#27069-a-DG
2014 S.D. 90

                            IN THE SUPREME COURT
                                    OF THE
                           STATE OF SOUTH DAKOTA
                                        ****
DEADWOOD STAGE RUN, LLC,                       Plaintiff and Appellant,

      v.

SOUTH DAKOTA DEPARTMENT
OF REVENUE and ANDY GERLACH,
in his individual capacity and in his
official capacity as Secretary of Revenue,     Defendants and Appellees.

                                   ****
                    APPEAL FROM THE CIRCUIT COURT OF
                        THE SIXTH JUDICIAL CIRCUIT
                      HUGHES COUNTY, SOUTH DAKOTA
                                ****
                     THE HONORABLE MARK BARNETT
                                Judge
                                ****
MICHAEL F. MARLOW
BETH A. ROESLER of
Johnson, Miner, Marlow,
 Woodward & Huff, Prof., LLP
Yankton, South Dakota                    Attorneys for plaintiff and
                                         appellant.

MARTY J. JACKLEY
Attorney General

MATTHEW NAASZ
Assistant Attorney General
Pierre, South Dakota

ANDREW L. FERGEL
STACY R. HEGGE of
South Dakota Department
 of Revenue
Pierre, South Dakota                           Attorneys for defendants and
                                               appellees.
                                        ****
                                               CONSIDERED ON BRIEFS
                                               ON NOVEMBER 17, 2014
                                               OPINION FILED 12/17/14
#27069

GILBERTSON, Chief Justice

[¶1.]         Appellant, Deadwood Stage Run, LLC (the Developer), appeals the

Sixth Judicial Circuit Court’s denial of its motion for summary judgment and that

court’s granting of the same to Appellee, the South Dakota Department of Revenue

(the Department). The Developer argues the Department incorrectly calculated the

tax incremental base for Tax Incremental District Number Eight (the District) in

the City of Deadwood (the City) by using Lawrence County’s (the County) November

1, 2006 annual assessment, rather than the Department’s August 25, 2006 annual

Certificate of Assessment, Equalization, and Levy. The Developer asks this Court

to reverse the circuit court’s summary judgment in favor of the Department and to

direct the court to enter summary judgment in favor of the Developer. We affirm.

                          Facts and Procedural History

[¶2.]         The facts of this case are not in dispute. 1 On February 15, 2006, Steve

Slowey, Wayne Ibarolle, William Pearson, and Clayton Johnson purchased real

property located in Lawrence County, South Dakota, 2 from John Nick Heinen,



1.      The parties filed Stipulated Facts and Evidence on July 25, 2013, and agree
        that there are no disputed issues of material fact.

2.      The legal description of the transferred property is:
              Tracts G, H, I, J, K, and L of Mineral Survey No. 696, Palisades
              Stone Placer, Lawrence County, South Dakota, according to Plat
              Document No. 84-2419; and

              The unplatted remainder of Palisades Stone Placer of Mineral
              Survey No. 696, Lawrence County, South Dakota; and

              Tracts E and F of Mineral Survey No. 696 Palisades Stone
              Placer, Lawrence County, South Dakota, according to Plat
              Document No. 81-2887.

                                          -1-
#27069

Jackie Heinen, Douglass M. Mergen, and Tammy Hollenbeck for the amount of

$1,000,000. At some point during the subsequent two-week period, but prior to

March 1, 2006, the purchasers received an assessment notice from the County. The

assessment classified the property as agricultural, valued the land at $13,070, and

valued improvements on the land at $9,560. The total assessed value of $22,630

represented the value of the property as of November 1, 2005, as required by SDCL

10-6-2. 3 Shortly thereafter, in April 2006, Slowey, Ibarolle, Pearson, and Johnson

transferred the property to the Developer—a limited liability company owned by

Slowey, Ibarolle, Pearson, and Johnson, with a principal place of business in

Deadwood, South Dakota—by a quit claim deed.

