Smith v. TRIPP COUNTY

#24937-rev & rem-SLZ

2009 SD 26

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

* * * *

BELVA SMITH, BONNIE DREYER,
and JAMES CARLON, Plaintiffs and Appellees,

v.

TRIPP COUNTY, SOUTH DAKOTA, Defendant and Appellant.

* * * *

APPEAL FROM THE CIRCUIT COURT
OF THE SIXTH JUDICIAL CIRCUIT
TRIPP COUNTY, SOUTH DAKOTA

* * * *

HONORABLE ROBERT A. MILLER
Retired Justice, sitting as a circuit court judge

* * * *

JAMES E. CARLON Attorney for plaintiffs
Pierre, South Dakota and appellees.

JEAN M. MASSA
Tripp County State’s Attorney Attorney for defendant
Winner, South Dakota and appellant.

* * * *

CONSIDERED ON BRIEFS
ON FEBRUARY 17, 2009

OPINION FILED 04/15/09
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ZINTER, Justice

[¶1.] Belva Smith, Bonnie Dreyer, and James Carlon (hereinafter

“Taxpayers”) appealed Tripp County’s assessment of their agricultural property to

the Office of Hearing Examiners. Following a trial de novo, the hearing examiner

concluded that Taxpayers failed to meet their burden of proving that the

assessment exceeded true and full value. The circuit court reversed the hearing

examiner on a different issue. The circuit court concluded that Taxpayers’

valuation “best complied” with statutory requirements that the County’s

assessment consider the capacity of the land to produce agricultural products.

Because we conclude that Taxpayers failed to meet their threshold burden of

establishing a prima facie case that the County’s assessment exceeded true and full

value, 1 we reverse the circuit court and affirm the hearing examiner.

Facts and Procedural History

[¶2.] Taxpayers each own three quarter sections of agricultural property in

Tripp County, totaling approximately 1,440 acres. The property is rented and

operated together. The Tripp County Director of Equalization (“Director”) assessed

the property for real estate tax purposes at $735,202 for the 2005 tax year. The

Director’s assessment was based on a comparable sales and soils approach. This

approach examined comparable agricultural sales in the county, determined the

average value of the best agricultural property, and then utilized a soil survey to

1. Taxpayers have not argued that the County’s assessment lacked uniformity
in class or was discriminatory. Consequently, we limit our analysis to
whether the assessment exceeded true and full value.

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value all agricultural property according to its relative capacity to produce

agricultural products when compared to the value of the best property.

Conversely, Taxpayers valued their property at $381,696, utilizing an income

approach. Taxpayers’ income approach capitalized the average net income after

taxes that they estimated they would have received from the acres that produced

cash crops.

[¶3.] Taxpayers appealed the Director’s assessment to the Tripp County

Board of Equalization. The Board affirmed the Director’s assessment. Taxpayers

then appealed to the Office of Hearing Examiners. Taxpayers’ only witness

expressing their valuation opinion was Taxpayer James Carlon. 2 Carlon argued

that the Director’s assessment did not consider the property’s capacity to produce

agricultural products. He testified that his income approach considered capacity to

produce because it was based on government records of average crop yields for those

acres that produced cash crops. He testified that following the identification of

average yields, he estimated crop prices to determine gross income. He then

deducted production costs (as determined by a person with experience in that area)

and real property taxes to determine net income. Carlon finally capitalized

Taxpayers’ estimated net revenues at a rate of five percent. This approach did not

2. The record does not reflect that any party raised the issue of Carlon testifying
as a witness and representing the other two taxpayers in these proceedings.
See SDCL 19-1-3 (providing in relevant part that “[w]hen an attorney is a
witness for his client upon any trial except as to merely formal matters such
as the attestation or custody of an instrument or the like, he shall not further
participate in such trial”).

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value approximately 300 acres that did not produce crops. 3 It also did not consider

any sales of comparable agricultural property.

[¶4.] The Director argued that by employing her comparable sales and soils

survey method, she captured both comparable sales and capacity to produce. The

Director testified that after certain sales were excluded, she calculated the average

top selling price of the best agricultural property in the county. Soils in the county

were then arrayed based on their agricultural productivity with the best soil

receiving a rating of one and lesser soils receiving a pro rata fraction of the rating

assigned to the best soils. Assessed valuation was then determined based on

government agencies’ records of the soil for each property. 4

3. Carlon testified: “We look at the value based on the capacity of [a quarter
section of land] to produce, and it is affected, of course, by the base acres, the
number of acres that can produce crops.” Taxpayers’ opinion of value
assigned no value to non-cash-crop acres. Rather, the Taxpayers’ appraisal
looked at each quarter section as a whole (a unit) to estimate the net revenue
that could be produced from the entire quarter. It is undisputed that, for a
variety of reasons, substantial acres in some quarters were not used to
produce cash crops.

