February 5, 1980
Mr. John J. Gerken
Commissioner
Department of School and Public Lands
State Capitol
Pierre, South Dakota 57501
Official Opinion No. 80-8
Payment of Taxes on School and Public Lands
Dear Commissioner Gerken:
You have requested an official opinion in regard to the following factual situation:
FACTS:
In 1977 the Legislature enacted Chapter 47 of the Session Laws. This chapter changed the payment of taxes on school and public lands. It provided for the holder of the lease of school and public lands to pay the taxes instead of the money being appropriated by the State Legislature.
Based on the above facts, you have asked the following questions:
QUESTIONS:
1. Are leasehold taxes to be paid the same as other taxes, that is, one half by May 1 and the second half by November 1?
2. If the answer to 1 is yes, are there penalties to be levied after May 1, and after November 1?
3. If the answer to 1 is no, are they then due on December 31 and are penalties to be levied after that date?
4. SDCL 5-11-1.1 allows the Commissioner to cancel any lease upon which taxes had not been paid by the lessee; does this section pertain only to the lease on which taxes were not paid or would it extend to other leases held by the individual holding the lease on which taxes had not been paid?
5. If a lease(s) were cancelled (or dropped or not renewed, or sold but taxes remain unpaid), would the Commissioner be required to maintain records such as that attached and refuse to issue subsequent leases to that individual for such length of time as tax shows unpaid by county records, regardless of the tract being leased in later years?
6. Is there a list or can you cite sections of the law as to what are the 'other remedies as provided by law' as noted in SDCL 5-11-1.1?
7. When the taxes have been entered on the county book and they have been unable to collect them, what procedure should be used to remove that delinquent tax record from the county books?
IN RE QUESTION NO. 1:
In my opinion the answer to your first question is yes. SDCL 10-6-33.5 provides:
The assessment, valuation, equalization and taxation of school and endowment land leasehold interests shall be at the same level and on the same basis as lands assessed, valued and equalized according to § § 10-6-33.1 to 10-6-33.4, inclusive.
Prior to 1977, in order not to place counties having school lands within their boundaries at a disadvantage for not being able to tax and raise revenue from such lands, the South Dakota Legislature would appropriate funds in lieu of taxes on such lands to reimburse the counties for the loss of direct tax revenue. In 1977, the Legislature determined that the person who leased the land from the State should pay this tax and imposed a tax upon the leasehold interest in school and endowment lands. Chapter 47, Session Laws of 1977. SDCL 10‑6‑31.2 (section 5 of Chapter 47) provides for a separate classification of leasehold interest in school and endowment lands for the purposes of taxation.
SDCL 10-6-33.5 provides that even though these school and endowment land leasehold interests are separately classified, the assessment, valuation, equalization, and taxation of these interests would be as provided for real property under SDCL 10‑6‑33.1 to -33.4, inclusive. Procedurally, SDCL 5-11-1 and 10-6-3.1 would indicate that on June 1, 1979, you were to have certified to the various county auditors a list of school and public lands in their counties and the names of the persons who have leasehold interests in these lands. In September of 1979 the auditor would spread the taxes (§ 10-17- 2) and all taxes become due in January, 1980. If the taxes were not paid by May 1 and November 1, 1980, they would become delinquent.
IN RE QUESTION NO. 2:
The answer to your second question is yes. SDCL 5-11-1.1 provides:
Any person who shall have leased school and endowment lands shall forfeit that lease if that person shall fail to pay the tax levied upon the leasehold interest within twelve months following the date due. This provision shall be in addition to all other remedies provided by law.
The tax for 1979 becoming due on January 1, 1980, the tax would need to be paid before January 1, 1981, to keep the lease from being terminated by operation of the above-cited statute.
Implicit in your second question is the inquiry as to whether delinquent leasehold interest taxes are to be collected in the same manner and according to the same procedure as delinquent real property taxes. The answer to this question is not readily apparent from the face of the statute.
Although SDCL 10-6-33.5 indicates that the taxation of the leasehold interest is the same as provided for real property under SDCL 10-6-33.1 to - 33.4, it is also evident that the tax imposed is on the person holding the leasehold interest, not on the land itself (article XI, section 5, South Dakota Constitution). Thus, it would follow that the collection of the delinquent taxes here was intended to come from the lessee of the school land, not from the State or from the school and endowment lands.
It does not make any logic to argue that the county could take a tax deed against the land itself as in the case of delinquent real property taxes, since pursuant to article XI, section 5 of the South Dakota Constitution this land is exempt from taxation. Further, it would not be allowable for a county to issue a tax sale certificate against the leasehold interest, since the statute states that failure to pay the tax terminates the lease (SDCL 5-11-1.1) and that the Commissioner of School and Public Lands is charged with the leasing and sale of school and endowment lands (SDCL 5-1-7, 5-5-4) and that all receipts from such lands are dedicated funds for the benefit of the school children of the State of South Dakota (article VIII, sections 1, 2 and 7 of the South Dakota Constitution.
In view of the above arguments, it is my view that the collection of a delinquent tax obligation on a leasehold interest here would not be handled as a delinquent real property tax obligation, but, rather would be more properly handled as a personal obligation of the lessee under a delinquent personal property tax procedure in Chapter 10-22. In this regard, it is noteworthy that SDCL 10-19-4 may become applicable and create a lien against the real property of the lessee, and if this situation occurs then the collection of this tax could be handled under this statutory procedure.
IN RE QUESTION NO. 3:
In view of my answer to your second question, a response to your third question is not necessary.
IN RE QUESTIONS NOS. 4 AND 5:
It is my view that the authority presently exists only to cancel a lease upon which the taxes were not paid and does not extend to all leases held by that individual. The fact that an individual has failed to meet his obligations and pay this tax, however, should be noted by the Commissioner and become an element of consideration whether any further leases for school and endowment lands would be issued to this person. This procedure I would see to be one of discretion, however, not one of legal requirement, since the tax is to be paid to the county, not the State, and it is a personal obligation of the lessee, not an obligation that runs with the real estate.
IN RE QUESTIONS NOS. 6 AND 7:
See response to question 2 above.
Respectfully submitted,
Mark V. Meierhenry
Attorney General
