The federal Mineral Leasing Act sent 37.5% of mineral revenues from public lands to the state where the land sat, to be used for public roads, schools, or other educational institutions as the state legislature directed. South Dakota had been crediting these funds to the school principal and interest fund. SDCL 4-3-17 and 4-3-18 said the state treasurer should receive federal payments and remit them to county treasurers for distribution to taxing subdivisions in tax-distribution proportions, but those sections were not explicitly written for Mineral Leasing Act monies. Did those statutes govern Mineral Leasing Act distribution, or should the existing school-fund crediting practice continue?
Plain-English summary
The federal Mineral Leasing Act of February 25, 1920 (30 USCA § 191) provided that 37.5% of the federal government's mineral revenues from sales, bonuses, royalties, and rentals of public lands in a given state would go to that state. The state was directed to use those funds for public road construction and maintenance, or for the support of public schools or other public educational institutions, as the state legislature directed.
Some federal lands in South Dakota generated meaningful Mineral Leasing Act revenues. The state had historically credited these monies to the school principal and interest fund (the same fund that received revenues from mineral leases on state-owned lands).
In 1971, Mr. Stoehr (presumably a state finance official) asked the AG whether this crediting practice was correct, or whether the state should instead apply SDCL 4-3-17 and 4-3-18 (which directed the state treasurer to receive federal payments and remit them to counties for distribution among taxing subdivisions in tax-distribution proportions).
The AG ruled that SDCL 4-3-17 and 4-3-18 governed.
SDCL 4-3-17 said: "The state treasurer is authorized and directed to receive from the federal government or any agency thereof any federal funds which may be available to any of the taxing subdivisions of this state as rentals upon or income from any lands acquired in this state by the federal government or any of its agencies, or any funds which may be paid in lieu of taxes on said land."
That broad language captured Mineral Leasing Act payments. Federal mineral revenues from public lands in South Dakota were "income from . . . lands acquired in this state by the federal government" within the statute.
SDCL 4-3-18 then directed: "Upon receipt of any of the funds referred to in Sec. 4-3-17 the state treasurer shall remit the same to the county treasurer of the county wherein is situated the land on behalf of which such payment is made, and the county treasurer shall then distribute such funds to the credit of the taxing subdivision or subdivisions of the county in the same proportion as the tax upon such lands would be distributed under the laws of this state for the current year in which such payment or payments are made."
So Mineral Leasing Act payments had to be:
1. Received by the state treasurer.
2. Remitted to the county treasurer of the county where the producing federal land was located.
3. Distributed by the county treasurer to the various taxing subdivisions (school district, township, county itself, special districts) in the same proportions as a property tax on that land would have been distributed.
The previous practice of putting everything into the school principal and interest fund was wrong. The school fund would still get its proportionate share (because school districts levied a portion of property tax), but the township, county general fund, and other taxing subdivisions would also get their proportionate shares.
Federal law had given South Dakota the option to use Mineral Leasing Act funds for roads or for schools, but the South Dakota Legislature had effectively chosen the SDCL 4-3-17/-18 county-distribution framework as the state's general approach to federal payments tied to federal lands. That framework included school district funding through the standard property-tax distribution, but it also funded other taxing subdivisions.
Currency note
This opinion was issued in 1971. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The federal Mineral Leasing Act distribution percentage has been amended by Congress (currently 49% under the 1976 amendments, with further changes since); South Dakota's SDCL Chapter 4-3 has been updated; and the Taylor Grazing Act referenced in the question has separate distribution rules. Modern state and county finance officers should consult current federal and state law for proper distribution of federal mineral and grazing payments.
What the opinion meant at the time
For the State Treasurer, the opinion required a change in practice. Past Mineral Leasing Act payments crediting solely to the school principal and interest fund had been wrong; future payments needed to follow SDCL 4-3-18's county-remittance framework. Whether past distributions could be corrected was a separate question the opinion did not address.