4. The Director further explained:

We value the ag land reflecting [SDCL] 10-6-33.1, 10-6-33.2,
and 10-6.33.7. We use the detailed soil survey method which is
based on physical, chemical landscape, characteristics of the
soil, and also the soil survey is based on the productivity of the
soil, which is what we use to compare and rate them.

The general procedure is when we develop the percentage rating
for each soil map unit. Then we assign a dollar value to each
map unit based on our top dollar sales. And then we calculate
the dollar value for each individual parcel. And that is how we
do it for every taxpayer in Tripp County who is an ag
landowner.

(continued . . .)
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[¶5.] In the hearing examiner’s decision following the trial de novo, he found

that Taxpayers “failed to present sufficient evidence to show the assessed valuation

of the subject property [was] in excess of its true and full value[.]” According to the

hearing examiner, Taxpayers’ evidence was insufficient because Taxpayers did not

provide independent sales figures to establish market value, they did not value the

entire property, and they did not consider any other statutory factors.

[¶6.] Taxpayers appealed this decision to circuit court. Judge Max Gors

reversed the hearing examiner and remanded to the Director for another

assessment. In his decision, Judge Gors did not focus on the basis of the hearing

examiner’s decision examining the Taxpayers’ showing. Instead, Judge Gors

focused on the basis of the Director’s approach to value, concluding that the

Director’s use of a soil survey was an acceptable factor to be considered, but that

capacity of the property to produce was not adequately considered. Notably,

although rejecting the Director’s assessment, the court neither adopted Taxpayers’

valuation nor considered whether the Taxpayers’ evidence suggested an assessment

that exceeded true and full value. On the contrary, the court only concluded that

“[t]he value of the land arrived at by the County of $735,202 may exceed the fair

market value of the property when the property is valued taking into consideration

its capacity to produce agricultural products.” (Emphasis added.)

_____________________
(. . . continued)
We take into consideration the soil capability and the sales to develop
final value.

For the reasons hereafter explained, we express no opinion whether the
Director’s methodology complies with statutory requirements.

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[¶7.] Following Judge Gors’ remand, County’s reappraisal was essentially

identical to the first, using the same valuation methodology. The only difference

was that it further explained the Director’s argument that her methodology

adequately considered agricultural capacity to produce in accordance with SDCL ch

10-6.

[¶8.] After County submitted its second appraisal, Taxpayers moved the

court, Judge Robert A. Miller presiding, 5 for the imposition of judgment in their

favor because none of the evidence had changed. Judge Miller granted Taxpayers’

motion. Although he reversed the hearing examiner, Judge Miller did not enter

findings of fact and conclusions of law addressing the correctness of the hearing

examiner’s decision. Judge Miller issued a written decision indicating: “I am of the

opinion that Taxpayers’ appraisal in the amount of $381,696 best complies with and

takes into account the mandates of the statutes and judicial decisions.”

Consequently, unlike Judge Gors’ decision, Judge Miller adopted the Taxpayers’

valuation. The judgment stated:

[T]he full and true value of the subject property . . . is $381,696
as set forth in the [T]axpayers’ appraisals, and the court finds
that the [T]axpayers’ appraisals best comply with and take into
account the mandates of state statutes and judicial decisions,
including without limitations the capacity of the subject
property to produce agricultural products[.]

5. Judge Gors had retired at this time. Robert A. Miller, retired Justice, was
assigned to hear the case.

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Standard of Review

[¶9.] This appeal of a county tax assessment was considered at a trial de

novo before the Office of Hearing Examiners. Therefore, SDCL ch 1-26 governs

review of the appeal. Butte County v. Vallery, 1999 SD 142, ¶8, 602 NW2d 284,

286-87. See also SDCL 10-11-43 (providing, “[a]n appeal from the Office of Hearing

Examiners to circuit court may be taken by the parties to the appeal and

intervenors before the Office of Hearing Examiners. The appeal shall be taken and

conducted pursuant to the provisions of chapter 1-26.”). Consequently, the question

before the circuit court and this Court is whether the hearing examiner’s findings of

fact are clearly erroneous and whether his conclusions of law are correct:

Under SDCL 10-11-42.1, the hearing examiner tries the issues
de novo. On appeal[,] both the circuit court and this Court
review that decision as set forth in SDCL 1-26-36. This
standard of review requires us to accord great weight to the
findings and inferences made by the hearing examiner on
factual questions. “When the issue is a question of fact, we
ascertain whether the administrative agency was clearly
erroneous.” When the issue is a question of law, the decisions of
the administrative agency and the circuit court are fully
reviewable.

