South Dakota's 1988 Legislature repealed SDCL 10-10A, removing the separate assessment for severed mineral interests, so surface owners are now assessed on the full value. The 1989 tax freeze (Senate Bill 121) capped 1989-payable taxes at the 1988 levy. Does assessing surface owners on full value violate the freeze, or does it qualify as the Section 4 'change of use' exception?
Plain-English summary
South Dakota has a long-standing dispute about how to tax severed mineral interests. The minerals (oil, gas, coal, uranium, sand, gravel) under a parcel of land can be owned separately from the surface. SDCL chapter 10-10A used to require apportionment: the county assessor would compute the per-acre value of the severed mineral interest, multiply by acres, and subtract that amount from the assessed valuation of the surface owner. The mineral owner paid the apportioned tax on the mineral interest; the surface owner paid only on the reduced surface value. The two tax bills together added up to the full-value tax on the combined property.
The 1988 Legislature repealed SDCL 10-10A in Chapter 85 of the Session Laws, effective July 1, 1988. The repeal happened mid-budget-year. Counties had completed surface assessments at the reduced (post-subtraction) values for the January 1, 1988 assessment date. Then the repeal took effect July 1. The county had to decide: do we now assess the surface owner on the full value (which the repeal seemed to require), or do we hold the line at the reduced value (which the assessment had already established)?
The county assessors chose to assess the surface owner on the full value going forward. That made sense as a matter of statute (the apportionment provisions were gone, so there was nothing to subtract), but it created practical problems. The surface owner's tax bill jumped, sometimes substantially, even though the surface owner had not done anything to cause the increase.
Enter the 1989 tax freeze. Senate Bill 121 (1989 Session) capped property tax dollars at the 1988 levy: "the total amount of property tax dollars levied on any property . . . shall not exceed the total amount of property taxes on such property . . . levied in 1988 and payable in 1989." A surface owner whose 1988 tax bill (on the reduced post-subtraction value) was $X expected to pay no more than $X in 1989. But the county was now assessing the surface owner on full value.
Mr. Haivala asked AG Roger Tellinghuisen two questions: (1) Does the full-value assessment violate the freeze? and (2) Does it qualify as the Section 4 "change of use" exception that would let the freeze be exceeded?
Tellinghuisen worked through both questions carefully.
On the first question, he said the freeze is on tax dollars, not on assessed value. The full-value assessment can be reported on the assessment roll, but when it comes time to compute the actual tax bill, the cap kicks in. The surface owner cannot be billed more than the 1988 dollar amount. So technically, the higher assessment does not violate the freeze; the freeze just limits what can be collected on that higher assessment. The result: the higher full-value assessment sits on the books, but the surface owner pays no more than 1988-level taxes.
On the second question, the Section 4 exception applies to "additions, improvements or change of use of property which were not assessed in 1988." Tellinghuisen said the surface owner had not added anything to the property, improved it, or changed its use. The Legislature had merely failed to recognize that SDCL 10-10A's repeal would shift the tax burden onto surface owners mid-cycle. That legislative oversight was not a "change of use" by the surface owner. So Section 4 did not apply, and the freeze stayed in place.
Tellinghuisen cross-referenced his Opinion 88-16 (which had addressed the same statutory repeal a year earlier) and noted that the situation had not changed since then. He also pointed to Section 13 of Senate Bill 121, which let a county commission override the freeze by a 2/3 vote (subject to a possible referendum), as the practical escape valve if a county genuinely wanted to collect on the higher assessments.
Currency note
This opinion was issued in 1989. Subsequent statutory amendments and the development of the modern property tax freeze (which was eventually superseded by other tax-relief mechanisms) have changed the landscape. Treat this page as historical context, not current legal advice. The specific 1989 SB 121 freeze referenced here was a one-time piece of legislation tied to the 1988 levy. Modern South Dakota property tax law uses different rate-setting and growth-cap mechanisms. The severed mineral interest taxation question has been revisited multiple times since the SDCL 10-10A repeal. Current questions should be verified against modern SDCL chapters 10-11, 10-12, and 10-13.
