APPEAL FROM THE CIRCUIT COURT OF THE SIXTH JUDICIAL CIRCUIT TRIPP COUNTY, SOUTH DAKOTA HONORABLE ROBERT A. MILLER Retired Justice, sitting as a circuit court judge.
The opinion of the court was delivered by: Zinter, Justice
CONSIDERED ON BRIEFS ON FEBRUARY 17, 2009
[¶1.] Belva Smith, Bonnie Dreyer, and James Carlon (hereinafter "Taxpayers") appealed Tripp County's assessment of their agricultural property to the Office of Hearing Examiners. Following a trial de novo, the hearing examiner concluded that Taxpayers failed to meet their burden of proving that the assessment exceeded true and full value. The circuit court reversed the hearing examiner on a different issue. The circuit court concluded that Taxpayers' valuation "best complied" with statutory requirements that the County's assessment consider the capacity of the land to produce agricultural products. Because we conclude that Taxpayers failed to meet their threshold burden of establishing a prima facie case that the County's assessment exceeded true and full value,*fn1 we reverse the circuit court and affirm the hearing examiner.
Facts and Procedural History
[¶2.] Taxpayers each own three quarter sections of agricultural property in Tripp County, totaling approximately 1,440 acres. The property is rented and operated together. The Tripp County Director of Equalization ("Director") assessed the property for real estate tax purposes at $735,202 for the 2005 tax year. The Director's assessment was based on a comparable sales and soils approach. This approach examined comparable agricultural sales in the county, determined the average value of the best agricultural property, and then utilized a soil survey to value all agricultural property according to its relative capacity to produce agricultural products when compared to the value of the best property. Conversely, Taxpayers valued their property at $381,696, utilizing an income approach. Taxpayers' income approach capitalized the average net income after taxes that they estimated they would have received from the acres that produced cash crops.
[¶3.] Taxpayers appealed the Director's assessment to the Tripp County Board of Equalization. The Board affirmed the Director's assessment. Taxpayers then appealed to the Office of Hearing Examiners. Taxpayers'only witness expressing their valuation opinion was Taxpayer James Carlon.*fn2 Carlon argued that the Director's assessment did not consider the property's capacity to produce agricultural products. He testified that his income approach considered capacity to produce because it was based on government records of average crop yields for those acres that produced cash crops. He testified that following the identification of average yields, he estimated crop prices to determine gross income. He then deducted production costs (as determined by a person with experience in that area) and real property taxes to determine net income. Carlon finally capitalized Taxpayers' estimated net revenues at a rate of five percent. This approach did not value approximately 300 acres that did not produce crops.*fn3 It also did not consider any sales of comparable agricultural property.
[¶4.] The Director argued that by employing her comparable sales and soils survey method, she captured both comparable sales and capacity to produce. The Director testified that after certain sales were excluded, she calculated the average top selling price of the best agricultural property in the county. Soils in the county were then arrayed based on their agricultural productivity with the best soil receiving a rating of one and lesser soils receiving a pro rata fraction of the rating assigned to the best soils. Assessed valuation was then determined based on government agencies' records of the soil for each property.*fn4
[¶5.] In the hearing examiner's decision following the trial de novo, he found that Taxpayers "failed to present sufficient evidence to show the assessed valuation of the subject property [was] in excess of its true and full value[.]" According to the hearing examiner, Taxpayers' evidence was insufficient because Taxpayers did not provide independent sales figures to establish market value, they did not value the entire property, and they did not consider any other statutory factors.
[¶6.] Taxpayers appealed this decision to circuit court. Judge Max Gors reversed the hearing examiner and remanded to the Director for another assessment. In his decision, Judge Gors did not focus on the basis of the hearing examiner's decision examining the Taxpayers' showing. Instead, Judge Gors focused on the basis of the Director's approach to value, concluding that the Director's use of a soil survey was an acceptable factor to be considered, but that capacity of the property to produce was not adequately considered. Notably, although rejecting the Director's assessment, the court neither adopted Taxpayers' valuation nor considered whether the Taxpayers' evidence suggested an assessment that exceeded true and full value. On the contrary, the court only concluded that "[t]he value of the land arrived at by the County of $735,202 may exceed the fair market value of the property when the property is valued taking into consideration its capacity to produce agricultural products." (Emphasis added.)
[¶7.] Following Judge Gors' remand, County's reappraisal was essentially identical to the first, using the same valuation methodology. The only difference was that it further explained the Director's argument that her methodology adequately considered agricultural capacity to produce in accordance with SDCL ch 10-6.
[¶8.] After County submitted its second appraisal, Taxpayers moved the court, Judge Robert A. Miller presiding,*fn5 for the imposition of judgment in their favor because none of the evidence had changed. Judge Miller granted Taxpayers' motion. Although he reversed the hearing examiner, Judge Miller did not enter findings of fact and conclusions of law addressing the correctness of the hearing examiner's decision. Judge Miller issued a written decision indicating: "I am of the opinion that Taxpayers' appraisal in the amount of $381,696 best complies with and takes into account the mandates of the statutes and judicial decisions." Consequently, unlike Judge Gors' decision, Judge Miller adopted the Taxpayers' valuation. The judgment stated:
[T]he full and true value of the subject property . . . is $381,696 as set forth in the [T]axpayers' appraisals, and the court finds that the [T]axpayers' appraisals best comply with and take into account the mandates of state statutes and judicial decisions, including without limitations the capacity of the subject property to produce agricultural products[.]
[¶9.] This appeal of a county tax assessment was considered at a trial de novo before the Office of Hearing Examiners. Therefore, SDCL ch 1-26 governs review of the appeal. Butte County v. Vallery, 1999 SD 142, ¶8, 602 NW2d 284, 286-87. See also SDCL 10-11-43 (providing, "[a]n appeal from the Office of Hearing Examiners to circuit court may be taken by the parties to the appeal and intervenors before the Office of Hearing Examiners. The appeal shall be taken and conducted pursuant to the provisions of chapter 1-26."). Consequently, the question before the ...