Butte County, 1999 SD 142, ¶8, 602 NW2d at 287 (citations omitted).

[¶10.] This dispute involves the taxable value of Taxpayers’ property.

Generally, taxable “[v]alue is a question of fact and [therefore] the [factfinder’s]

determination will only be overturned if it is clearly erroneous.” West Two Rivers

Ranch v. Pennington County, 1996 SD 70, ¶6, 549 NW2d 683, 686. In this case,

however, neither judge nor the hearing examiner determined that the disagreement

regarding value involved a dispute of fact. Rather, the hearing examiner focused on

the valuation methodology employed by Taxpayers, and the circuit judges focused

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on the valuation methodology employed by the Director. All three decisions were

based on the legal question whether the respective assessment methodologies

complied with statutory requirements. The interpretation of statutes and the

application of statutes to given facts is a question of law (or a mixed question of law

and fact) that we review de novo. Matter of State and City Sales Tax Liab. of

Quality Serv. Railcar Repair, 437 NW2d 209, 211 (SD 1989); see also West Two

Rivers Ranch, 1996 SD 70, ¶6, 549 NW2d at 685. We therefore review the hearing

examiner’s decision de novo. See Butte County, 1999 SD 142, ¶8, 602 NW2d at 287.

Decision

[¶11.] The Constitution of South Dakota, Art. XI, Section 2, requires that

“(t)axes shall be uniform on all property of the same class, . . . and the valuation of

property for taxation purposes shall never exceed the actual value thereof.” In

carrying out this provision, the Legislature has directed that “[a]ll property shall be

assessed at its true and full value in money.” SDCL 10-6-33. Therefore, “when

excessive valuation has been shown the owner is entitled to relief . . . .” Williams v.

Stanley County Bd. of Equalization, 69 SD 118, 121, 7 NW2d 148, 150 (1942).

[¶12.] Throughout these proceedings, Taxpayers have taken the position that

the Director’s assessment exceeded true and full value because it did not take into

consideration the capacity of the land to produce agricultural products.

Agricultural property is assessed in accordance with SDCL 10-6-33.1, which

provides that the assessment shall be made through the use of comparable sales of

agricultural land considering capacity to produce agricultural products as well as

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other considerations that can be documented through an analysis of land selling

prices. The statute provides:

The true and full value in money of agricultural land, as defined
by § 10-6-31, which has been in primarily agricultural use for at
least five successive years immediately preceding the tax year
for which assessment is to be made shall be the market value as
determined for each county through the use of all comparable
sales of agricultural land based on consideration of the following
factors:

(1) The capacity of the land to produce agricultural products as
defined in § 10-6-33.2; and

(2) The location, size, soil, terrain, and topographical condition of
the property including but not limited to capability, the land’s
use, climate, accessibility, and surface obstructions which can be
documented through an analysis of land selling prices.

The comparable sales that are used shall be evidenced by an
instrument recorded with the register of deeds of the county in
which the land is located, if the date of such instrument and the
recording date is not more than two years prior to the
assessment year.

SDCL 10-6-33.1 (emphasis added).

[¶13.] The capacity to produce agricultural products is defined in SDCL 10-6-

33.2. At the time the Director completed her assessment in June of 2005, SDCL 10-

6-33.2 provided:

Capacity of land in agricultural use to produce agricultural
products shall be based on average yields under natural
conditions, in the case of land producing crops or plants, and on
the average “acres per animal unit,” in the case of grazing land;
said average shall affect each operating unit and shall be based
on the ten-year period immediately preceding the tax year in
issue. In determining such capacity to produce, the county
director of equalization and/or the county board of equalization
must take into consideration yields, and/or carrying capacity, as
determined by the soil conservation service, the agricultural
stabilization and conservation service, the extension service,
federal land bank and private lending agencies dealing with
land production capacities.
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(Emphasis added.) (Rewrote July 1, 2005, SD Sess Laws, ch 57, § 1).6

[¶14.] At trial and on appeal, Taxpayers have argued that the Director’s

assessment did not take into account their land’s capacity to produce agricultural

products as required by these statutes. In response, County first argues that

Taxpayers failed to overcome presumptions which favor the Director’s assessment.

