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The productivity problem: an analysis of conservation easement taxation issues following South Dakota's implementation of a productivity-based land valuation system.

Perpetual conservation easements have been a contentious issue for many years in the South Dakota Legislature. To date, however, the majority of the discussion surrounding these easements has focused primarily on their perpetual duration, rather than the more pressing issue of taxation. South Dakota's recent shift from fair market valuation to productivity valuation of agricultural property for taxation purposes has, in some circumstances, dramatically increased the amount of property taxes owners of conservation easement land must pay. This increase has led some counties to provide creative valuation reductions for conservation easement land, while other counties do not. The legislature should carefully scrutinize its current land valuation system for conservation easements and amend South Dakota's laws to provide county departments of equalization with a uniform valuation system. This article provides an overview of conservation easements, a synopsis of how some counties have coped with increased conservation easement land valuations, and an explanation of why the current valuation system for conservation easements is in dire need of change. Finally, this article provides recommendations for the South Dakota Legislature to implement that create a uniform system for taxing conservation easements.

I. INTRODUCTION

Lyle Johnson, a landowner in Brookings County, owned land containing a perpetual conservation easement.* 1 He entered into an easement agreement in 2010 to preserve his land for conservation purposes. (2) His conservation easement prohibited almost all significant usage of his land, including the grazing and cutting of naturally-occurring plant growth. (3) The year after he signed the conservation easement agreement, Mr. Johnson received notification that under the state's new agricultural land valuation system his land was to be valued, for taxation purposes, at a significantly higher level than it had been valued under the previous fair market valuation system. (4) Even though Mr. Johnson could not use his conservation easement land, the state's new agricultural property valuation system values land based on its potential to yield crops, without regard for actual use or restrictions on the land. (5) As a result of the new valuation system, Mr. Johnson's land was valued at $845 per acre, when the previous year it was valued at $545 per acre. (6) Mr. Johnson, therefore, was required to pay significantly higher property taxes on his land even though it could not yield its potential level of productivity because of the conservation easement restrictions. (7) Mr. Johnson sold his land two years after implementing the conservation easement because of the increase in property taxes resulting from the new valuation system. (8)

Mr. Johnson's story is not uncommon. (9) Landowners throughout South Dakota (especially in the northeastern and eastern parts) have been forced to pay significantly higher property taxes on their conservation easement land since the state's implementation of a productivity valuation system in 2010. (10) This article addresses issues conservation easement landowners have been dealing with since the implementation of the productivity valuation system and urges the South Dakota Legislature to take action to ensure a uniform system of valuation statewide. (11)

First, this article will provide a general overview of easements and an explanation of how conservation easements emerged. (12) Second, this article will provide a history of South Dakota's legislative efforts to mitigate or eliminate conservation easements and will explain that further legislative mitigation efforts are fruitless because of restrictions under current federal law. (13) Next, this article will provide an overview of the changes made to the agricultural property valuation system and will explain how these changes affect conservation easement land. (14) Finally, this article will provide recommendations for the South Dakota Legislature to help correct the issues that have arisen as a result of valuation changes in conservation easement land. (15)

II. BACKGROUND

A. What are Easements?

Easements are non-possessory rights to land that are given to one who is not the possessor of the land, preventing the possessor of the land from interfering with that right. (16) Easements are either appurtenant or in gross. (17) Appurtenant easements allow owners or occupiers of one piece of land (the dominant parcel) to make use of another piece of land they do not own (the servient parcel). (18) The easement itself is located on the servient parcel. (19) Appurtenant easements run with the land, meaning ownership of an appurtenant easement is tied to a particular parcel of land and generally does not terminate with the easement holder. (20) Since appurtenant easements run with the land, they are transferable to subsequent owners of the dominant parcel. (21) A common example of an appurtenant easement is a private roadway easement, where an owner of one parcel of land is given the right to cross the land of another. (22)

