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26.543.32 101st Legislative Session 1218
2026 South Dakota Legislature
House Bill 1218
Introduced by: Representative Hughes
Underscores indicate new language.
Overstrikes indicate deleted language.
An Act to create a new class of nonagricultural property for purposes of taxation, 1
and to provide a penalty therefor. 2
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF SOUTH DAKOTA: 3
Section 1. That a NEW SECTION be added to chapter 10-6: 4
For purposes of this title, "nonagricultural property" means property classified 5
under subdivisions 10-6-110(2) and (3). 6
Section 2. That § 10-6-110 be AMENDED: 7
10-6-110. For the purposes of taxation, all property is hereby classified into the 8
following classes: 9
(1) Agricultural property; 10
(2) Nonagricultural Commercial-investor nonagricultural property; and 11
(3) Commercial-operator nonagricultural property; and 12
(4) Owner-occupied single-family dwellings. 13
Agricultural property includes any land classified as agricultural land pursuant to 14
§ 10-6-112 and any improvements on the agricultural land used exclusively for 15
agricultural purposes. However, agricultural Agricultural property does not include any 16
normally an occupied dwelling or, automobile garage, or portion of a building used for that 17
purpose by the occupant of such the dwelling. 18
Owner-occupied single-family dwellings include all property classified pursuant to 19
§ 10-13-39. 20
Nonagricultural property includes all other property not otherwise classified as 21
agricultural property or owner -occupied single -family dwellings, and further classified 22
under section 4 of this Act. 23
The director, in listing and assessing all property to which this section applies, shall 24
designate opposite each description the class to which the property belongs. 25
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Section 3. That a NEW SECTION be added to chapter 10-6: 1
Terms used in sections 3 to 7, inclusive, of this Act, mean: 2
(1) "Ownership holder," an individual holding title, a revocable living trust in which the 3
grantor is the current beneficiary, or an entity beneficially owned entirely by an 4
individual; 5
(2) "Family business," a commercial property, except residential property, where the 6
ownership holder or the qualified spouse materially participated for at least ten 7
years, provided the term does not extend to a commercial property after the 8
termination of the natural life of the ownership holder and, if applicable, the 9
qualified spouse; 10
(3) "Material participation," involvement in the day -to-day management and 11
operations contributing to the commercial activity of a property on a regular, 12
continuous, and substantial basis, as described in 26 U.S.C § 469(h) (March 11, 13
2021) and 26 C.F.R § 1.469-5T (April 1, 1996); 14
(4) "Qualified entity," a partnership, joint venture, limited liability company, or 15
corporation owned more than fifty percent by the ownership holder or a qualified 16
relative of the ownership holder, where the owners of at least forty percent of the 17
beneficial interest of the limited liability company or corporation materially 18
participate; 19
(5) "Qualified relative," a spouse, child, step-child, parent, grandparent, sibling, uncle, 20
aunt, niece, or nephew of the ownership holder; and 21
(6) "Qualified spouse," a spouse, or an unremarried widow, of the ownership holder or 22
of a qualified relative. 23
Section 4. That a NEW SECTION be added to chapter 10-6: 24
For purposes of classifying property for taxation, the following property is classified 25
as commercial-operator nonagricultural property: 26
(1) A family business; and 27
(2) Nonagricultural property, except residential property, where the ownership holder, 28
qualified entity, qualified spouse, or qualified relative materially participates. 29
Nonagricultural property that is not classified as commercial -operator 30
nonagricultural property is classified as commercial-investor nonagricultural property. 31
Section 5. That a NEW SECTION be added to chapter 10-6: 32
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Prior to August first of each year, an ownership holder may submit to the director 1
of equalization an application to reclassify property, for the purpose of taxation, as 2
commercial-operator nonagricultural property. The secretary of the department shall 3
develop the application form. The ownership holder shall include in the application any 4
documentary evidence required by the director to verify eligibility for the reclassification. 5
Within thirty days of receiving a request, the director shall determine whether the 6
