If a nonprofit historical or educational corporation in South Dakota incorporates itself as a 'historical municipality' under SDCL 9-3-22 to 9-3-27, can the county still levy ad valorem property tax on the land and buildings the corporation owns?

Plain-English summary

South Dakota in 1970 created an unusual category of local government, the "historical or educational municipality." Chapter 55 of the 1970 Laws (codified at SDCL 9-3-22 to 9-3-27) let a domestic nonprofit corporation chartered for historical or educational purposes form itself into a municipal corporation without satisfying the usual population minimums. The corporation's officers became the municipality's governing board, and the corporation's articles and bylaws supplied the rules. The catch was that the historical municipality could not receive any general state or local tax funds, just specific tourist, educational, or recreational distributions.

A county official asked AG Mark Meierhenry whether the county could tax the real property of one of these historical municipalities. Meierhenry walked through three constitutional and statutory pieces:

1. Article IX, section 1 of the South Dakota Constitution gives the Legislature plenary power to organize and classify local government. The Legislature exercised that power in SDCL 9-2-1 (population classes: first-class 5,000+, second-class 500-5,000, third-class/town under 500). A historical municipality, exempt by 9-3-24 from the population requirement, is treated as a third-class municipality (town) for purposes of classification.

2. Article XI, section 5 of the South Dakota Constitution states that the property of any municipal corporation is exempt from taxation.

3. The South Dakota Supreme Court in Appeal of Black Hills Industrial Freeport, Inc., 268 N.W.2d 489 (1978), held that Article XI, section 5 is self-executing as to municipal corporations: no further enabling legislation is needed for the exemption to take effect.

Putting the three pieces together: a historical municipality is a municipal corporation, its property is therefore covered by the self-executing constitutional exemption, and the county cannot levy ad valorem tax on it. The answer was a clean "exempt."

Currency note

This opinion was issued in 1978. 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 historical municipality statutes (SDCL 9-3-22 through 9-3-27) may have been amended. The constitutional provisions and Black Hills Industrial Freeport doctrine remain in force, but the application could turn on how the modern statute defines historical municipality.

What the opinion meant at the time

For county assessors, the opinion was a directive: a parcel owned by a duly organized historical municipality came off the tax roll. The county could not tax it, even if the parcel hosted commercial activity related to the historical or educational mission.

For nonprofit historical and educational corporations operating sites in South Dakota (museums, restored frontier towns, historical interpretive centers), the opinion confirmed the financial value of the historical municipality structure. By going through the formal incorporation steps under SDCL 9-3-22 to 9-3-27, the nonprofit could shift its real estate from the taxed nonprofit-owner category to the exempt municipal-corporation category.

For state legislators, the opinion confirmed that the 1970 statute had real teeth. The historical municipality framework was not just a labeling exercise; it produced a substantive constitutional tax exemption.

For tax attorneys, the opinion is a useful example of self-executing constitutional exemptions interacting with creative statutory classification. The Legislature could not write a statute that called something a municipal corporation if it really was not one, but as long as the SDCL 9-3-22 corporation satisfied the constitutional definition, the exemption attached automatically.

Background and statutory framework

The historical municipality framework reflects a peculiarly South Dakotan policy interest: the state had several historical and tourism-significant sites (Old Stone Quarry, restored frontier towns, Mount Rushmore-area attractions) operated by nonprofits. Property tax on those sites would have been a meaningful expense for organizations whose revenue was visitor admissions and donations. By creating a municipal-corporation overlay, the 1970 Legislature gave those sites the constitutional tax exemption without changing their day-to-day operation. The corporation kept running things; the rules came from the articles and bylaws; the same officers signed the same documents. The change was structural and legal, not operational.

SDCL 9-2-1 organized municipalities into population-based classes. By exempting historical municipalities from the population minimum in 9-3-24, the Legislature folded them into the third-class (town) tier as a legal matter, regardless of how few people actually lived inside their boundaries.

The constitutional exemption in Article XI, section 5 reads, at the time: "The property of the United States and of the state, county and municipal corporations, both real and personal, shall be exempt from taxation." This is the type of exemption courts call "self-executing" because no implementing legislation is needed to give it effect.

Black Hills Industrial Freeport, Inc. (1978) confirmed the self-executing nature of the exemption. That case had involved another municipal corporation; the holding meant Meierhenry could rely directly on the constitution without searching for a statutory exemption to make the constitutional one work.

Citations

• S.D. Const. art. IX, § 1; art. XI, § 5
• SDCL 9-2-1; SDCL 9-3-22 to 9-3-27
• Chapter 55, Laws of 1970
• Appeal of Black Hills Industrial Freeport, Inc., 268 N.W.2d 489 (S.D. 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