What the opinion meant at the time
For county directors of equalization in mineral-rich West River counties (Harding, Butte, Meade, and Custer counties especially), the opinion clarified that the higher full-value assessments could appear on the rolls but could not be the basis for an actual tax increase in 1989. The assessment system and the tax-collection system were running on different tracks.
For surface owners with severed mineral interests, the opinion was protective. They would not pay more in 1989 than they paid in 1988, even though their assessments had increased. The 1989 freeze acted as a one-year shield while the Legislature figured out what to do.
For county commissioners, the opinion identified the legal mechanism (Section 13's 2/3 override) for collecting on the higher assessments if the county judged it necessary to support local government services. A 2/3 vote is a high threshold, and a referendum could undo it, so the override would be used only in serious-need situations.
For state legislators, the opinion was a diagnosis of legislative drafting failure. By repealing SDCL 10-10A without coordinating the effective date with the property-tax assessment calendar, the 1988 Legislature had created a tax-shift problem that the 1989 Legislature's freeze had only partially fixed.
Common questions
Q: Why does the freeze cap dollars but not assessed value?
A: The 1989 SB 121 was drafted to cap the actual revenue burden on taxpayers, not to freeze the underlying assessment process. The Legislature wanted assessors to keep doing their job of valuing property (since assessments serve multiple purposes beyond tax bills, including school-funding equalization), but it did not want taxpayers to feel the immediate dollar increase.
Q: Could a surface owner just refuse to pay the higher assessment?
A: The surface owner pays the tax bill, not the assessment. The tax bill is computed at the lower 1988 dollar amount because of the freeze. The owner has no occasion to refuse anything. If a county tried to bill higher than 1988 in violation of Section 1 of SB 121, the owner could challenge the bill, but the bill itself should not exceed the cap.
Q: What is the Section 13 override?
A: A 2/3 vote of the county commissioners to exceed the freeze for that county, subject to a public referendum if 5% of voters petition for one. It is a difficult vote to get and a fragile vote to keep (any referendum could undo it). Most counties would not pursue Section 13 unless the alternative was severe service cuts.
Q: Why did the Legislature repeal SDCL 10-10A in the first place?
A: The opinion does not say. Likely candidates: severed mineral interests were administratively cumbersome to value (requiring per-acre mineral valuations on properties where mineral rights were diffuse); collection was hit-and-miss because mineral owners were often out-of-state; and the political theory was that the surface owner could pursue the mineral owner for contribution via private contract or trust arrangements. The repeal shifted the burden of finding the mineral owner from the county to the surface owner.
Q: What happens to severed mineral interest taxes after 1989?
A: That is outside the scope of this 1989 opinion. The Legislature continued to revisit severed-mineral-interest taxation over the following decades; modern law should be consulted.
Background and statutory framework
South Dakota's mineral wealth is concentrated in the West River counties (especially Harding and Butte counties for oil and gas, Custer County for uranium and pegmatites, Meade County for bentonite and coal). Mineral rights were often severed from surface rights in the late 1800s and early 1900s, with the result that today's surface owners frequently do not own the minerals beneath their land. The mineral owners may be widely scattered descendants of the original severance, or speculative mineral companies, or oil-and-gas trusts.
SDCL chapter 10-10A (in effect from 1969 to 1988) handled the apportionment between surface and mineral owners. The chapter let the county assessor value the mineral interest separately, send a tax bill to the mineral owner, and reduce the surface owner's assessment by the apportioned mineral value. It was an administrative compromise: the county got to tax the full value of the combined property, but the burden was split fairly between the two ownership interests.
The 1988 repeal undid the apportionment. The mineral interest became effectively untaxed (because no separate assessment mechanism existed for it), and the surface owner became responsible for the full-value tax. The Legislature did not provide a transition rule, did not address the surface owner's lack of practical recourse against absent mineral owners, and did not coordinate the July 1, 1988 effective date with the January 1 assessment date.
The 1989 SB 121 was the Legislature's response to growing taxpayer pressure as the 1988 reassessments hit. The freeze was supposed to give the Legislature time to design a better solution. Tellinghuisen's 1989 opinion told county officials: the freeze does its work, the assessments can stand, taxpayers don't pay more in 1989, and if county commissioners want more revenue, they have the 2/3 override mechanism.