In gross easements, conversely, run with the easement holder. (23) A key feature distinguishing an appurtenant easement from an in gross easement is that the holder of an in gross easement does not hold property that is benefited by the easement. (24) A common example of an in gross easement is a utility easement, where a company runs a pipeline across another's property. (25) In gross easements generally are not transferrable, meaning they cease to exist with the holder of the easement. (26) The exception to this rule occurs when third-party entities, such as utility companies, non-profits, or governmental organizations, hold in gross easements. (27) Transferability is then permitted following the demise of the original easement holder. (28)

Easements are also considered either affirmative or negative. (29) Affirmative easements permit an easement holder to use the land where the easement is located. (30) Affirmative easements include common easements, such as a private roadway easement or an easement to place utility lines on a specific property. (31) Alternatively, negative easements forbid the owner of the servient parcel (the land where the easement is located) from using the land for specific purposes. (32) Two examples of negative easements would include a prohibition on constructing a building on the land over a certain number of stories and a prohibition on blocking a waterway running through the land. (33) At common law, negative easements were disfavored and were permitted only if a servient parcel holder "den[ied] light, air, or support" to the dominant parcel. (34)

Unlike common law negative easements, however, conservation easements--which are almost always in gross, negative easements--may be placed on property without regard for the denial of light, air, or support, and are generally allowed to continue into perpetuity. (35) Even though other easements were disfavored at common law, conservation easements are permitted because they are created purely by statute. (36) Thus, states that implement statutes for conservation easements have used legislation to avoid the common law prohibitions. (37)

B. THE HISTORY BEHIND CONSERVATION EASEMENTS

The first conservation easements were governmental in nature and began in the Boston area in the 1880s. (38) Thereafter, in the 1930s, the United States Fish and Wildlife Service ("FWS") obtained more than 200 conservation easements for the preservation of wildlife refuge areas in North Dakota, South Dakota, and Minnesota, leading to more than 21,000 conservation easements obtained by the FWS between 1965 and 1985. (39) The modern legislative push for these easements was a result of scenic preservation efforts along roadways. (40) Rather than taking a landowner's property by eminent domain, the government created conservation easement agreements with landowners, which permitted the owners to retain their property while compensating them for the nonuse of their land. (41)

Between the late 1970s and early 1980s there were drastic increases in land and crop prices which led to rapid growth in the agricultural industry. (42) Shortly thereafter, however, crop and land prices plummeted, leading to major financial issues for farmers and many farm foreclosures (43) Federal entities such as the Farmers Home Administration ("FmHA") dealt with many of these foreclosures. (44) When the FmHA foreclosed upon a property, and while the property was still in its hands, it permitted other federal agencies such as the FWS to implement conservation easements on portions of these properties. (45) Thereafter, the land was sold with perpetual conservation easements on the land. (46) Congress also authorized the FmHA to cancel FmHA debts by creating conservation easements on secured property equaling the value of the debt owed to the FmHA. (47) The FmHA placed conservation easements on approximately 41,000 acres, comprised of 480 tracts of land, in South Dakota during that period. (48)

C. THE EMERGENCE OF THE UNIFORM CONSERVATION EASEMENT ACT

Early conservation easements faced potential legal problems because they were of questionable legal validity. (49) As a solution to this, the National Conference of Commissioners of Uniform State Laws ("NCCUSL") passed the Uniform Conservation Easement Act ("UCEA") in 1981. (50) The Act created model conservation easement legislation for states to enact. (51) The purpose of the Act was to:
   provide[] a simple, limited way to end impediments to the use of
   easements under the common law. It permits the acquisition of
   easements as limited interests in land with the minimum disturbance
   of other interests and uses. It does not force anybody to do
   anything, but, if it appears advantageous as a matter of gift, sale
   or other conveyance for the landowner to transfer an easement, the
   Uniform Act assures its validity. This conforms to the general
   American desire for non-compulsory, voluntary solutions to land use
   problems, and the Uniform Act should greatly assist the effort to
   encourage conservation practices and to protect historically
   significant sites. (52)


