#26196-rev & rem-LSW

2013 S.D. 33

                          IN THE SUPREME COURT
                                  OF THE
                         STATE OF SOUTH DAKOTA

                                 ****
JOHN APLAND, ET AL.,                      Plaintiff and Appellee,

      v.

BOARD OF EQUALIZATION FOR
BUTTE COUNTY, SOUTH DAKOTA,               Defendant and Appellant.


                                 ****

                  APPEAL FROM THE CIRCUIT COURT OF
                    THE FOURTH JUDICIAL CIRCUIT
                    BUTTE COUNTY, SOUTH DAKOTA

                                 ****

                    THE HONORABLE JOHN W. BASTIAN
                               Judge

                                 ****

KENNETH E. BARKER of
Barker Wilson Law Firm, LLP
Belle Fourche, South Dakota               Attorneys for plaintiff
                                          and appellee.


ROBERT L. MORRIS of
Day Morris Law Firm, LLP
Belle Fourche, South Dakota               Attorneys for defendant
                                          and appellant.



                                 ****

                                          CONSIDERED ON BRIEFS
                                          ON JANUARY 8, 2013

                                          OPINION FILED 04/10/13
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WILBUR, Justice

[¶1.]        This is the second property tax appeal to this Court concerning the

Butte County Director of Equalization’s (Director) methodology for assessing the

value of the rangeland property owned by Apland and other appellees (Apland). We

must decide whether Director’s recalculation on remand conformed to our decision

in Apland I. The trial court held that Director did not comply with the directives in

Apland I. We reverse and remand.

                  FACTS AND PROCEDURAL BACKGROUND

[¶2.]        Apland and Director have been involved in a dispute over the method

Director used to calculate the value of Apland’s property for tax purposes in 2002

and 2003. In Apland I,

             Apland assert[ed] that the methodology used by Director to
             determine the assessment value of Apland’s rangeland violated
             the Constitutional requirements of equality and uniformity.
             Specifically, Apland assert[ed] that it was error for Director to
             use sales of land with “appurtenant water rights” without any
             adjustment for the market value of those water rights. Apland
             assert[ed] that this error led to his rangeland, which does not
             have appurtenant and nontransferable water rights, being
             assessed at a substantially higher value than other rangeland of
             similar kind and quality.

Apland v. Butte Cnty. (Apland I), 2006 S.D. 53, ¶ 17, 716 N.W.2d 787, 792.

“Apland’s expert, Jerry Kjerstad, stated that ‘sales . . . with water rights should not

be paired with sales without water rights unless an adjustment for the water rights

could be quantified.’” Id. ¶ 18 (alteration in original). Thus, the question before

this Court in Apland I was “whether it was clearly erroneous for Director to use

sales of land with access to [the Belle Fourche Irrigation District (BFID)] in his

formula when determining that under SDCL 10-6-33.6, the median market value

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per acre in the Southern Neighborhood deviates by more than ten percent from the

county median market value per acre, thus allowing Director to establish a separate

market value per acre for the land within the Southern Neighborhood.” Id.

(internal footnote omitted).1

[¶3.]         This Court held that Director “failed to comply with the Constitutional

requirements of equality and uniformity.” Id. ¶ 20. See S.D. Const. art. VIII, § 15;

S.D. Const. art. XI, § 2. In order to comply with these Constitutional requirements,

we held that, before Director determines the median market value, Director must

adjust for sales of land containing appurtenant and nontransferable rights

downward to reflect the value of those rights. Apland I, 2006 S.D. 53, ¶¶ 19-20, 716

N.W.2d at 793. Accordingly, we remanded this case for proceedings consistent with

our opinion with direction to Director to re-determine the property values after

giving “appropriate consideration and value to appurtenant and nontransferable

water rights, specifically BFID water rights.” Id. ¶ 26.




1.      SDCL 10-6-33.6 provided:

              If the median market value per acre in an identifiable region
              within a county deviates by more than ten percent from the
              county median market value per acre, the county director of
              equalization may establish a separate market value per acre for
              the land defined by the director of equalization within that
              identifiable region.

        SDCL 10-6-33.6 allowed Director to form regions or “neighborhoods,” as we
        referred to them in Apland I, within a county when assessing tax values if
        certain conditions were met. Though the Legislature repealed this statute in
        2008, it governed the assessment years that are the subject of this appeal.
        See 2008 S.D. Sess. Laws 155, ch. 44, § 23.


