
Information from the study is used in state aid to education calculations, in determining equalization factors for overlapping municipalities and schools, in determining if the county has met assessment compliance standards, and by the county directors of equalization as a tool in the appraisal of property.
In regard to the above factual situation, you have asked the following questions:
QUESTIONS:
l. Because section 2 is only in effect from 1uly 1, 1992, to 1une 30, 1993, do the size restrictions only apply during that period or do the restrictions apply to all sales included in the 1993 study to be completed in 1uly 1993 (1991 and 1992 sales and assessments)?
2. Do the restrictions in section 2 also apply to the annual calculation of the assigned value for state aid to education purposes? The assigned value is used to determine the adjusted full and true value as defined in SDCL 13-13-10.1.
3. Do the restrictions apply when calculating the factor for equalization in overlapping school districts and municipalities (SDCL 10-12-31.1)?
4. Department of Revenue policy mandates that there be at least 15 individual ratios (sales price to assessment) for each county in the study. Remedies for inadequate sample size include using a Department of Revenue appraisal in lieu of sale price. Is the Department restricted to appraising only parcels over the minimum size when adding appraisal-assessment ratios to the study?
5. SDCL 10-11-58 allows one county to "bridge in" sales from another county if there are less than 10 sales. Are sales being bridged in or out of one of the counties listed in House Bill 1095 restricted?
6. Chapter 10-6 outlines the procedure for assessors to use to value agricultural land. Are the comparable sales described in SDCL 10-6-33 and 10-6-33.1 also under the same restrictions as the sales used for the ratio study? If so, for what period or assessment year?
GENERAL DISCUSSION:
The 1992 South Dakota Legislature passed House Bill 1095, which is found in 1992 South Dakota Session Laws, Chapter 83. The first section of that act calls for a study of land valuations, and is not helpful to the questions you have raised. The second section of House Bill 1095 is present! y codified at SDCL 10-11-55.1, and reads in full as follows:
SDCL 10-11-55.1. The South Dakota Legislature finds that the sales price of agricultural property in certain regions of South Dakota have been significantly affected by factors unrelated to the actual value of such property when used for agricultural purposes. These factors include nonagricultural development for residential, recreational, gaming and tourism purposes.
The sale of agricultural property influenced by such nonagricultural uses is found to generally result in significantly higher sales prices. The use of sales data from such sales in compiling the sales to assessment ratio study provided for in SDCL 10-11-55 has resulted in valuation of agricultural land which does not reflect the actual value of such land for taxation purposes.
The Legislature finds that the counties where this impact is most significant are Butte, Lawrence, Meade, Pennington, Custer, Fall River, Union and Minnehaha.
In order to more fairly determine the level of assessment compliance, only sales of property classified agricultural of three hundred twenty acres or more in Butte, Lawrence, Meade, Pennington, Custer and Fall River or forty acres or more in Minnehaha and Union and which has been verified to be an arms length transaction shall be included in the annual sales to assessment ratio provided in SDCL 10-11-55. (Repealed by SL 1992, ch 83, 2, effective June 30, 1993).
It is important to note that SDCL 10-11-55.1, which is effective from July 1, 1992, through June 30, 1993, only discusses the sales to assessment ratio of SDCL 10-11-55. House Bill 1095 does not alter the rules or methodology that a director of equalization must use in assessing all real property within their county, whether it is agricultural or nonagricultural. The only thing that House Bill 1095 does is address the sales to assessment ratio, and the information that can be used in that particular ratio study.
The ratio study is important when one reviews SDCL 10-6-33.8, 33.9, and 33.10. SDCL 10-6-33.8 states that a county must have a median sales to assessment ratio of not less than eighty-five percent nor more than one hundred percent. The median sales to assessment ratio will go up to ninety percent on January 1, 1994. SDCL 10-6-33.9, by the same token, requires that a county have a coefficient of dispersion (statistical measurement) of not more than thirty percent. The coefficient of dispersion is reduced to twenty-five percent on January 1, 1994.