The UCEA provided model language and permitted such easements to last for a perpetual duration, regardless of an individual state's laws preventing such. (53) The UCEA, in its 1981 form, consisted of six parts: (1) definitions; (2) a section authorizing creation, conveyance, and duration; (3) a section discussing what parties may bring judicial actions and permitting the courts to modify conservation easements under the principles of law and equity; (4) a section stating that conservation easements are valid even if common law states otherwise; (5) an applicability section applying the law to conservation easements created before and after the date of enactment; and (6) a section encouraging uniformity among the various states. (54) To date, over forty states have enacted the UCEA, and all fifty states have at least some laws or regulations permitting perpetual conservation easements. (55) South Dakota adopted its version of the UCEA into South Dakota Codified Laws sections 119B-56-1 through 1-19B-60 in 1984. (56)

D. MODERN CONSERVATION EASEMENT EXPLAINED

Conservation easements are servitudes created for preservation and conservation. (57) Generally, such easements are intended to preserve or protect areas such as open spaces, natural resources, wetlands, forests, and farmlands. (58) Conservation easements are created when a landowner grants all or a portion of his property to a grantee for conservation purposes. (59) The grantee is typically a governmental entity or a private organization dedicated to preservation efforts. (60) Government organizations may include the United States Fish and Wildlife Services ("FWS"); Departments of Transportation ("DOT"); the National Parks Service; the United States Department of Agriculture ("USDA"), Division of Natural Resources Conservation Service ("NRCS"); or a state governmental entity charged with maintaining public lands. (61) In most states the majority of conservation easements are donated to or purchased by private land organizations such as the Land Trust Alliance, The Nature Conservancy, or The American Farmland Trust. (62) South Dakota, however, is rather unique with regard to grantees of conservation easements because the majority of conservation easements are held by government entities, including the NRCS, the FWS, and the South Dakota Parks and Wildlife Foundation. (63) Private conservation entities are less common but include organizations such as The Nature Conservancy, (64) the Northern Plains Land Trust, (65) and Ducks Unlimited. (66)

All conservation easements seeking federal tax benefits must be in writing and are required to preserve the land into perpetuity. (67) However, despite these two similarities, many different types of conservation easements exist, and they vary in terms of how they are categorized, what restrictions are placed on them, and what a landowner is permitted to do on them. (68) Furthermore, such easements can be written to contain a variety of restrictions on the landowner's use of the property ranging from virtual non-use of the property to permitting farming and ranching the land. (69)

Typically, conservation easements in South Dakota fall into two major categories: (1) grassland easements, which may or may not permit the landowner to graze cattle or to cut naturally-occurring growth thereon; and (2) wetland easements, which are generally the most restrictive types of easements and typically only permit entry and quiet enjoyment (e.g. no farming or ranching) on the land. (70) Currently, the National Conservation Easement database estimates that there are approximately 1,900 conservation easements in South Dakota, consisting of 459,761 acres of land. (71) The South Dakota Department of Revenue's assessment, however, contains a much higher estimate of acreage. (72) The department estimates that 978,903 acres of the conservation easement land in South Dakota are held by the FWS alone, 108,764 acres of which are grassland easements in just Faulk County. (73)

E. LANDOWNER DEMAND FOR CONSERVATION EASEMENTS AND BARRIERS TO THEIR IMPLEMENTATION

Simply because landowners would like to place a conservation easement on their land does not necessarily mean that certain entities will enter into an agreement with those individuals. (74) For instance, South Dakota's FWS possesses a waiting list of landowners seeking conservation easements with a backlog of approximately 625 to 700 potential properties at any given time. (75) To determine the order in which these prospective easements will be approved, the FWS utilizes waterfowl surveys which study the five most common species of waterfowl. (76) The FWS separates South Dakota land into blocks, sends biologists to those blocks to count the number of waterfowl, and those biologists then review the land's topography to determine which pieces of land are appropriate for conservation. (77) The number of waterfowl available is inputted into a computer program that ranks pieces of land by those in need of conservation and determines the order in which property owners are placed on the waiting list. (78) The amount of time landowners wait for approval of easements varies depending on their waiting list rank. (79)

