If a South Dakota homeowner lives in one unit of a duplex or triplex and rents out the others, can the property still qualify for the 20 percent owner-occupied property tax credit? What about a single-family home with a rentable basement apartment?

Plain-English summary

In 1996, the Pennington County Deputy State's Attorney noticed that counties around South Dakota were not applying the 20 percent owner-occupied property tax credit consistently. Pennington was denying the credit on duplexes and triplexes, even when the owner lived in one of the units. Other counties were granting it. The Department of Revenue had not given a clear lead. Ronald Buskerud asked AG Mark Barnett for a definitive read of SDCL 10-13-39.

The AG sided with Pennington. The statute was an exemption from a portion of the property tax, so it had to be construed strictly in favor of the taxing body and narrowly in favor of the exemption claimant. The statute listed the property types that qualified: house, condominium apartment, townhouse, townhome, and manufactured or mobile home (the last as defined in SDCL 32-3-1). The statute also required that the unit be "assessed and taxed as a separate unit." Duplexes and triplexes did not appear on the list, were not built for occupancy by one family, and (as Pennington noted) were not separately assessed for each unit. So they were out.

The follow-up question, whether a single-family home with a basement apartment was treated differently, got the same answer. The opinion defined "apartment" using Webster's New Collegiate Dictionary as a self-contained dwelling unit, and reasoned that once a basement was converted into a true apartment, the structure was effectively a two-family dwelling. A homeowner who simply rented a room to a boarder, without carving out a separate apartment unit, kept the credit because the structure remained designed for one family.

Because question 1 was answered no, the opinion did not need to address question 3 (how to apportion the credit). The AG closed by noting that only the Legislature could expand the list to cover duplexes, triplexes, or comparable owner-occupied structures.

Currency note

This opinion was issued in 1996. 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. SDCL 10-13-39 has been amended multiple times since 1996, including changes to the credit percentage and the list of qualifying property types, and the Department of Revenue has issued administrative guidance that may modify some specific applications described in the opinion.

What the opinion meant at the time

For county directors of equalization, the opinion provided a workable rule. If a structure was a duplex or triplex on the assessor's books, it did not qualify, period. If a single-family home had been physically modified to add an apartment, the modification disqualified the property. A spare bedroom rented to a boarder did not.

For homeowners who lived in one unit of a small multi-family property, the opinion was bad news. They paid the full property tax with no 20 percent credit, even though the property was their primary residence in the everyday sense.

For homeowners thinking about converting a basement, the opinion was a heads-up that the conversion could cost them the credit. The line the AG drew was the difference between renting out part of a home and creating a separate apartment unit. A self-contained kitchen and bath in the basement was the kind of change that crossed that line.

For real estate agents and small landlords, the opinion meant the financial pitch on a duplex purchase needed to be honest: the owner-occupied tax credit available on a single-family home of similar value was not available on a duplex, and the difference was meaningful at 20 percent of the property tax bill.

For practitioners advising clients on classification appeals, the opinion gave the controlling rule of construction: tax credits in this area were treated as exemptions and were narrowly construed against the claimant. Arguments would have to be grounded in the statutory list, not in legislative purpose or fairness.

Common questions

Q: If the duplex was assessed as one tax parcel, did that change the answer?
A: The opinion treated the "assessed and taxed as a separate unit" language as one requirement that duplexes failed (because the owned unit was not assessed separately) and treated the "single-family dwelling" language as a second requirement they also failed (because duplexes are not single-family). Even a duplex assessed as one tax parcel would not qualify because the property type itself was outside the list.

Q: What about a true condominium with one unit owned and one rented?
A: Condominium apartments were on the qualifying list. The opinion's logic suggested that a condominium structure in which each unit was separately assessed and taxed would qualify for the credit on the owner-occupied unit only. The 1996 opinion did not directly address that scenario.

Q: How did the AG define "apartment" for the basement scenario?
A: The AG used Webster's New Collegiate Dictionary's definition: "a room or set of rooms fitted especially with housekeeping facilities and used as a dwelling." The presence of housekeeping facilities (kitchen, bath) was the key. A bedroom rented to a boarder did not have those facilities.

Q: Could a homeowner request a partial credit on the portion of a duplex they occupied?
A: The opinion declined to reach this question because it had answered question 1 in the negative. The statute did not contemplate a fractional credit, and the opinion's strict-construction approach would have made carving one out difficult absent legislative authorization.