[¶3.]         On August 25, 2006, the Department issued a Certificate of

Assessment, Equalization and Levy for 2007 showing the equalized valuation of all

property located in Lawrence County assessed by the secretary of revenue, as

required by SDCL 10-11-51. Per SDCL 10-6-2, the County again assessed the

property at issue according to its value as of November 1, 2006. Because the

purchase price of $1,000,000 was more than 150% of $22,630—the assessed value of

the property at the time of sale—the County assessed the property’s value at




3.      SDCL 10-6-2 states: “All real property subject to taxation shall be listed and
        assessed annually, but the value of such property is to be determined
        according to its value on the first day of November preceding the
        assessment.”


                                           -2-
#27069

$934,520. 4 The assessed value of the land increased from $13,070 to $924,960, but

the assessed value of the improvements to the land remained $9,560.

[¶4.]         On December 18, 2006, the City passed Resolution No. 2006-44,

creating the District out of the property at issue here. On January 29, 2007, the

City and the Developer entered into a “Contract for Private Development” of the

District. Sometime thereafter, but prior to March 1, 2007, the County sent its 2007

assessment of the property to the developer reflecting the November 1, 2006

assessed value of $934,520. The City and the Developer amended the project plan

on July 23, 2007. However, in the amended contract, the City and the Developer

continued to agree that the assessed value of the property in the District was

$15,800, 5 rather than the County’s most recent assessment of $934,520. On August

27, 2007, the Department sent a new Certificate of Assessment, Equalization and

Levy for 2007 to the County.

[¶5.]         On October 16, 2007, the City’s finance officer sent a written request to

the Department to certify the tax incremental base valuation of the District. The

City stated that the County’s assessed valuation of the property in the District was

$15,370 on the date the District was created and asked the Department to verify



4.      The cumulative effect of SDCL 10-6-33.14 and SDCL 10-6-33.18 is such that
        any agricultural land that sells for more than 150% of its assessed value is
        reclassified as a nonagricultural acreage and, for ad valorem tax purposes, is
        valued at the sale price multiplied by the county’s level of assessment for
        nonagricultural property.

5.      In its brief to this Court, the Developer recognized that two parcels were
        initially omitted from the City’s and the Developer’s valuation and that
        $22,630 is the correct assessed valuation for the property in the District in
        2006.

                                           -3-
#27069

that amount as the District’s tax incremental base. The Department responded to

the City’s request on November 16, 2007, certifying the aggregate assessed value of

the District to be $924,960 for the land and $9,560 for improvements to the land—

the values determined from the County’s 2007 assessed valuation of the property.

[¶6.]        The Developer sought a declaratory judgment prospectively

establishing the 2006 assessed valuation of the District as the appropriate tax

incremental base rather than the 2007 assessed valuation. The Developer and the

Department filed cross motions for summary judgment. The circuit court denied

the Developer’s motion and granted the Department’s. The Developer raises one

issue in this appeal:

             1.     Whether, in calculating the tax incremental base for a tax
                    incremental district, SDCL chapter 11-9 requires the
                    Department to use the last aggregate assessed valuation
                    certified by the Department prior to the date of creation of the
                    tax incremental district.

                                Standard of Review

[¶7.]        When we review a circuit court’s grant or denial of summary judgment,

“we determine whether the moving party has demonstrated the absence of any

genuine issue of material fact and showed entitlement to judgment on the merits as

a matter of law.” Dykstra v. Page Holding Co., 2009 S.D. 38, ¶ 23, 766 N.W.2d 491,

496 (quoting Cowan Bros., LLC v. Am. State Bank, 2007 S.D. 131, ¶ 12, 743 N.W.2d

411, 416). However, because “[t]he parties stipulated to the facts[,] . . . our review

[in this case] is limited to determining whether the trial court correctly applied the

law.” Econ. Aero Club, Inc. v. Avemco Ins. Co., 540 N.W.2d 644, 645 (S.D. 1995).

“Questions of statutory interpretation and application are reviewed under the de


                                          -4-
#27069

novo standard of review with no deference to the circuit court’s decision.” Argus

Leader v. Hagen, 2007 S.D. 96, ¶ 7, 739 N.W.2d 475, 478.

                               Analysis and Decision

[¶8.]        The South Dakota Legislature authorized the creation of tax

incremental districts in 1978. 1978 S.D. Sess. Laws ch. 91. “The basic purpose of

statutes authorizing the creation of tax incremental districts is to enable the

increased tax revenues generated by community redevelopment projects to be

placed in a special fund for the purpose of repaying the public costs of the projects.”

