Commissioners, overtaxed landowners working on lawsuit settlement, but it would need state approval

Both sides in an agricultural land assessment lawsuit would like to resolve the matter out of court and have come up with a possible solution, but their proposal needs the state’s blessing.

Bob Swisher, Travis Swisher, Ray Larson and their attorney, Reed Rassmussen of Aberdeen, discussed a proposal with the Brown County Commission Tuesday that would lower ag land assessments in 15 Brown County townships by 10 percent for one year.

If the county and the state Department of Revenue agree to the proposal, Bob Swisher said he and the other five plaintiffs will drop their civil lawsuit.

Jim Hundstad, Harry Pharis, Kevin Pharis, the Swishers and Larson are suing Brown County, seeking a refund on the 18 percent they were overtaxed for their 2017 property taxes paid this year.

Earlier this year, the South Dakota Department of Revenue ruled that Brown County’s ag land assessment plan was faulty because assessments in some townships were higher than the top-dollar amount allowed by the state in its so-called production model. As a result, ag land owners in 15 townships paid more than their fair share in property taxes. The townships are mostly in the southern part of the county.

The old plan broke the county into three neighborhoods. It was crafted so that land that was likely to sell for more was assessed at a higher level — 118 percent of the state’s top-dollar value. Other townships in Brown County paid either 97 percent or 87 percent of the top number.

The over-assessment and overtaxation led to the lawsuit.

With the proposed agreement, the affected landowners would get a property tax break for a year, but it gets complicated.

Commission Chairman Doug Fjeldheim said he and Commissioner Duane Sutton sat down with the defendants to discuss a potential solution last week.

After the meeting, Fjeldheim said Director of Equalization Gene Loeschke did some number-crunching and discovered that the proposal would have unintended and costly consequences. It would save landowners in the affected townships $96 million in assessed value. But the state Department of Revenue would then increase the Brown County tax factor to offset the savings, which would increase the tax burden on all ag land owners in the county.

Landowners would see their land taxed at 88.8 percent of its assessed value under the proposed agreement, Fjeldheim said. Right now, the tax factor is at 85.6 percent.

School districts are unable to fund their budgets with property taxes alone. The state provides funding to make up the difference between what’s collected by counties in property taxes for education and what’s needed to run public schools. A tax factor is determined by the Department of Revenue for each county to prevent counties from purposely levying lower property taxes and shifting a higher funding burden to the state.

That’s where the problem comes in.

“In theory (the proposal) looked good, but now that we’ve put it on paper, I don’t know what to tell you,” Fjeldheim said. “The last thing we want to do is a settlement that’s going to cost you more dollars. It would be nice if we could maintain the 85.3 taxing factor. If we lower the tax assessments, that doesn’t generate the revenue. Then we have to increase the taxing factor. I would just as soon see this thing go away and be done. The other side of that is we still have to have the Department of Revenue OK that.”

Brown County State’s Attorney Chris White said a similar proposal was explored by the county last year before the lawsuit was filed, but the Department of Revenue told the county that it could not lower the assessments in the 15 townships because that would be akin to using neighborhoods. The neighborhood map what the state determined to be the problem with the county assessment plan in the first place.

“The other problem — it obviously is everyone outside the 15 townships, their taxes are going to go up,” White said. “We explored all of that. I was hoping we could get it done that way but the state frankly wouldn’t sign off on it.”

Swisher said that the state’s stance on the use of neighborhoods in this instance a little funny, because “they let it go on for eight years and didn’t do anything.”

Commissioner Mike Wiese noted that when the county began using a neighborhood map in 2010, the Department of Revenue “not only let it go on, they encouraged it in the beginning.”

Swisher is open to other suggestions from the county.

“We would like to try to get this thing resolved, and if you have any proposals we’d certainly like to listen to them. But if not, we’re prepared to move forward on this and do what we have to do,” he said to commissioners.

“It’s been going on for eight years, that’s quite a bit of money to come out of the farmer’s bottom line. That’s what it comes down to ladies and gentlemen is the bottom line for farmers. It’s not our farms, it’s not the farms in the lawsuit, it’s for all farmers that are in the 15 townships that have been overassessed and overtaxed for eight years,” Swisher said.

Fjeldheim said the county will reach out to the Department of Revenue. The department has had many staffing changes under the new administration of Gov. Kristi Noem and might have a different take on the proposal this year, he said.

“The only way it would be feasible is if the state Department of Revenue would say, ‘Hey, to make this thing go away we understand this is a difficult situation (and) we will cut you one more year’s slack with an 85.6 taxing factor.’ That would be the only way that this is ever going to work,” Fjeldheim said.