The USDA's Natural Resources Conservation Service ("NRCS") has similar criteria for their easements. Backlog for approval of NRCS easements varies depending on the federal funding available at the time of submission. (81) In terms of the sheer number of conservation easements written by NRCS, however, South Dakota is second in the country with over 1,300 held within the state with an average of fifty-five to ninety-five new conservation easements written each year. (82)

In general, conservation easements are paid for by private or public entities. For instance, the FWS makes a monetary offer based on the number of acres the easement will cover. (84) The value of the easement is administratively determined using a statistical analysis of land sales and assessed values to determine a market value. (85) The NRCS has similar criteria in place. The NRCS pays ninety percent of the fair market value of the land for perpetual conservation easements. (87) Conversely, South Dakota's chapter of The Nature Conservancy has paid for only two of its conservation easements; the remainder of which have been donated by landowners. (88)

F. FEDERAL TAX BENEFITS

Conservation easements are also accompanied by tax benefits. (89) The federal government provides programs that allow landowners who donate conservation easements to reduce their federal taxable income and estate tax. (90) Landowners must conform to three specific requirements, outlined in section 170 of the Internal Revenue Code, to qualify for the federal tax incentive. (91) First, landowners must express a specific donative intent, (92) which is defined as "a voluntary transfer of money or property that is made with no expectation of procuring a financial benefit commensurate with the amount of the transfer." (93) Second, the donation must be perpetual. (94) Finally, section 170 requires the easements to be implemented for a qualified conservation purpose. (95)

Assuming landowners meet the above requirements, they will receive a charitable contribution reduction of either thirty percent of their total contribution base for a given year or fifty percent of the landowner's contribution base subtracted from the amount of charitable contributions provided in a given year, whichever is less. (96) This one-time deduction is based on either the fair market value of the easement, which is determined by comparable land sales, or by the difference in property value before and after the easement. (97)

In addition to the charitable contribution deduction, the federal government also provides estate tax incentives. (98) At the death of the landowner, section 2031 of the Internal Revenue Code permits an estate tax deduction for the fair market value of the conservation easement on the date the easement was created. (99) The deduction is up to $500,000 or forty percent of the easement's value reduced by two percent for every percent that the easement is less than thirty percent of the overall value of the landowner's property on the date the easement was made. (100)

G. STATE TAX BENEFITS

Many states also provide state tax benefits for the donation of conservation easements. (101) For instance, Arkansas, California, Colorado, Connecticut, Delaware, Georgia, Iowa, Maryland, Massachusetts, Mississippi, New Mexico, New York, North Carolina, South Carolina, and Virginia allow for deductions in income tax equal to the market value of the easement with caps ranging from $80,000 to $375,000. (102) The periods also range from five to twenty years after the easement's creation. (103) Conversely, Florida exempts these easements from property taxation in general, with an exemption of fifty percent of the assessed value of the land. (104) Additionally, other states that value property based on fair market value also provide what could be considered tax incentives to landowners. (105) For those other states valuing land based on fair market value, the existence of a conservation easement will reduce the land valuation for tax purposes and will ultimately reduce the total amount of tax dollars paid. (106)

III. LEGISLATIVE HISTORY OF CONSERVATION EASEMENTS IN SOUTH DAKOTA

The South Dakota Legislature has engaged in a contentious debate over conservation easements for numerous years. (107) In fact, in every legislative session since 2011 various legislators have proposed bills to either amend the conservation easement statutes to remove the perpetuity aspect of them or to require special permission for implementing conservation easements. (108) The arguments during the legislative discussions of each bill have been substantially similar. (109)