For county treasurers receiving federal payments, the opinion gave a clear method. Take the payment, identify the producing federal land, look up that year's tax-distribution proportions for that land, and distribute proportionally to school district, township, county, and special districts.
For school districts that had been receiving the full school-fund credit, the opinion likely reduced their share of Mineral Leasing Act revenues. Schools would still get something (their property-tax share), but townships and counties would also get a portion.
For townships and county general funds, the opinion increased revenues by giving them a share of Mineral Leasing Act payments they had not been receiving.
For the federal government overseeing Mineral Leasing Act compliance, the opinion confirmed that South Dakota's distribution framework satisfied the federal "roads or schools or other educational institutions" requirement, since school districts were among the taxing subdivisions receiving funds and roads were funded by county and township general funds.
Common questions
Q: How did county treasurers know what proportions to use for taxing subdivisions?
A: The standard property tax distribution for each parcel was tracked by the county auditor. Each year's tax distribution would list, for each parcel, what percentage of the tax went to school districts, townships, county, special districts, and so on. The county treasurer would use those same percentages for the federal payment.
Q: What if multiple counties spanned a single federal land tract?
A: SDCL 4-3-18 said the payment went to "the county treasurer of the county wherein is situated the land." For a tract spanning multiple counties, the AG would likely have advised proportional distribution based on the acreage in each county, with each county's treasurer then distributing internally. The opinion did not directly address multi-county tracts.
Q: Did the opinion change how Taylor Grazing Act payments were distributed?
A: Taylor Grazing Act monies were mentioned in the question as already subject to SDCL 4-3-17/-18 distribution. The opinion confirmed Mineral Leasing Act monies were treated the same way. So both federal payment streams followed the same county-distribution framework.
Q: What if a federal land tract had been recently acquired and had no property-tax history to set distribution proportions?
A: SDCL 4-3-18 referred to "the same proportion as the tax upon such lands would be distributed under the laws of this state for the current year in which such payment or payments are made." So the relevant proportions were the hypothetical current-year tax distribution if the land were taxable, not historical actual taxes. For newly acquired land, the county auditor would use the current applicable mill levies and distributions for similar nearby land.
Q: Could a school district challenge the new distribution and argue for the full school-fund treatment?
A: A district could try, but the legal foundation for the all-to-schools treatment was weak. The federal statute (30 USCA § 191) allowed schools or roads or other educational institutions, leaving the choice to the state legislature. The state legislature had effectively chosen the SDCL 4-3-18 framework, not an all-to-schools framework. A district's challenge would have to attack the SDCL 4-3-18 reading itself, not just argue policy preference.
Q: Why had the practice of all-to-schools developed if SDCL 4-3-17/-18 had been on the books?
A: The opinion did not address the historical reason. One possibility is that state-owned-land mineral revenues had been credited to the school fund under a separate constitutional or statutory provision, and federal Mineral Leasing Act revenues had been treated the same way without anyone checking. The opinion was triggered when someone noticed the inconsistency and asked for clarification.
Background and statutory framework
The Federal Mineral Leasing Act of 1920 was Congress's framework for monetizing federal mineral resources on public lands. Private companies leased the right to extract oil, gas, coal, and other minerals from federal lands. The lessor (federal government) collected rentals (annual fees), royalties (percentage of production value), bonuses (upfront payments), and sale proceeds.
The Act split these revenues among the federal Treasury, the federal Reclamation Fund (for irrigation projects), and the states where the federal land was located. The 37.5% state share was directed to be used for roads, schools, or other educational institutions. The exact split has been amended several times by Congress; in 1971, it was 37.5% to states.
South Dakota's federal land was significant in the western part of the state (Black Hills, Badlands, federal grazing lands), where mineral activity (including uranium, oil/gas, and gravel) generated meaningful federal lease revenues.