Source
Original opinion text
OFFICIAL OPINION NO. 89-15
Tax Freeze and Mineral Interest Assessment
Dear Mr. Haivala:
You have requested an official opinion on the following factual situation:
FACTS:
In 1988 the South Dakota Legislature repealed SDCL 10-10A, a statute which apportioned values of real property, for assessment purposes, between surface owners and owners of severed mineral rights. With the repeal, the surface owner now becomes responsible for the assessments on the full value of the real property regardless of whether there were any severed mineral interests or not. The County Assessor, by January 1, 1988, had completed new assessments on the surface owners.
During the 1989 Legislative session, the Legislature passes Senate Bill 121 that states in part that the amount of property tax shall not exceed the total amount of property tax on property levied in 1988 and payable in 1989. Section 4 of the Bill allows additions, improvements or change of use of property which were not assessed in 1988, shall be assessed without regard to limitations of the act.
QUESTIONS:
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Does the assessment of surface owners for the full value of the property, as is mandated by the repeal of SDCL-10-10A, violate sections 1 and 2 of Senate Bill 121?
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In the alternative, does assessing the surface owner on full value of the property fall under the Section 4 exception as provided in Senate Bill 121?
Senate Bill 121 was the tax freeze legislation introduced in the 1989 Session. By law, the total amount of property tax dollars levied on any property for county, civil, township, school or other taxing district purposes shall not exceed the total amount of property taxes on such property for that district levied in 1988 and payable in 1989. Thus, if I as a property owner had X number of dollars levied on my property in 1988 I may expect to pay not more than that same amount in the next two years, with certain exceptions.
The questions you raise deal with those exceptions. In Section 4 of Senate Bill 121, any additions, improvements or change of use either actual or legal of property which were not assessed in 1988 shall be assessed without regard to the basic limitations of the Act.
SDCL 10-10A provided a method of taxing severed mineral interests and in Section 10-10A-4 required that the per acre value of the severed mineral interest multiplied by the number of acres in the mineral interest should be subtracted from the full and true assessed valuation of the surface interest. The amount determined to be the tax owing from the formula attributable to the severed mineral interest would be paid by the owner of the severed mineral interest. SDCL 10-10A-2. Therefore, the taxes levied on any piece of property which had severed mineral interests in 1988 consisted of the taxes on the severed mineral interest as well as the taxes on the value of the surface owner. Therefore, normally it would have been permissible to avoid the tax freeze by merely relating the total amount of taxes on a given piece of property to the taxes which were to be levied in 1988.
In point of fact, however, SDCL 10-10A was repealed by Chapter 85, Session Laws of 1988, effective July 1, 1988. Since all the levying of taxes takes place after July 1, 1988, there were no taxes levied in that year on the severed mineral interests. Therefore, the only taxes levied on the "property" were those which were levied on the value of the surface. In this connection see Official Opinion 88-16 which considered the effect of the repeal of the severed mineral interest taxation, SDCL 10-10A. In the conclusion it was pointed out:
By the repeal of the tax against severed mineral interests, while leaving in place the reduction in valuation of the surface owner, the legislature must have realized that it was giving a tax break to the surface owner, but by not replacing the funds lost by that action from any other source it automatically will increase the burden upon the surface owners.
I continue to hold to that opinion and find that now the situation has not changed and the value on the property may not be increased.
The answer to question 1 is that an assessment of the full value of the surface owner's property does not violate section 1 and 2 of Senate Bill 121 since, regardless of the value that is placed on the property, the taxes levied against that property may not be more than the taxes levied on the same in the years 1988 payable in 1989.
As to question 2, it is my opinion that so far as the surface owner is concerned there has been no change of use of his property, either actual or legal, nor has there been any addition or improvement to his property, it is merely a fact that the Legislature failed to recognize the effective date of tax legislation and as a result has hampered the collection of taxes in Harding County and elsewhere where there are severed mineral interests. I would remind you that under Section 13 of 1989 SB 121, a 2/3 vote by the County Commissioners would allow the increased tax to be imposed assuming no referendum.
Respectfully submitted,
ROGER A. TELLINGHUISEN
ATTORNEY GENERAL
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