Can a South Dakota county levy property tax on real estate belonging to a duly organized historical municipality?

Plain-English summary

A county official asked whether South Dakota could tax the real property of a historical municipality formed under SDCL 9-3-22 through 9-3-27. The AG answered that property belonging to a duly organized, bona fide historical municipality was exempt from ad valorem taxation.

Chapter 55 of the Laws of 1970 allowed a tax-exempt domestic corporation chartered for historical or educational purposes to form a municipal corporation without meeting the ordinary population requirements. Its governing board would be the corporation's officers, and its articles and bylaws would supply the rules. The municipality could not receive general state or local tax funds, apart from specified tourist, educational or recreational distributions.

The AG linked that structure to two constitutional provisions. Article IX, section 1 gave the Legislature plenary power to organize and classify local government. Article XI, section 5 exempted the property of municipal corporations from taxation. Citing Appeal of Black Hills Industrial Freeport, Inc., the AG said the exemption was self-executing and required no further enabling law.

The opinion discusses ownership by a duly organized, bona fide historical municipality. It does not discuss commercial use of its property or whether a particular parcel would qualify on a different set of facts.

Currency note

This opinion applies the historical municipality statutes and constitutional provisions as the AG understood them at the time. Check current law and later decisions before applying its conclusion to a present property-tax assessment.

What the opinion meant at the time

For county assessors, the opinion said not to impose ad valorem tax on property belonging to a duly organized, bona fide historical municipality. The opinion did not create a separate exemption test based on how each parcel was used.

For corporations considering formation under the historical municipality statutes, the opinion identified the tax consequence of becoming a qualifying municipal corporation. It did not decide whether a particular corporation met the formation requirements.

Common questions

Q: What property did the AG say was exempt?
A: Property belonging to a duly organized, bona fide historical municipality was exempt from ad valorem taxation in South Dakota.

Q: Did the AG require another statute to activate the constitutional exemption?
A: No. Citing Appeal of Black Hills Industrial Freeport, Inc., the opinion said Article XI, section 5 was self-executing as to municipal corporations.

Q: Did the opinion decide whether property used for commercial activity is exempt?
A: No. It does not analyze property use or commercial activity. Its conclusion is about property belonging to a duly organized, bona fide historical municipality.

Q: Could any historical nonprofit claim the exemption?
A: The opinion speaks of a domestic, tax-exempt corporation chartered for historical or educational purposes that formed a municipal corporation under the cited statutes. It conditions the tax conclusion on the municipality being duly organized and bona fide.

Background and statutory framework

The opinion describes Chapter 55 of the Laws of 1970, codified at SDCL 9-3-22 through 9-3-27, as an exception to ordinary municipal formation requirements for qualifying historical or educational corporations. It then applies the Legislature's classification power under Article IX, section 1 and the property-tax exemption for municipal corporations under Article XI, section 5. The cited Black Hills Industrial Freeport decision supplied the point that the constitutional exemption operates without additional legislation.

Citations

• South Dakota Constitution Art. IX, § 1 and Art. XI, § 5
• SDCL 9-2-1 and SDCL 9-3-22 through 9-3-27
• Chapter 55, Laws of 1970
• Appeal of Black Hills Industrial Freeport, Inc., 268 N.W.2d 489 (1978)

Source

• Landing page: https://atg.sd.gov/OurOffice/OfficialOpinions/opinionhtml.aspx?id=1350

Original opinion text

Taxation of Historical Municipality

Dear Mr. Leibel:

You have requested an official opinion from this office in regard to the following question:

QUESTION:

Does a county of the state of South Dakota have the authority to tax the real property of a 'historical municipality' given provisions of SDCL 9-3-22 through 9-3-27?

Chapter 55 of the Laws of 1970 provided for the establishment of a historical or educational municipality. As now codified these permit any domestic corporation chartered for historical or educational purposes and being tax exempt, to form and name a municipal corporation without meeting minimum population requirements or other requirements for municipalities with the governing board being the officers of the corporation and the rules and regulations being those provided in the articles of incorporation bylaws. A further restriction is that such municipality shall not be authorized to receive any state or local tax funds or any distribution from either state or local sources except certain funds specifically provided for tourist, educational or recreational activities. Art. 9, § 1 of the South Dakota Constitution provides that the Legislature shall have plenary powers to organize and classify units of local government. This the Legislature has done in SDCL 9-2-1 in three classifications: first class cities, 5000 or over; second class cities, 500-5000; third class municipalities or towns, 500 or less. By virtue of the exemption from the population requirements in 9-3-24, a historical municipality if in fact it has less than 500 persons would be a municipality of the third class or a town. Art. 11, § 5 of the South Dakota Constitution provides that the property of any municipal corporation is exempt from taxation. This particular provision has been held to be self-executing as to the exemption it provides to municipal corporations and no further enabling legislation is necessary to carry out the same. Appeal of Black Hills Industrial Freeport, Inc., 268 N.W.2d 489 (1978).

The answer to your question is that property belonging to a duly organized and bona fide historical municipality is exempt from ad valorem taxation in South Dakota.

Respectfully submitted,

Mark V. Meierhenry

Attorney General