If a county fails to meet the requirements of SDCL 10-6-33.8 and 33.9, SDCL 10-6-33.10 becomes effective. That section reads as follows:
After January 1, 1993, the secretary of revenue shall withhold fifty percent of the money distributed to a county pursuant to Sec. 10-13A-3.1 if a county fails to value all real property pursuant to this chapter or violates Sees. 10-6-33.8 or 10-6-33.9 in the two preceding years. The money shall be withheld in the year following the year the violation was determined and shall be held in escrow for the county. If the county fulfills the requirements of this chapter in the year following the year the violation was determined, the secretary shall transfer the money to the county with interest at the Category E rate pursuant to Sec. 54-3-16. If the county fails to correct a valuation within the year following the year the violation was determined, the money withheld for such valuation shall be distributed according to Sec. 10-13A-3.1 among all of the counties that were in compliance that year.
The sales to assessment ratio study provides the measurements used in SDCL 10-6-33.8 and 33.9. These measurements provide a basis upon which the Secretary of Revenue may withhold the personal property replacement funds if a county does not meet the necessary requirements of SDCL 10-6-33.8 and 33.9.
Many individuals get confused with the sales to assessment ratio, believing it is the final word in valuing real property within their county. The sales to assessment ratio operates more as a report card, indicating the quality of a director of equalization's past assessment effort. Of course, that quality of assessment effort can be modified by a county board of equalization.
Directors of equalization should not solely rely upon the sales to assessment ratio in valuing real property. SDCL 10-6-33 requires that all property in any county be assessed at its true and full value, which the South Dakota Supreme Court has equated with market value and actual value. Rau y Fritz, 81 S.D. 311, 314, 134 N.W.2d 773, 775 (1965). The sales to assessment ratio tells a director of equalization how they did in the past, which mayor may not be informative regarding future assessments.
With this basic understanding of the sales to assessment ratio in mind, I turn to the questions you have posed.
IN RE QUESTION NO. 1:
Your first question asks in what time period the size restrictions of SDCL 10-11-55.1 apply. Since there is no emergency clause found in House Bill 1095, the legislation becomes effective on July 1, 1992. SDCL 2-14-16. By the very terms of the act, it is repealed on June 30, 1993.
The specific question is whether the acreage restrictions apply to only those sales taking place in that time period, or must apply to all sales within a sales to assessment ratio study. The 1993 sales to assessment ratio study, for instance, will be comprised of the 1991 and 1992 sales and assessment data. Specifically, does House Bill 1095 require all 1991 and 1992 sales to meet the acreage limitations, or only those sales after July 1, 1992? It is my opinion that only those sales that take place between July 1, 1992, and June 30, 1993, are controlled by the acreage limitations of SDCL 10-11-55.1.
Since the Legislature did not specifically expand the time period in House Bill 1095, their intention was to have the acreage limitations only applied to the July 1, 1992, through June 30, 1993, time period.
IN RE QUESTION NO. 2:
Your second question asks the effect of House Bill 1095 on the state aid to education formula.
The South Dakota Department of Revenue determines the adjusted true and full value of all property in a county, each and every year, for purposes of implementing the state aid to education formula. See SDCL 13-13-10.1. The Department of Revenue ascertains the total value of all property within a county, breaks it down into school districts, and supplies that information to the Department of Education. The purpose of that process is to review a local school district's tax collection effort, to insure a more uniform tax collection effort throughout the state, and to provide for a more uniform distribution of state aid to education monies.
The adjusted true and full value of SDCL 13-13-10.1 is calculated by the Department of Revenue using the agricultural land ratio. The agricultural land ratio is a product of the relationship between the assigned value and the average assessed value. The agricultural land ratio is not calculated by use of the sales to assessment ratio of SDCL 10-11-55. Therefore, any changes in inputs to the sales to assessment ratio of SDCL 10-11-55 have no bearing on the agricultural land ratio which is utilized in calculating the adjusted true and full value of SDCL 13-13-10.1(1).
The answer to your second question is that the restrictions of House Bill 1095 have no effect on the assigned value or the adjusted true and full value of SDCL 13-13-10.1.