Meierhenry v. City of Huron, 354 N.W.2d 171, 175 (S.D. 1984). The mechanism for

achieving this purpose is relatively simple. First, after a tax incremental district is

created by a municipality, the Department determines the tax incremental base for

that district. SDCL 11-9-12. The tax incremental base is the aggregate assessed

valuation of all property in the district at the time of its creation. SDCL 11-9-19.

Next, while property taxes are assessed yearly on property located within the

district, any political subdivision of the State possessing the power to levy taxes on

the district is permitted to retain tax revenue based solely on the value of the tax

incremental base, rather than the full amount of the year-to-year assessments.

SDCL 11-9-27. Finally, as development in the tax incremental district progresses,

and the assessed valuation of the district increases over time, any positive

difference between the assessed valuation in any given year and the tax

incremental base of the district is called a positive tax increment and is allocated to

the municipality that created the district to pay for public project costs. SDCL 11-9-

25.


                                          -5-
#27069

[¶9.]        The issue before us today is one of timing and focuses on the proper

determination of the tax incremental base of the District. The Developer argues

that the plain language of SDCL 11-9-19 and SDCL 11-9-20 requires the

Department to calculate the tax incremental base using valuations assessed prior to

the creation of the District. The Developer further argues that, in certifying the tax

incremental base at $934,520, the Department “frustrate[d] the clear intent of the

legislature[]” and “deprived Developer of the benefit intended and expressed by the

legislature.” For its part, the Department asserts that it does not typically certify

valuations of specific parcels; therefore, the requirement in SDCL 11-9-20 to use the

valuations “as last previously certified by the department” is “unworkable.”

Consequently, the Department urges us to examine the legislative intent and

conclude that the Department properly used the County’s 2007 assessed valuation

of the property in the District in determining the District’s tax incremental base.

We disagree with the Department that SDCL 11-9-20 is unworkable. However, we

conclude that the plain meaning of SDCL chapter 11-9 indicates that the circuit

court’s granting of summary judgment in favor of the Department was proper.

[¶10.]       In arguing that the Department must use the last certified valuation

assessed prior to the creation of the district, the Developer relies on two specific

phrases. According to SDCL 11-9-19, “A ‘tax incremental base’ is the aggregate

assessed value of all taxable property located within a tax incremental district on

the date the district is created, as determined by § 11-9-20.” (Emphasis added.)

SDCL 11-9-20, in turn, states:

             Upon application in writing by the municipal finance officer, on
             a form prescribed by the Department of Revenue, the

                                           -6-
#27069

             department shall determine the aggregate assessed value of the
             taxable property in the district, which aggregate assessed
             valuation, upon certification to the finance officer shall
             constitute the tax incremental base of the district. Except as
             provided for in § 11-9-20.1, the department shall use the
             valuations as last previously certified by the department adjusted
             for the value to the date the district was created for any
             buildings or additions completed or removed and without regard
             to any reduction pursuant to §§ 1-19A-20, 10-6-35.2, 10-6-35.21,
             and 10-6-35.22.

(Emphasis added.) According to the Developer, the last valuation that the

Department certified was the County’s 2006 assessed valuation of the District of

$22,630, when the Department issued its Certificate of Assessment, Equalization

and Levy in August 2006, pursuant to SDCL 10-11-51. According to the Developer,

SDCL 10-11-51 is “the only statutory reference requiring property value

certification by the Department[.]” Therefore, the Developer concludes, the

Department was statutorily required to again certify that same amount when the

City made its written request to the Department to certify the District’s tax

incremental base in October 2007.

[¶11.]       As an initial matter, the Developer is clearly mistaken that SDCL 10-

11-51 is the only statute that refers to property value “certification.” The plain

language of SDCL 11-9-20 indicates that, in answering a municipal finance officer’s

request for the determination of a tax incremental base, the Department’s response

constitutes a certification. More importantly, as the circuit court and the

Department have pointed out, the Department’s annual certificates of assessment,

equalization and levy only specify “the percent added to or deducted from the

valuation of each class of real property” in the county, as well as the aggregate,

equalized valuation of property in the county; the annual certificates do not include

                                          -7-
#27069

individually assessed valuations for the property located specifically in the District.