County relies on Richter Enter., Inc. v. Sully County, 1997 SD 61, ¶7, 563 NW2d

841, 843, in which this Court repeated two often-stated presumptions:

[T]here is a presumption that tax officials act in accordance with
the law and not arbitrarily or unfairly when assessing property.
Taxpayer also has the burden of overcoming the presumption
that Director’s value was correct.

(Citations omitted.) However, the presumption that the Director’s value was correct

has been superseded by statute. See SDCL 10-3-16 (2000) (providing that “[n]o

6. The replacement statute provides:

The capacity of agricultural land to produce agricultural
products shall be based on average yields under natural
conditions for land producing crops or plants and on the
average acres per animal unit for grazing land. The average
shall affect each operating unit and shall be based on the ten-
year period immediately preceding the tax year in issue. In
determining the capacity to produce, the county director of
equalization and the county board of equalization shall consider
yields, the extent to which the land is able to be tilled or is
nontillable based upon soil type, terrain, topographical, and
surface conditions, and animal unit carrying capacity, as
determined by the natural resources conservation service, farm
credit services of America, farm service agency, the extension
service, and private lending agencies dealing with land
production capacities.

SDCL 10-6-33.2 (2005) (emphasis added).

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legal presumption of correctness attaches to the [D]irector’s assessed valuation of

property”). 7 See also Beals v. Wagner, 2004 SD 115, ¶7, n4, 688 NW2d 415, 418. 8

Therefore, the Director’s reliance on a presumption of correctness is misplaced.

[¶15.] Nevertheless, the hearing examiner did not rely on a presumption of

correctness in determining that Taxpayers had failed to meet their burden of proof.

Rather, the hearing examiner rejected the Taxpayers’ appeal because Taxpayers

“failed to present sufficient evidence to show the assessed valuation of the subject

property [was] in excess of its true and full value, lacked uniformity in the class or

was discriminatory.” The examiner concluded the Taxpayers’ evidence of value was

insufficient as a matter of law because: “Taxpayers presented their limited

agricultural productivity figures, but did not supply any independent sales figures

to establish a market value of the subject property, nor did they even value the

entire property.” We agree. Taxpayers’ evidence of value considered only estimated

average net income from cash-crop acres but no other statutory requirement.

[¶16.] We observe that, notwithstanding any alleged deficiencies in the

Director’s assessment, the first question is whether Taxpayers’ evidence constituted

a prima facie showing of entitlement to relief. The hearing examiner correctly

recognized that before he could grant relief, Taxpayers were required to make a

7. Although the presumption of correctness was abrogated, we note that the
statute did not abrogate the presumption that tax officials act in accordance
with the law and not arbitrarily or unfairly when assessing property.

8. In Burke v. Butte County, 2002 SD 17, ¶22, 640 NW2d 473, 479, we did not
consider this statute, thereby incorrectly concluding that the Director was
still entitled to the presumption of correctness.

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showing that the Director’s assessment was in excess of true and full value. See

Williams, 69 SD at 121, 7 NW2d at 150 (concluding that a property owner is

entitled to relief when the owner shows that the Director’s valuation was excessive).

See also Sheraton-Midcontinent Corp. v. Pennington County, 77 SD 554, 558, 95

NW2d 892, 894 (1959) (concluding that “[t]he burden of proof . . . is on the

complaining taxpayer to prove that an assessment is excessive”).

[¶17.] In reviewing that question, if the party with the burden of proof (the

taxpayer) fails to establish a prima facie case, we do not even reach the validity of

the non-moving party’s (the County’s) case. As explained in Midzak v. Midzak, a

plaintiff in a civil proceeding asserting the affirmative of an issue “is required to

establish a prima facie showing, meaning sufficient evidence which would entitle

the plaintiff to recover if the defendant produced no evidence.” 2005 SD 58, ¶19, 697

NW2d 733, 738 (emphasis added). Consequently, to overturn the Director’s

assessment, Taxpayers must have made a prima facie showing that the assessment

exceeded true and full value without considering the Director’s methodology. As we

have previously concluded, a taxpayer challenging excessive valuation must show

more than a failure to comply with statutory mandates:

Noncompliance with mandatory statutes and excessive
valuations [by the county assessor] are not sufficient findings to
grant a taxpayer relief. Findings must specifically show that if
there was noncompliance with statutory mandates . . . the value
is in excess of true and full value[.]