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[¶4.]        On remand, the trial court held a hearing and considered post-trial

briefs from the parties. In its first memorandum decision on April 15, 2008, the

trial court determined that Director had not complied with the holding of this Court

in Apland I and required that Director “make adjustments for sales containing

appurtenant water rights and adjust those sales prices ‘downward[ ]’ before

calculating the median market values.” The trial court determined that an accurate

median market value per acre can only be determined after the value of those water

rights is established and considered. Further, the trial court held that the

methodology utilized by Director to determine the assessment value of Apland’s

rangeland continued to be in violation of the Constitutional requirements of

equality and uniformity. The trial court instructed Director to: (1) determine the

value of land with appurtenant and nontransferable water rights either by adopting

Apland’s paired sales analysis or performing its own analysis; and (2) after

determining the value of the land with appurtenant and nontransferable water

rights and the median market value per acre, determine whether the recalculation

would affect the 10 percent deviation analysis under SDCL 10-6-33.6.

[¶5.]        In response to the trial court’s first post-remand memorandum

decision, Director submitted an affidavit detailing his methodology in reassessing

the land. In his affidavit, Director stated:

             29. That although your Affiant has concluded that there is no
             value that you can specifically and solely attribute to the value
             of water rights or access to water for irrigated sales and
             therefore there is no need to make a “downward adjustment” of
             the irrigated sales prior to performing the deviation analysis,
             your Affiant follows the directive of the Supreme Court and
             Circuit Court and will do the same as [Apland’s] expert by


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           determining value using a small data set which consists only of
           those sales that are less than 150% of assessed value.

           30. That your Affiant undertook a parings analysis for the 2002
           and 2003 assessment years using only “good sales”[2] which are
           non-rejected sales that are not sales over 150% of assessed
           value.

           31. Each non-irrigated sale was paired against each irrigated
           sale.

           32. An adjustment for soil quality is made to account for any
           productivity difference in each pairing and the resulting dollar
           difference is assumed to be solely attributable to water rights or
           access to water.

           33. A percentage difference in adjusted sale price per acre is
           calculated for each pairing.

           34. The median of these percentage differences is calculated for
           all of the pairings involving each non-irrigated sale, and for all
           of the pairings for all the sales.

           35. A negative percentage difference is an indication that
           irrigation had a negative influence on value. A positive
           difference is an indication that irrigation influenced the sale
           price positively.

           36. In the 2002 assessment year, there were two non-irrigated
           sales that were paired against thirty irrigated sales. Both of
           these sales indicated a positive median difference due to
           irrigation. One sale indicated a percentage difference of forty-
           five (45) percent and the other fifty-five (55) percent. Only eight
           (8) of the sixty (60) individual pairings indicated a negative
           difference for irrigation.


2.   A “good” sale is an agricultural sale that is more than 70 acres, a sale for less
     than 150 percent of the assessed value, and an arms-length transaction. See
     SDCL 10-6-1.4 (defining arms-length transactions); SDCL 10-6-33.20
     (repealed 2008) (stating that “[a]ny agricultural land . . . sold in an increment
     of seventy acres or less[ ] may not be used for the purpose of valuing
     agricultural land”); SDCL 10-6-74 (stating that “[a]ny real property which
     sells for more than one hundred fifty percent of its assessed value, may not be
     used for the purpose of valuing other real property”).


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         37. Thus, if one used only the small data set of “good sales” for
         the 2002 assessment year, the value of water rights or access to
         water (irrigation), if one assumed it was solely [due] to water
         rights or access to water (irrigation), is forty-eight (48) percent
         of the sale price of each irrigated sale.

         38. That for the 2002 assessment year, a downward adjustment
         of 48% of the sale price of each irrigated sale is then made.

         39. That for the 2002 assessment year, after adjusting the sale
         price of each irrigated sale, the neighborhood analysis is
         performed and is as follows:
            a. Median Market Value per Acre (Entire County Sales) is
                $155.00 per acre.
            b. Median Market Value per Acre (Northern Sales) is
                $104.00 per acre.
            c. Median Market Value per Acre (Southern Sales) is
                $219.00 per acre.