Furthermore, we see nothing—and the Developer offers no authority—establishing

that the word “certification” is a term of art. The South Dakota Legislature has

said, “Words used are to be understood in their ordinary sense . . . .” SDCL 2-14-1.

See also Argus Leader, 2007 S.D. 96, ¶ 13, 739 N.W.2d at 480 (“Words and phrases

in a statute must be given their plain meaning and effect.”) The word “certify”

simply means: “To attest as being true or as represented.” Black’s Law Dictionary

207 (5th ed. 1979). In this regard, SDCL 11-9-20 merely requires the Department

to formally declare, in writing, that the tax incremental base it reports to the

municipal finance officer is true; it does not require that the value reported be

derived by operation of some other statute specifically calling for a “certification.”

[¶12.]       Furthermore, we are convinced that the phrase in SDCL 11-9-19 most

relevant to the present dispute is not “on the date the district is created,” but rather

is “as determined by § 11-9-20.” It is SDCL 11-9-20 that provides the guidelines for

determining the proper tax incremental base; SDCL 11-9-19 serves as a definitional

statute. The value certified under SDCL 11-9-20, when calculated according to the

dictates of that statute, is by definition the assessed value of the tax incremental

district on the date of its creation. In other words, SDCL 11-9-19 provides the label,

while SDCL 11-9-20 provides the valuation. Contrary to the Developer’s argument,

SDCL 11-9-19 does not, in itself, affect the calculation of the tax incremental base.

[¶13.]       As for SDCL 11-9-20, the Developer and the Department both

misinterpret the phrase “the department shall use the valuations as last previously

certified by the department[.]” Upon a careful reading of the entire second sentence


                                           -8-
#27069

of SDCL 11-9-20, and considering that statute in the context of other sections in

chapter 11-9, the plain meaning of that sentence indicates that it applies only to

improvements upon land located within a tax incremental district, not the land

itself. First, the second sentence of SDCL 11-9-20 contains several restrictive

clauses that operate on the word “valuations.” The phrases “as last previously

certified[,]” “adjusted for the value to the date the district was created[,]” and “for

any buildings or additions completed or removed” all define subsets of the entire set

of “valuations.” Because these clauses are restrictive, the second sentence of SDCL

11-9-20 contemplates the intersection of these subsets. In other words, the only

“last previously certified” valuation that the Department is required to use—

according to the second sentence of SDCL 11-9-20—is one “for any buildings or

additions completed or removed” and one that has been “adjusted for the value to

the date the district was created[.]”

[¶14.]       Second, the other statutes referenced in the second sentence of SDCL

11-9-20 support the conclusion that the phrase “last previously certified” refers only

to improvements on the land. The end of SDCL 11-9-20 references SDCL 1-19A-20,

10-6-35.2, 10-6-35.21, and 10-6-35.22. SDCL 1-19A-20 places “a moratorium on the

taxation of increased valuation due to restoration or rehabilitation of real estate

placed on the State Register of Historic Places[.]” SDCL 10-6-35.2 permits a county

to assess the value of a newly constructed building at a reduced rate for five years

following the completion of construction. It also permits a county to assess the

value of—and tax—a partially completed structure. SDCL 10-6-35.21 specifically

classifies any “new nonresidential agricultural structure, or addition to an existing


                                           -9-
#27069

structure,” worth more than $10,000 for the purpose of taxation. (Emphasis added.)

SDCL 10-6-35.22 does the same for all “industrial or commercial structures or

additions, renovation, or reconstruction to existing structures” worth more than

$30,000. (Emphasis added.) Thus, SDCL 10-6-35.2, 10-6-35.21, and 10-6-35.22

exclusively relate to the valuation of improvements, not land. SDCL 1-19A-20,

while not necessarily restricted only to structures, predominantly pertains to

structures and is, consequently, consistent with our reading of SDCL 11-9-20.

