March 25, 2016




The Honorable Matt Michels

President of the Senate

500 East Capitol Avenue

Pierre, SD 57501


Dear Mr. President and Members of the Senate,


I respectfully return to you Senate Bill 136, with my VETO.


This bill provides that "any agricultural land that has crop-rated soils within fifty feet of a lake, river, or stream shall be categorized as noncropland if the land is seeded to perennial vegetation. The land shall be assessed as noncropland for the purposes of determining the agricultural income value of land."


In short, this bill requires the county director of equalization to lower the property tax assessment on perennial buffer strips adjacent to water bodies, which will result in a loss of property tax valuation and a shift of that tax burden to other property owners.


This bill does not create a new, fourth class of property, but instead changes the treatment of certain lands within the agricultural property class. I am concerned that this bill is in violation of Article XI, § 2 of the South Dakota Constitution, which provides that "[t]axes shall be uniform on all property of the same class …" This bill taxes agricultural property within fifty feet of a stream or river differently than agricultural property not in proximity to a stream or river.


In addition, this bill breaches the longstanding principle of taxing property based on its highest and best use. In recent years, many farmers have voluntarily established grass buffer strips adjacent to riparian areas. These buffers are often comprised of high quality crop-rated soils.


Under this bill, the taxes paid by landowners of these crop-rated soils would be reduced and the burden shifted to other property owners. This is because any loss of property valuation results in higher property tax levies to prevent revenue losses to schools, counties, townships, and other taxing districts.


Subsidizing land-use decisions through property tax policy is contrary to the tenet of highest and best use - a fundamental property tax principle and the foundation of our entire property tax system.


Further, the plain language of the bill provides for numerous unintended consequences. For instance, section 1 refers to land "seeded to perennial vegetation." As one example, in South Dakota alfalfa is "perennial vegetation" commonly harvested as a crop (alfalfa hay). If grown within 50 feet of a riparian area, that alfalfa hay land may qualify for a tax reduction. However, section 2 does not anticipate "perennial vegetation" being grown as a crop because it specifically states that "Any person who requested that land be categorized as noncropland pursuant to section 1 of this Act and changes the use of the land to cropland or another use [italics added] shall notify" the director of equalization. This ambiguous language makes it difficult to determine how this bill will impact crop-rated soils planted to alfalfa.


Implementing this bill would require the Department of Revenue and county directors of equalization to determine whether dry creek beds, field waterways, small ponds, and other watercourses meet the definition of a "lake, river, or stream." They are further tasked with establishing where the riparian area starts and ends - determinations these entities may not be equipped to make. All told, these challenges will result in greater uncertainty and more resources required to determine the appropriate tax.


While the bill's intent to improve water quality is laudable, shifting the tax burden from one taxpayer to another due to a voluntary management decision is bad tax policy. Its questionable constitutionality and ambiguous language also invites potential legal challenges. For these reasons, I oppose this bill and ask that you sustain my veto.


Respectfully submitted,

Dennis Daugaard

Governor