property meets the criteria provided in section 4 of this Act for classification as 7
commercial-operator nonagricultural property. If the property meets the criteria, the 8
director must classify the property as commercial -operator nonagricultural property for 9
the following tax year. 10
An aggrieved person may appeal the determination of the director pursuant to 11
chapter 1-26. 12
It is a Class 1 misdemeanor for an ownership holder to knowingly misrepresent the 13
facts of the application. 14
Section 6. That a NEW SECTION be added to chapter 10-6: 15
To renew the classification of property as commercial -operator nonagricultural 16
property, the ownership holder shall, prior to August first of each year, submit an affidavit 17
to the director of equalization attesting to the eligibility of the property as commercial -18
operator nonagricultural property. The secretary of the department shall prescribe forms 19
for purposes of submitting an affidavit under this section. 20
If an ownership holder fails to submit an application to renew the classification of 21
the property prior to the date provided in this section, the director of equalization must 22
reclassify the property as commercial -investor nonagricultural property for the following 23
tax year. 24
Section 7. That a NEW SECTION be added to chapter 10-6: 25
If an application or affidavit submitted pursuant to section 5 or 6 of this Act, is 26
approved and the director determines that the ownership holder knowingly 27
misrepresented the facts on the application or affidavit, the county auditor must assess 28
a penalty on the property equal to two thousand five hundred dollars, for each year in 29
which the property was wrongly classified as commercial -operator nonagricultural 30
property. 31
If an application or affidavit, submitted pursuant to section 5 or 6 of this Act, is 32
approved and the director determines that the ownership holder negligently 33
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misrepresented the facts on the application or affidavit, the county auditor must assess a 1
penalty on the property equal to five hundred dollars for each year in which the property 2
was wrongly classified as commercial-operator nonagricultural property. 3
The county treasurer shall deposit any civil penalty collected under this section in 4
the county general fund. 5
Section 8. That § 10-12-42 be AMENDED: 6
10-12-42. For taxes payable in 2026, and each year thereafter, the levy for the 7
general fund of a school district is as follows: 8
(1) The Except as otherwise provided in this section, the maximum tax levy on 9
nonagricultural property is five dollars and twenty -one and one -tenth cents per 10
thousand dollars of taxable valuation , subject to the limitations on agricultural 11
property as provided in subdivision (2) of this section and owner-occupied property 12
as provided in subdivision (3) of this section; 13
(2) The maximum tax levy on agricultural property for the school district is one dollar 14
and twelve and five-tenths cents per thousand dollars of taxable valuation. If the 15
district's levies are less than the maximum levies as stated in this section, the 16
levies must maintain the same proportion to each other as represented in the 17
mathematical relationship at the maximum levies; and 18
(3) The maximum tax levy for an owner -occupied single-family dwelling pursuant to 19
§ 10-13-40 for the school district is two dollars and fifty-one and eight-tenths cents 20
per thousand dollars of taxable valuation. If the district's levies are less than the 21
maximum levies as stated in this section, the levies must maintain the same 22
proportion to each other as represented in the mathematical relationship at the 23
maximum levies. 24
For taxes payable in 2028 and each year thereafter, the maximum levy for the 25
general fund of a school district, for commercial -operator nonagricultural property, must 26
be at least twenty-five percent lower than the maximum levy for nonagricultural property 27
provided in subdivision (1) of this section. 28
All levies in this section must be imposed on valuations where the median level of 29
assessment represents eighty -five percent of market value as determined by the 30
Department of Revenue. These valuations must be used for all school funding purposes. 31
If the district has imposed an excess levy pursuant to § 10-12-43, the levies must 32
maintain the same proportion to each other as represented in the mathematical 33
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relationship at the maximum levies in this section. The school district may elect to tax at 1
less than the maximum amounts set forth in this section. 2
Section 9. Section 8 of this Act is effective beginning July 1, 2027. 3