Q: Did this opinion apply to manufactured-home parks with a single owner?
A: The opinion focused on the owner-occupied credit on the owner's primary residence. A manufactured home owned by a separate occupant could qualify under the list. A multi-unit manufactured home park owned by a single business and rented out would not be the owner's residence and would not present this question.

Background and statutory framework

South Dakota's 20 percent owner-occupied tax credit in SDCL 10-13-39 was, in 1996, a fairly new property-tax-relief mechanism. The statute identified the credit as a "specific classification for the purpose of taxation," meaning the legislature treated it as a partial reclassification of qualifying property rather than as a deduction or rebate. Operationally, it reduced the property tax bill by 20 percent for property that fit the list.

The list was specific: house, condominium apartment, townhouse, townhome, and manufactured or mobile home as defined in SDCL 32-3-1. The list was also exhaustive in the AG's reading. Duplexes and triplexes were not on the list, so they were not in.

The "assessed and taxed as a separate unit" requirement did two things. First, it confirmed that the credit attached to the unit, not the building. Second, it pointed toward the kind of property that would have its own assessment line in the records of the director of equalization. A condominium apartment typically did. A duplex unit typically did not.

The strict-construction canon the AG applied came from In re Quality Service Railcar Repair Corp., 437 N.W.2d 209, 211 (S.D. 1989): tax statutes that impose tax are construed liberally for the taxpayer, but tax statutes that grant an exemption are construed strictly in favor of the taxing body. That asymmetry put the burden on the homeowner to fit cleanly within the list, not on the assessor to justify a denial.

The plain-meaning rule came from In re Petition of Famous Brands, Inc., 347 N.W.2d 882, 885 (S.D. 1984): the words of the statute are given their plain meaning and effect. The opinion treated "single-family dwelling" as having a self-evident meaning (a structure for one family) and read duplexes and triplexes out by definition.

The 1996 opinion did not address every fact pattern that might arise. The opinion explicitly said other scenarios (presumably accessory dwelling units, mother-in-law suites, partial conversions) would have to be reviewed case-by-case, with the strict-construction rule still pointing toward denial.

Citations and references

Statutes:
- SDCL § 10-13-39 (owner-occupied single-family dwelling tax credit)
- SDCL § 32-3-1 (manufactured or mobile home definition)

Cases:
- In re Petition of Famous Brands, Inc., 347 N.W.2d 882 (S.D. 1984)
- In re Quality Service Railcar Repair Corp., 437 N.W.2d 209 (S.D. 1989)

Other authority:
- Webster's New Collegiate Dictionary 51 (1981) (definition of "apartment")

Source

• Landing page: https://atg.sd.gov/OurOffice/OfficialOpinions/opinions.aspx
• Original PDF: https://atg.sd.gov/OfficialOpinions/Official%20Opinion%2096-02.pdf

Original opinion text

May 30, 1996

Mr. Ronald D. Buskerud
Pennington County Deputy States Attorney
300 Kansas City Street
Rapid City, South Dakota 57701

OFFICIAL OPINION NO. 96-02
Owner-occupied classification.

Dear Mr. Buskerud:

You have requested an official opinion from this Office based upon the following facts:

FACTS:

Pennington County does not classify duplexes and triplexes as "owner-occupied single-family dwellings" under SDCL 10-13-39 for purposes of the twenty percent tax credit, even if the owner resides in one unit. It has been brought to our attention that other counties classify duplexes and triplexes as "owner-occupied single-family dwellings," and that the Department of Revenue may share in that interpretation of the law. The Pennington County Director of Equalization does not have records which indicate that the owned or occupied unit of a duplex or triplex is assessed or taxed as a separate unit which is a requirement under the statute.

Based upon the foregoing facts, you have asked the following questions:

QUESTIONS:

1. Do duplexes and triplexes qualify for the twenty percent tax credit under SDCL 10-13-39 when the owner resides in one of the units and rents the other unit(s)?

2. If the answer to no. 1 is no, would the answer be different if the duplex is a home with an apartment in the basement?

3. If the answer to no. 1 is yes, how does the Director of Equalization assess the property for tax credit purposes, that is, give the entire unit a twenty percent reduction, give the unit a one-half or one-third credit, or give the unit credit by a square foot basis?