         40. That for the 2002 assessment year, after adjusting the sale
         price of each irrigated sale, there is a greater than 10%
         deviation pursuant to SDCL 10-6-33.6.
         ...
         44. That for the 2003 assessment year[,] there were no “good
         sales” of non-irrigated land in which to pair with irrigated land
         to determine the percentage of sale price attributable to water
         rights. Nonetheless, forty-eight (48) percent value was assigned
         as the percentage attributable to each sale and a downward
         adjustment of 48% of the sale price of each irrigated sale is then
         made.

         45. That for the 2003 assessment year, after adjusting the sale
         price of each irrigated sale, the neighborhood analysis is
         performed and is as follows:
            a. Median Market Value per Acre (Entire County Sales) is
                $133.00 per acre.
            b. Median Market Value per Acre (Northern Sales) is
                $116.00 per acre.
            c. Median Market Value per Acre (Southern Sales) is
                $179.00 per acre.

         46. That for the 2003 assessment year, after adjusting the sale
         price of each irrigated sale, there is a greater than 10%
         deviation pursuant to SDCL 10-6-33.6.
         ...

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By stipulation, the parties’ briefs and exhibits, including both Director’s affidavit

and an affidavit and report from Apland’s expert, Ronald Ensz,3 were submitted to

the trial court for its consideration.

[¶6.]         In its March 25, 2011 memorandum decision, the trial court concluded

that Director failed to value the appurtenant water rights and make a downward

adjustment prior to calculating the median market value. The trial court also held

that, until an adjustment is made for appurtenant water rights, a median value

comparison for the purpose of “neighborhooding” is meaningless. Accordingly, the

trial court determined that Director’s methodology was incorrect. The trial court

entered a judgment in favor of Apland and instructed Director to make the

adjustments as determined by Apland’s expert for all appeals perfected for the years

2002 to 2009. The Board of Equalization, on behalf of Director, appealed.

                              STANDARD OF REVIEW

[¶7.]         “An appeal asserting a violation of a constitutional provision is a

question of law reviewed under the de novo standard of review.” Stehly v. Davison

Cnty., 2011 S.D. 49, ¶ 7, 802 N.W.2d 897, 899. “Statutory construction is also [a

question] of law to be reviewed under the de novo standard of review.” Cable v.

Union Cnty. Bd. of Cnty. Comm’rs, 2009 S.D. 59, ¶ 19, 769 N.W.2d 817, 825. “This

Court [ ] reviews affidavit evidence de novo.” Id. “Under the de novo standard of

review, we give no deference to the trial court’s conclusions of law.” Stehly, 2011




3.      Ensz, who worked with Jerry Kjerstad at Kjerstad Realty Group, became
        Apland’s expert after the death of Kjerstad, Apland’s expert in Apland I.

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S.D. 49, ¶ 7, 802 N.W.2d at 899 (quoting In re Guardianship of S.M.N., T.D.N., and

T.L.N., 2010 S.D. 31, ¶ 10, 781 N.W.2d 213, 218).

                            ANALYSIS AND DECISION

[¶8.]        Director argues that he correctly performed the methodology as

directed by this Court in Apland I. In doing so, he contends that he adjusted sales

prices downward to reflect the value of appurtenant water rights. Further, he

asserts that, after that adjustment, there still existed a more than 10 percent

deviation in the median market value per acre in an identifiable region as compared

to the county median market value. Thus, Director argues that he was justified in

applying SDCL 10-6-33.6 and establishing a separate market value per acre within

each identifiable region.

[¶9.]        “All real property in South Dakota is to be assessed for tax purposes at

its true and full value.” Apland I, 2006 S.D. 53, ¶ 16, 716 N.W.2d at 792.

             The following “underlying constitutional provisions must . . . be
             complied with:
             (1) the burden of taxation of all property is to be equitable, S.D.
             Const. art. XI, § 2,
             (2) agricultural and nonagricultural property may be separated
             into distinct classes for tax purposes, S.D. Const. art. VIII, § 15,
             (3) valuation of property is not to exceed its actual value, S.D.
             Const. art. XI, § 2, and
             (4) taxation is to be uniform on all property in the same class.
             S.D. Const. art. VIII, § 15; S.D. Const. art. XI, § 2.”

Id. (quoting Butte Cnty. v.Vallery, 1999 S.D. 142, ¶ 12, 602 N.W.2d 284, 287).