IN RE QUESTION NO. 3:
Your third question inquires as to the effect House Bill 1095 has on the overlapping school district factors. To answer this question, it is useful to review overlapping school districts. Most school districts within the State of South Dakota have property within more than one county. Since the school districts tax collection effort must be spread uniformly between the properties within several different counties, the assessments of those properties must be equalized so each property owner pays their proportionate share of the school district budget. This equalization process is addressed in SDCL 10-12-31.1. Typically, directors of equalization in neighboring counties that have overlapping school districts reach an agreement as to an equalization factor to bring their properties into proper relation with the other for that particular school district. The question you have posed is whether House Bill 1095, and its acreage restrictions, affects those factors.
I am of the opinion that the equalization factors for schools addressed in SDCL 10-12-31.1 (the same concept applies to municipalities) is not constrained by House Bill 1095. In other words, House Bill 1095 will not change any equalization factors, which will be calculated just as they were before the legislation was passed. Again, House Bill 1 095 only affects the sales to assessment ratio study, and not the overlapping school district factors. If the Legislature wished to have House Bill 1095 control the overlapping school district factors, they could have easily made that statement.
Therefore, the answer to question 3 is that House Bill 1095 does not affect the overlapping school district factors.
IN RE QUESTION NO. 4:
Your fourth question addresses a situation in which a county does not have the requisite number of individual sales pursuant to a Department of Revenue policy, to calculate a sales to assessment ratio. When those situations occur, the Department of Revenue causes an appraisal to be completed on several parcels of property within the county upon which they base their sales to assessment ratio. You ask whether the appraisals must be based upon the acreage limitations of House Bill 1095.
It is my opinion that the appraisals completed when there are inadequate sales, must be based upon the acreage limitations found in House Bill 1095. Otherwise, one would have a situation in which several counties would have a sales to assessment ratio based upon the acreage limitations, while another county mentioned by the Legislature that does not have the requisite number of sales would have a sales to assessment ratio based upon an appraisal of a property of a different size. To carry out the will of the Legislature, it would be my opinion that the appraisals must be based upon the acreage limitations of SDCL 10-11-55.1, when these appraisals are necessary during the July 1, 1992, to June 30, 1993, time period.
IN RE QUESTION NO. 5:
Your next question asks the effect of "bridge in" sales when there are an inadequate number of sales in a sales to assessment ratio study. SDCL 10-11-58 allows sales to be "bridged in" in certain circumstances. Your question is whether the bridge in sales are affected by the acreage limitations of House Bill 1095.
In my opinion the bridge in sales are affected by House Bill 1095, and when bridging into one of the counties listed, the acreage limitations apply. The answer to this question is based upon the same reasoning as the answer to your previous question.
IN RE QUESTION NO. 6:
Your last question discusses the general assessment statutes of SDCL 10-6-33 and 10-6-33.1. These statutes require that all property within the county is to be assessed at its true and full value. You asked whether the true and full value of property within a county is now controlled by the acreage limitations of House Bill 1095.
The purpose of House Bill 1095, presently codified at SDCL 10-11-55.1, was to change the sales data for several counties in calculating the sales to assessment ratio for those counties. The sales to assessment ratio is important because counties must meet certain median levels of assessment and coefficients of dispersion to qualify for the personal property replacement funds. SDCL 10-6-33.10. The sales to assessment ratio study does not control how land is to be valued, but operates as a tool to measure a director of equalization's past assessment efforts.
Directors of equalization in South Dakota are required to assess all property at its true and full value each and every year. The director of equalization should use all sales information it can find, whether that sales information is used in the sales to assessment ratio study or not. There may be sales that do not qualify for the sales to assessment ratio study that yield useful data in assessing property within a county. A sales to assessment ratio study should never be the sole basis upon which a director of equalization makes an assessment, as a director of equalization is guided by the ultimate requirement of true and full value.
Therefore, I am of the opinion that House Bill 1095 does not change the assessment laws and criteria presently found in SDCL 10-6-33 and 10-6-33.1. Directors of equalization are to assess all properties in their counties at their true and full values, and are not constrained by House Bill 1095.
Respectfully submitted,
Mark Barnett
Attorney General
MWB:DDW:do
