Ag Income Tax Promises New Math for South Dakota

South Dakota's new agricultural income tax (officially known as the productivity tax—ah, marketing) promises to create all sorts of bureacratic discombobulation. The Brown County director of equalization plans to add a new appraiser to the payroll to help manage all the new math involved in assessing property.

Check out the new math for yourself on the state's official webpage for the coming ag income tax. You will find all sorts of interesting numbers there. One chart breaks down the change in valuation the new assessment system will bring in 2010. You can also check out the productivity numbers crunched by the SDSU economists to calculate the productivity assessment for each county. For instance, this PDF chart (come on, fellas; couldn't you put it in Excel format for us amateur number crunchers?) tells us the average income per acre for crops and cash rent in Lake County from 2000 to 2008:

Lake County, SD
	Crops		Cash Rent
	Acres	Income/Acre	Income/Acre
2000	248,500	$ 171.21	$ 29.40
2001	243,400	$ 153.82	$ 28.90
2002	260,300	$ 187.08	$ 33.50
2003	255,500	$ 242.66	$ 34.50
2004	250,600	$ 225.60	$ 39.30
2005	242,800	$ 239.85	$ 42.40
2006	240,000	$ 290.77	$ 46.10
2007	236,300	$ 486.29	$ 48.70
2008	245,500	$ 389.56	$ 47.50
Olympic Avg.
2000-2007		$ 226.20	$ 37.53
2001-2008		$ 262.59	$ 40.55

The Olympic average is the average over the previous eight years with the highest and lowest values dropped (don't forget to divide by 6, not by 8!). So the ethanol boom year of 2007 may never be figured into the assessment (unless corn prices really rebound later).

The state has gone to great lengths to make sure this productivity tax can't be called a direct income tax. As this document explains, a farmer's tax isn't based just on his own income, but on the income of all of his neighbors in the county, with adjustments by the county equalization office. I maintain it would be much more straightforward to give farmers (and the rest of us) a form with three lines:

1. How much did you make this year?
2. Multiply by 7%.
3. Send that amount to Vern Larson.
   

Still, as the South Dakota Corn Growers point out, all this new math is an improvement on the old math. It provides a fairer, more reliable mathematical basis for assessing the value of ag land than the current system where an appraiser takes a wild guess based on his impression of numerous real estate market forces that may have little or nothing to do with how much the farmer is making on that land and how much that farmer can pay this year.

I guess my only question right now is this: why haven't we extended that same tax rationality to every property holder in South Dakota? Why not tax all businesses on the wealth they actually create with their property rather than a vague guess on how much someone might pay to buy that property?

In other words, why not charge Pat Prostrollo an income-based tax on his car lot just like we'll charge the Swiers an income-based tax on their cattle lot?