Survey of Railroad and Utility Taxation Practices Among the States: 2005 Update
1. Basis for taxation:
Ad valorem (measured as true and full market value) remains the primary approach to valuing centrally assessed railroad and utility property. Small local exchange and wireless companies (i.e., with annual receipts of less than $50 million) pay gross receipts tax in lieu of ad valorem property taxes, at 2-4 percent based on line density; distribution and transmission facilities of rural electric cooperatives (RECs) pay at 2 percent.
2. Property subject to taxation:
Property subject to centrally assessed valuation consists of realty and tangible personalty of airlines, long distance and local exchange telephone companies with annual gross revenues of $50 million or more, publicly owned electric, heating, water and gas companies, generation facilities of rural electric cooperatives, wireless telecommunication companies. Railroad realty is taxed, but personalty is exempt. Real property of wind towers is locally assessed; personalty is exempt. Land and structures of RECs are locally assessed, and personalty (lines, poles, equipment) is taxed at 2 percent of annual gross receipts.
3. Classification (if applicable):
Property is assessed at 85 percent of full and true value. There are three separate property tax rates in South Dakota: 1) agricultural; 2) owner-occupied housing; 3) commercial and all other property.
4. Level of government which determines basis for tax liability - ad valorem property tax:
5. Report filing and valuation method(s) required by statute for ad valorem taxation:
For report filing, the state requires annual reports to be filed by April 15 of each year. The report includes information about gross and net operating income, inventories, plant in service (owned and leased), depreciation, and value of stock and debt as of December 31 of the previous year. The Department of Revenue and Regulation must consider all three approaches to value. Centrally assessed values are provided to local county governments by November 1 of each year, and information pertinent to valuation is furnished to the county assessors on request. There are no statutes governing local valuation methodology on utility property, but per administrative rules local assessors must use Marshall & Swift cost estimators when using the cost approach.
6. Practical application of valuation method(s):
Centrally assessed property is valued according to the unitary approach. The three approaches to value are used, with the greatest consideration given to the most applicable approach. When the cost approach is used, historical cost less depreciation is the chosen methodology.
7. Valuation treatment of large facilities such as power plants, dams, or rail yards:
Valuation of power plants and rail yards are included within the values generated through the unitary methodology. There are no privately owned dams in South Dakota.
8. Apportionment method(s) required by statute:
There are no statutory requirements for apportionment of value, from the firm's operating system value to the value of the system located in the state. There are distribution requirements from the state value to the counties, based on criteria such as miles of track, freight ton-miles, or miles of line or wire.
9. Practical application or apportionment requirements:
For most utilities, apportionment is based on gross book value and net book value. Additional factors, including miles of track, freight ton-miles, and passenger miles are used to apportion railroads. For airlines, the primary factors are passengers, freight tonnage, and flight time.
10. Apportionment treatment of large facilities such as power plants, dams, or rail yards:
Valuations of these facilities are apportioned in the same manner as in #9.
11. Description of assessment appeals system:
Railroad and utility owners have the right of informal appeal to the Department of Regulation and Revenue during July of each year. Dissatisfied owners as well as county assessing units may appeal to State Circuit Court.
12. Status of deregulation/restructuring of electric generating and impact on valuation and apportionment methods used:
Deregulation and restructuring of electrical generating has not yet occurred in South Dakota.
13. State Government Staffing:
Staff presently consists of one employee (full-time equivalent basis).
Law Source(s): South Dakota Tax Code, Chapters 10-28 through 10-38