IN RE QUESTION NO. 1:

All of the questions you have asked focus on the twenty percent owner-occupied property tax credit. Therefore, it is necessary to review the appropriate statute, SDCL 10-13-39:

Each owner-occupied single-family dwelling in this state is specifically classified for the purpose of taxation. For the purposes of this section, an owner-occupied single-family dwelling is a house, condominium apartment, town house, town home, and manufactured or mobile home as defined in § 32-3-1, which is assessed and taxed as a separate unit, including an attached or unattached garage and the parcel of land upon which the structure is situated as recorded in the records of the director of equalization. The owner of each owner-occupied single-family dwelling shall receive a twenty percent credit toward the property taxes, except special assessments, payable in 1996. A person may receive a credit on only one owner-occupied single-family dwelling per year.

In interpreting a statute, the words of the statute are to be given "their plain meaning and effect." In re Petition of Famous Brands, Inc., 347 N.W.2d 882, 885 (S.D. 1984). SDCL 10-13-39 grants a tax credit of twenty percent to an "owner-occupied single-family dwelling." SDCL 10-13-39 effectively operates to "exempt" the "owner-occupied single-family dwelling" owner from twenty percent of their tax bill. SDCL 10-13-39 is really an exemption statute:

[S]tatutes imposing a tax are to be construed liberally in favor of the taxpayer. . . . [S]tatutes allowing a tax exemption are strictly and narrowly construed in favor of the taxing power and are given a reasonable, natural and practical meaning to effectuate the purpose for which the exemption was granted. . . .

In re Quality Service Railcar Repair Corp., 437 N.W.2d 209, 211 (S.D. 1989). With these rudimentary rules of statutory construction in mind, we turn to the statute in question.

SDCL 10-13-39 defines an "owner-occupied single-family dwelling" as a "house, condominium apartment, town house, town home, and manufactured or mobile home as defined in § 32-3-1." The plain meaning of the phrase "single-family dwelling" is a structure designed and built for occupancy by one family, and encompassed by one legal description. Duplexes, by definition, are designed and built for occupancy by two families. Duplexes, unlike town houses and condominiums are not taxed as "separate units." Finally, nowhere in SDCL 10-13-39, or the list of the types of properties that are included in the classification of "owner-occupied single-family dwelling," is a duplex or triplex found. Since we must give the words of SDCL 10-13-39 their plain meaning and effect, and construe the tax exemption strictly in favor of the taxing body, I am of the opinion that duplexes and triplexes do not qualify for the twenty percent property tax credit of SDCL 10-13-39.

IN RE QUESTION NO. 2:

Your second question asks whether there is a difference between a duplex or triplex, and "a home with an apartment in the basement." Again, I return to the plain and ordinary meaning of the phrase "single-family dwelling," which I have defined as a structure designed and built for occupancy by one family. I define the term "apartment" as a separate, self-contained unit also designed to be occupied by a family. See Webster's New Collegiate Dictionary, 51 (1981), defining apartment as "a room or set of rooms fitted especially with housekeeping facilities and used as a dwelling." If a "single-family dwelling" is converted to a home with a separate apartment, I am of the opinion that the dwelling is no longer a "single-family dwelling" because the structure is now converted for two family occupancy. A home with an apartment is no different than a duplex because both are to be occupied by two families.

A dwelling loses its classification as a "single-family dwelling" when part of the dwelling is converted to include an apartment. If a person rents out a room to a border, but has not converted any part of the home to an apartment, the home is still a "single-family dwelling" because it is still designed and built for occupancy by one family. There are perhaps other scenarios which will question whether the home is still a "single-family dwelling." Each must be reviewed based upon the specific facts of each case, and the rule that statutes granting an exemption must be strictly construed in favor of the taxing body.

To summarize, I am of the opinion that the apartment disqualifies the home as an "owner-occupied single-family dwelling" for the purpose of the twenty percent property tax credit of SDCL 10-13-39.

IN RE QUESTION NO. 3:

Since the answer to question no. 1 is in the negative, there is no need to address question no. 3.

In conclusion, I cannot construe "single family" to include double family (duplex) or triple family (triplex), any more than I can construe it to include apartment buildings. It is within the exclusive power of the Legislature to determine whether a tax credit should be provided to owners of duplexes, triplexes, or comparable owner-occupied structures. No matter how desirable, as Attorney General I do not have the power through the opinion process to amend statutes to achieve these ends.

Respectfully submitted,

MARK BARNETT
ATTORNEY GENERAL

MB/DDW/clr