“There is a presumption that tax officials act in accordance with the law and not

arbitrarily or unfairly when assessing property, and the taxpayer bears the burden

to overcome this presumption.” Id. (quoting Burke v. Butte Cnty., 2002 S.D. 17, ¶

18, 640 N.W.2d 473, 479). “To overcome this presumption, ‘the taxpayer must
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produce sufficient evidence to show the assessed valuation was in excess of true and

full value, lacked uniformity in the same class, or was discriminatory.’” Id. (quoting

Vallery, 1999 S.D. 142, ¶ 11, 602 N.W.2d at 287).

[¶10.]       In Apland I, we stated that “the methodology undertaken by Director

was correct but for his failure to give appropriate consideration and value to

appurtenant and nontransferable water rights, specifically BFID water rights.” Id.

¶ 26. Pursuant to our directives in Apland I, Director was instructed to: (1) make

adjustments downward for sales containing appurtenant water rights; and (2) only

after making those adjustments, determine whether the median market value per

acre in an identifiable region deviates by more than 10 percent from the county

median market value per acre under SDCL 10-6-33.6. Thus, at its core, this appeal

centers on whether Director properly executed the directives of Apland I. The trial

court held that Director had not.

[¶11.]       On remand, Director submitted an affidavit in which he performed the

methodology required in Apland I to satisfy the requirements of SDCL 10-6-33.6.

In the 2002 assessment year, Director, using only “good sales,” paired non-irrigated

sales against irrigated sales. He made an adjustment for soil quality to account for

any productivity difference in each pairing and expressed that difference as a

percentage. Director determined that sales without water rights sold for 48 percent

less than sales with water rights and made a downward adjustment to irrigated

sales using that percentage.

[¶12.]       Director also followed our directives from Apland I in assessment year

2003. Because there were no “good sales” of non-irrigated land in which to pair


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with irrigated land in 2003, Director again used 48 percent as the percentage

attributable to water rights and made a downward adjustment of 48 percent to each

irrigated sale.

[¶13.]       After making adjustments for irrigated sales in 2002 and 2003,

Director calculated the median market value per acre in each identifiable region.

Notably, both Ensz and Director had nearly identical calculations for the “adjusted”

median sales prices for the same years – 2002 and 2003. For example, in

assessment year 2002, Ensz concluded that the adjusted median sales prices were:

$156 per acre for all sales within the county; $221 per acre for southern sales; and

$104 per acre for northern sales. As noted above, Director concluded that the

adjusted median sales prices for assessment year 2002 were: $155 per acre for all

sales within the county; $219 per acre for southern sales; and $104 per acre for

northern sales. Additionally, in assessment year 2003, Director and Ensz reached

identical conclusions for the median sales prices for the entire county ($133 per

acre), southern sales ($179 per acre), and northern sales ($116 per acre).

[¶14.]       It was only after these adjustments and determinations that Director

determined the median market value per acre in the identifiable region deviated by

more than 10 percent from the county median market value per acre for assessment

years 2002 and 2003. Thus, under SDCL 10-6-33.6, Director was permitted to

establish a separate market value per acre for the land defined by Director within

the identifiable region.

[¶15.]       After Director completed the procedure for “neighborhooding,” he

concluded that the assessed valuations for Apland’s property were valid and not in


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excess of full and true value.4 However, Apland’s argument is that, even after

Director created neighborhoods properly incorporating the value of BFID water

rights, Director’s valuations were not equal and uniform within the respective

neighborhoods as required by our Constitution. From this record, we are not able to

determine if Director’s method of valuation of Apland’s property resulted in an

equal and uniform assessment within each of the newly created neighborhoods.

Although Ensz submitted evidence suggesting his view of that question, the trial

court did not consider this last remaining specific question. As a result of including

the impact of appurtenant and nontransferable water rights, this determination

may require a recalculation of the assessed values of parcels within each

neighborhood.

                                     CONCLUSION

[¶16.]         The trial court concluded that Director’s methodology on remand was

incorrect. We disagree, in part, because Director did the correct analysis to

ascertain whether neighborhoods were justified. We remand for a determination of

whether Director’s assessments complied with the Constitutional requirements of

equality and uniformity within the neighborhoods.

[¶17.]         Reverse and remand.

[¶18.]         GILBERTSON, Chief Justice, and KONENKAMP, ZINTER, and

SEVERSON, Justices, concur.



4.       In his affidavit, Director concluded that “it is your Affiant’s opinion that the
         assessed values for . . . [Apland] for the 2002 and 2003 assessment years are
         valid assessments under the applicable law and are not in excess of full and
         true value.

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