Academic journal article South Dakota Law Review

The Productivity Problem: An Analysis of Conservation Easement Taxation Issues Following South Dakota's Implementation of a Productivity-Based Land Valuation System

Academic journal article South Dakota Law Review

The Productivity Problem: An Analysis of Conservation Easement Taxation Issues Following South Dakota's Implementation of a Productivity-Based Land Valuation System

Article excerpt

Perpetual conservation easements have been a contentious issue for many years in the South Dakota Legislature. To date, however, the majority of the discussion surrounding these easements has focused primarily on their perpetual duration, rather than the more pressing issue of taxation. South Dakota's recent shift from fair market valuation to productivity valuation of agricultural property for taxation purposes has, in some circumstances, dramatically increased the amount of property taxes owners of conservation easement land must pay. This increase has led some counties to provide creative valuation reductions for conservation easement land, while other counties do not. The legislature should carefully scrutinize its current land valuation system for conservation easements and amend South Dakota's laws to provide county departments of equalization with a uniform valuation system. This article provides an overview of conservation easements, a synopsis of how some counties have coped with increased conservation easement land valuations, and an explanation of why the current valuation system for conservation easements is in dire need of change. Finally, this article provides recommendations for the South Dakota Legislature to implement that create a uniform system for taxing conservation easements.

I. INTRODUCTION

Lyle Johnson, a landowner in Brookings County, owned land containing a perpetual conservation easement.* 1 He entered into an easement agreement in 2010 to preserve his land for conservation purposes. (2) His conservation easement prohibited almost all significant usage of his land, including the grazing and cutting of naturally-occurring plant growth. (3) The year after he signed the conservation easement agreement, Mr. Johnson received notification that under the state's new agricultural land valuation system his land was to be valued, for taxation purposes, at a significantly higher level than it had been valued under the previous fair market valuation system. (4) Even though Mr. Johnson could not use his conservation easement land, the state's new agricultural property valuation system values land based on its potential to yield crops, without regard for actual use or restrictions on the land. (5) As a result of the new valuation system, Mr. Johnson's land was valued at $845 per acre, when the previous year it was valued at $545 per acre. (6) Mr. Johnson, therefore, was required to pay significantly higher property taxes on his land even though it could not yield its potential level of productivity because of the conservation easement restrictions. (7) Mr. Johnson sold his land two years after implementing the conservation easement because of the increase in property taxes resulting from the new valuation system. (8)

Mr. Johnson's story is not uncommon. (9) Landowners throughout South Dakota (especially in the northeastern and eastern parts) have been forced to pay significantly higher property taxes on their conservation easement land since the state's implementation of a productivity valuation system in 2010. (10) This article addresses issues conservation easement landowners have been dealing with since the implementation of the productivity valuation system and urges the South Dakota Legislature to take action to ensure a uniform system of valuation statewide. (11)

First, this article will provide a general overview of easements and an explanation of how conservation easements emerged. (12) Second, this article will provide a history of South Dakota's legislative efforts to mitigate or eliminate conservation easements and will explain that further legislative mitigation efforts are fruitless because of restrictions under current federal law. (13) Next, this article will provide an overview of the changes made to the agricultural property valuation system and will explain how these changes affect conservation easement land. (14) Finally, this article will provide recommendations for the South Dakota Legislature to help correct the issues that have arisen as a result of valuation changes in conservation easement land. …

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