[¶15.]       Third, this reading of SDCL 11-9-20 harmonizes with other statutes in

chapter 11-9. SDCL 11-9-23, for example, states in part: “If the municipality adopts

an amendment to the original project plan for any district, which includes

additional project costs for which tax increments may be received by the

municipality, the tax incremental base for the district shall be redetermined

pursuant to § 11-9-20 . . . .” However, as discussed above, the Developer’s

interpretation of SDCL 11-9-20 would always require the Department to use the

last valuation certified by the Department previous to the creation of the tax

incremental district. Such an interpretation renders SDCL 11-9-23 without

meaning—once the district has been created, the result of any recalculation

pursuant to that section would necessarily result in the same valuation. Under our

interpretation of SDCL 11-9-20, however, a subsequent determination of a district’s

value could produce a result different than the initial valuation—as is apparently

intended by the existence of SDCL 11-9-23. Therefore we must also reject the

Developer’s view because “we assume no part of the statutory scheme was intended




                                         -10-
#27069

to be ‘mere surplusage.’” Double Diamond Constr. v. Farmers Coop. Elevator Ass’n

of Beresford, 2003 S.D. 9, ¶ 7, 656 N.W.2d 744, 746 (per curiam).

[¶16.]       The Developer is correct in stating that “[t]he original [tax

incremental] base is intended to be determined before the undertaking of projects

within the district[] and reflects what the value of the district would have been

without the project improvements.” The Developer is wrong, however, in its

implication that the difference between the County’s 2006 and 2007 assessed

valuations is the result of development. Its argument that the 2007 assessment

may have occurred after the creation of the District is similarly unconvincing.

Regardless of when that assessment occurred, the valuation of the District reported

in the County’s 2007 assessed valuation represents the value of the District on

November 1, 2006. In this case, the disparity between the 2006 and 2007 assessed

valuations apparently results from the sale price of the property and the operation

of SDCL 10-6-33.14 and SDCL 10-6-33.18, not any increase in assessed value as the

result of development the Developer might have undertaken.

[¶17.]       Further, any increased valuation that might have resulted from

development (although we see no indication of such in the record) would not have

been lost had the City immediately requested a certification from the Department—

pursuant to SDCL 11-9-12 and SDCL 11-9-20—rather than waiting nine months to

do so. SDCL 11-9-12 commands, “Upon the creation of a tax incremental district or

adoption of any amendment . . . , its tax incremental base shall be determined as

provided in §§ 11-9-20 to 11-9-25, inclusive.” (Emphasis added.) In the South

Dakota Codified Laws, the word “shall” “manifests a mandatory directive and does


                                         -11-
#27069

not confer any discretion in carrying out the action so directed.” SDCL 2-14-2.1.

However, as noted above, SDCL 11-9-20 begins with the phrase, “[u]pon application

in writing by the municipal finance officer[.]” Thus, if SDCL 11-9-12 commands the

determination of a tax incremental district’s tax incremental base upon creation of

the district, but the municipal finance officer’s request for certification actually

triggers the Department’s responsibility to determine the district’s assessed

valuation, then SDCL 11-9-12 and 11-9-20—read together—seem to require a

municipality that creates a tax incremental district to not unreasonably delay its

request to the Department for the certified aggregate assessed value of the taxable

property within the district.

[¶18.]       Applying the foregoing, we examine the assessed valuation of the land

separate from the improvements to the land. The Department’s duty to calculate

the District’s tax incremental base did not trigger until the City requested the

Department certify the same. Nothing in SDCL 11-9-19 or SDCL 11-9-20 required

the Department to use the County’s 2006 assessed valuation for land located within

the District; SDCL 11-9-20 required only that the Department adjust the assessed

valuation of the property to take into account the completion or removal of

structures in the District from the date of the District’s creation. However, the

improvements component of the County’s 2006 and 2007 assessments did not

change—each reported that improvements in the District were valued at $9,560.

Therefore the Department’s final certified assessed valuation of $934,520 was not

erroneous.




                                          -12-
#27069

                                    Conclusion

[¶19.]       The Department was not required to use the County’s 2006 assessed

valuation of the land located within the District. Because the second sentence of

SDCL 11-9-20 applies only to the improvements in the District, and the value of

those improvements on the date of the District’s creation was the same as that

reflected in the County’s 2007 assessment, the Department correctly determined the

tax incremental base for the District. Consequently, we affirm.

[¶20.]       KONENKAMP, ZINTER, SEVERSON, and WILBUR, Justices, concur.




                                        -13-
