Tuesday, December 27, 2016

Property Taxes Need Overhauling As Part Of SD's Tax Reforms. Guest Post By Meade County Commissioner Galen Niederwerder

Mr. Niederwerder
Meade County (SD) Commissioner
  Two items recently published in the Rapid City Journal were read with special interest out here in farm/ranch country.
    John Tsitrian’s November 30th column and the paper’s December 6th editorial both discussed the sales tax shortfall currently befuddling Gov. Daugaard’s office. Both attributed the drop in state revenue to the severe decline in farm/ranch income this year, with the editorial noting farm/ranch income is down 76%. That’s right - 76%! Disappointingly, both pieces reflected only on the effect the decline is having on state revenue; neither mentioned the impact it is having on individual farm families and local economies.
   To his credit, Mr. Tsitrian did outline a possible solution to the problem - implementing a state income tax. Although it wasn’t clear, he seemed to suggest that it be an additional tax - not a replacement. But just adding a new tax wouldn’t necessarily fix the problem. At the very least, the governor and legislators could sure do a better job of budgeting; when their spending budget was set last year, their sales tax revenue projections were way optimistic. Not only so, it’s ironic - and troubling - that the state has a revenue shortfall less than a year after Daugaard engineered the two largest tax increases in state history.
   I agree with Mr. Tsitrian that we need tax reform. But not for sales tax supplementation - it’s necessary for property tax relief. Even as farm income has plummeted - not just this year, but over the past several years - Ag property taxes continue to skyrocket. That’s because the governor and legislature have determined that Ag property taxes are “too low” compared to Owner-Occupied and Commercial properties. And owners of those properties are also over-burdened - if you disagree, I invite you to attend the Assessment Appeal hearings before your county Board of Equalization next April.
  It’s truly the most regressive form of taxation. Ag property does produce income; however, the taxes due are not based on the actual income produced, but rather a Department Of Revenue bureaucrat’s theory of what it should be able to produce. Commercial properties are taxed the same amount, even if they’re vacant. And a homeowner is penalized for owning a mere object that has no innate ability to produce the dollars required by the state to pay the tax due on it. Fact: Property taxes are not based on one’s ability to pay, they’re based on a government official’s opinion of value. Taxing real property is as senseless as the Personal Property Tax that was outlawed 40 years ago. The system needs to be overhauled. 
  Taxing the revenue stream is vastly preferable, whether it’s on the incoming side when it’s earned, or the outgoing side when it’s spent. An income tax only taxes one on what is actually earned; make a little - pay a little, make more - pay more. And a person pays sales tax only if he feels he can afford the object he’s buying; if he can afford that, he can probably afford the tax. The current situation with farmers and ranchers bears this out with laser-point accuracy; sales taxes are down because they’re just not buying much right now. Although people don’t have to pay taxes on something they can’t afford to buy (obviously), they get no such grace when it comes to paying their property tax. Taxing the revenue stream gives people at least some control over their taxes; with property taxes, the state has all the control.
  So I support Mr. Tsitrian’s suggestion of an income tax, or an increase in the sales tax, or a combination - but ONLY IF achieved by a Constitutional Amendment that also either eliminates the property tax, or designates it for local governments exclusively, such as counties, townships, fire and road districts, etc. Otherwise, it’ll just be piling on. Can you imagine giving the state an additional source of revenue without constitutionally changing the property tax? It would be like handing gasoline to an arsonist.
 Yes, government and schools require revenue. And there is no truly “fair” tax. There is no such thing as the “best” way to tax, or even a “good” way to tax. Even so, the state should adopt a less worse form of taxing the people it governs. But please, Gov. Daugaard, don’t appoint a Blue Ribbon Task Force to study the issue. That’ll only result in another historic tax increase.

  Galen Niederwerder operates a small ranch and insurance agency with his wife, Donna, north of New Underwood. He is a member of the Meade County Commission; the opinions expressed here do not necessarily reflect the opinion of Meade County, or the other commissioners.  


  1. "And there is no truly “fair” tax. There is no such thing as the “best” way to tax, or even a “good” way to tax."

    If we begin from this position, then what is the persuasive appeal to change? If EVERY tax must be condemned, then really what is the doorway to improving any tax system?

    A difficulty I can see is at what point would Ag income be taxed? Is is at the initial point of harvest, or after all the bills, improvements, investments have been paid?

  2. "but ONLY IF achieved by a Constitutional Amendment that also either eliminates the property tax, or designates it for local governments exclusively, such as counties, townships, fire and road districts, etc."

    I Believe this is already the case. The state does not receive property taxes at all... Correct me if I'm wrong, but I'm pretty sure I'm not.

    1. I was confused about that myself. If Galen N. is reading this, maybe he can clarify.