Knodel v. Bd. of County Comm’rs of Pennington County, 269 NW2d 386, 390 (SD

1978).

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[¶18.] In this case, Taxpayers failed to establish a prima case of an

assessment in excess of true and full value. As the hearing examiner correctly

concluded, Mr. Carlon’s opinion was insufficient as a matter of law for two reasons.

First, his opinion was not based on the fundamental requirement that an

assessment be based on comparable sales. See SDCL 10-6-33.1 (providing, “that the

true and full value in money of [qualifying] agricultural land . . . shall be the market

value as determined for each county through the use of all comparable sales of

agricultural land based on consideration of the following factors[, including the]

capacity of the land to produce agricultural products”). Taxpayers conceded that his

valuation opinion was not based on the comparable sales requirement of SDCL 10-6-

33.1. After first explaining his income approach to valuation, Mr. Carlon indicated

that in appraising agricultural property under the statutes at issue, production

capacity “has to be used to qualify or disqualify the comparable sales.” (Emphasis

added.) Yet Taxpayers’ valuation opinion did not consider any comparable sales.

[¶19.] There is also no dispute that by not utilizing comparable sales, and by

focusing on net income from only those acres that produced cash crops, Taxpayers’

appraisal excluded approximately 300 of the 1,440 acres at issue. Taxpayers

attempt to justify this omission by arguing that each quarter section must be

considered as one operating “unit.” Taxpayers rely on SDCL 10-6-33.2, which

provides that “the capacity of agricultural land to produce agricultural products

shall be based on average yields under natural conditions . . . [as] said average

shall affect each operating unit . . . .” This language does not, however, mean that

an assessment may ignore non-crop acres in each operating unit no matter what

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their use or value. On the contrary, “the farming practices of the individual

landowners are not to be considered when assessing the land’s value. Farm

management decisions cannot change the earth’s value for taxation purposes.”

Butte County, 1999 SD 142, ¶16, 602 NW2d at 289. In this case, Taxpayers did not

even suggest that the omitted 300 acres had no value. Their sole reliance on a net

income approach simply ignored the value of a substantial part of the property at

issue.

[¶20.] In Yadco, Inc. v. Yankton County, we noted that every permissible

element that can reasonably affect value must be considered for property to be

assessed. 89 SD 651, 654-55, 237 NW2d 665, 667 (1975). “Stated another way, it is

the duty of the assessor to use all of those techniques and facts which accurately

reflect ‘full and true’ value and to reject those which do not.” Id. (citations omitted).

In this case, Taxpayers’ failure to even consider comparable sales and all assessed

acres rendered their opinion so insufficient it did not establish a prima facie case of

valuation exceeding true and full value. 9 And, because Taxpayers failed to

9. Although the Taxpayers’ testimony was insufficient in this case, we do not
depart from our previous holdings that a landowner may testify as to the
value of his or her land subject only to the same requirements as an expert
giving an opinion on valuation. Coyote Flats v. Sanborn County Comm’n,
1999 SD 87, ¶22, 596 NW2d 347, 352 (citing City of Sioux Falls v. Johnson,
1999 SD 16, ¶13, 588 NW2d 904, 908 (providing that “[t]he landowner is
presumed to have ‘special knowledge of the property, its income producing
capacity, and other pertinent traits sufficient to render an opinion as to
value.’”)). See also State Highway Comm’n v. Beets, 88 SD 536, 540, 224
NW2d 567, 569 (1974) (providing that “[n]eighboring property owners usually
are permitted to express [an opinion on value] on the theory that being
[neighboring] owners they are necessarily acquainted with [local] values.”
(quoting State Highway Comm’n v. Hayes Estate, 82 SD 27, 140 NW2d 680
(1966))).

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establish a prima facie case, the hearing examiner correctly concluded that they

were not entitled to relief.

[¶21.] Reversed and remanded for entry of judgment affirming the hearing

examiner’s decision.

[¶22.] GILBERTSON, Chief Justice, and KONENKAMP and MEIERHENRY,

Justices, and SABERS, Retired Justice, concur.

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