SDCL Chapter 4-3 (State Finance) included sections 4-3-17 and 4-3-18 governing receipt and distribution of federal payments. These sections had been enacted years earlier as a general framework for federal payments-in-lieu-of-taxes and federal lease revenues from federally-owned lands. The framework was designed to ensure that local taxing subdivisions did not lose revenue when land became federally owned (and thus non-taxable).
The framework worked by distributing federal payments in the same proportions as a property tax on the same land would have been distributed. So if a parcel's property tax would have gone 40% to schools, 20% to township, 20% to county general fund, 20% to special districts, the federal payment for that parcel would be distributed the same way. This kept the local taxing subdivisions whole.
The state-owned-mineral-lease parallel was different. South Dakota mineral leases on state-owned lands went to the school principal and interest fund under separate constitutional and statutory provisions (the state's school endowment). Federal Mineral Leasing Act revenues, by contrast, fell under the federal payment framework in Chapter 4-3.
The AG's opinion enforced this distinction. State-owned-mineral revenue → school fund. Federally-owned-mineral revenue → SDCL 4-3-17/-18 county distribution.
Citations and references
Federal statute:
- 30 USCA § 191 (Mineral Leasing Act of February 25, 1920; 37.5% state share for roads, schools, or other educational institutions)
State statutes:
- SDCL 4-3-17 (state treasurer to receive federal funds available to taxing subdivisions as rentals, income, or in lieu of taxes)
- SDCL 4-3-18 (remittance to county treasurer; distribution among taxing subdivisions in tax-distribution proportions)
Source
Original opinion text
Monies received and distributed under the Mineral Leasing Act.
Dear Mr. Stoehr:
I have received a request for an official opinion relative to the following factual situation:
The Mineral Leasing Act of February 25, 1920, now 30 USCA 191, provides that 37 1/2 percent of sales, bonuses, royalties and rentals of public lands owned by the Federal Government be distributed to states in which such land is located. These monies are to be used by the states or subdivisions of the states for construction and maintenance of public roads or for the support of public schools or other public educational institutions as the legislature of the state may direct.
The monies received under this act have been credited to the school principal and interest fund as are monies received from mineral leases of state-owned lands. The statute specifically provides for the disposition of monies received from mineral leases of state-owned land but does not specifically provide for the distribution of monies received from mineral leases on land owned by the Federal Government.
The monies received and distributed under the Mineral Leasing Act might be subject to the provisions of SDCL 4-3-17 and 4-3-18 as are monies received under the Taylor Grazing Act.
The questions you have asked are:
-
Are monies received under the Mineral Leasing Act to be distributed according to the provisions of SDCL 4-3-17 and 4-3-18?
-
If question (1) is answered negatively, how should the funds be distributed?
In my opinion, the answer to your first question is, YES.
SDCL 4-3-17 provides:
Receipt by treasurer of federal payments for rent or in lieu of taxes.- The state treasurer is authorized and directed to receive from the federal government or any agency thereof any federal funds which may be available to any of the taxing subdivisions of this state as rentals upon or income from any lands acquired in this state by the federal government or any of its agencies, or any funds which may be paid in lieu of taxes on said land.
The above section directs the treasurer to receive the type of funds which the Mineral Leasing Act is concerned with.
SDCL 4-3-18 provides:
Remittance of federal payments to counties-Distribution to taxing subdivisions.-Upon receipt of any of the funds referred to in Sec. 4-3-17 the state treasurer shall remit the same to the county treasurer of the county wherein is situated the land on behalf of which such payment is made, and the county treasurer shall then distribute such funds to the credit of the taxing subdivision or subdivisions of the county in the same proportion as the tax upon such lands would be distributed under the laws of this state for the current year in which such payment or payments are made.
The above sections provide for the distribution of these funds as is also required by the Federal Mineral Leasing Act.
As your question No. 1 is answered in the affirmative, your question No. 2 is irrelevant.
Respectfully submitted,
Gordon Mydland
Attorney General