Those favoring limitations on or elimination of conservation easements focused on the fact that perpetuity is forever and that no person should have the right to tie up their land for future generations to come. (110) Other opponents, who currently own land containing conservation easements, testified that they did not realize how restrictive the requirements would be. (111) Still others argued that future tilling of South Dakota land containing conservation easements may be necessary to ensure an adequate food supply for later generations. (112)

Those against limiting conservation easements emphasized that a landowner should have the right to use his or her land as he or she wishes, including perpetually limiting development. (113) Proponents for these easements argued that there is a need for conserving land for future generations. (114) Concerns over tax ramifications were also discussed, as federal tax breaks depend on the perpetual aspect of conservation easements. (115) Ultimately, the proposed legislation has been struck down each year, either in a committee or on the House of Representatives floor. (116)

A. PROBLEMS ARISING FROM SOUTH DAKOTA'S AGRICULTURAL PROPERTY VALUATION CHANGES

While the totality of legislative discussion concerning conservation easements in South Dakota has revolved around limiting conservation easements, a recent change in the state's agricultural land valuation method for taxation has served to further exacerbate the situation. (117) Until 2008, conservation easements were valued, for property taxation purposes, based on the fair market value of the land. (118) This meant that when a landowner created a conservation easement, the reduction in usability would be considered in the overall assessment of the property value, thus reducing the property value for taxation purposes. (119) Issues surrounding assessments arose, however, as a result of bills passed in the 2008 and 2009 legislative sessions. (120)

In 2008, the legislature passed House Bill 1005, which required assessment of agricultural land to be based on productivity. (121) The 2009 Senate Bill 3 clarified the productivity valuation system for taxation purposes and finalized it for implementation. (122) This legislation was enacted in July of 2009 and implemented in South Dakota's 2010 property valuations. (123) It changed the way county departments of equalization value agricultural property for taxation purposes in South Dakota. (124) Rather than using the fair market value of land for valuation, South Dakota now values its agricultural land based on a productivity (or potential productivity) standard. (125)

The productivity standard is determined by an evaluation of soil types. (126) The soil in each county is rated on a scale of 1.0 (the highest valued) to 0.1 (the lowest valued) with soil that could potentially yield crops rated at the highest value. (127) Soil surveys are conducted on individual parcels of land, and an inventory is taken on each soil type located on each parcel. (128) The number of acres of each soil type is then multiplied by the dollar value for that soil type and added together with the total acreage to determine the total value of the parcel. (129) The survey, however, does not account for current usage of the land containing that given soil type. (130) Thus, the valuation is essentially based on a "highest and best use" formula, which assumes a particular piece of land with a given soil type is producing at the level for which the soil is rated. (131) In other words, if property contains a soil type that has the potential to yield a high crop output, then it is valued higher than land with lower soil quality. (132)

B. HOW THE NEW VALUATION SYSTEM AFFECTS CONSERVATION EASEMENTS

The change in valuation from fair market value to productivity has, in some circumstances, dramatically increased the property tax valuations for conservation easement land, especially in counties with high quality soil types. (133) In 2012, the South Dakota Office of Hearing Examiners affirmed a Yankton County Department of Equalization decision that required a landowner's property tax assessment to be based on productivity of his conservation easement land. (134) In a ruling titled J.J. Industries, L.L.C. v. Yankton County, the Examiners upheld the Department of Equalization's findings that South Dakota Codified Laws section 10-6-33 requires counties to use a productivity valuation and further clarified that the reduction in value caused by the conservation easement was irrelevant for the purposes of land valuation. (135)

Currently, most counties have followed the J.J Industries, L.L.C. decision and value conservation easements as if they were any other agricultural property, without any special exemptions for their lack of productivity. (136) State statutes do provide a way to circumvent the J.J. Industries, L.L.C. opinion, however, by permitting county directors of equalization to provide valuation exemptions so long as such valuation exemptions are completely justified. (137) As a result, some county departments of equalization have created special valuation exemptions for conservation easements. (138) Unfortunately, the inconsistent evaluation of land containing conservation easements by counties has led to a lack of uniformity and has further created animosity among those concerned with the subject. (139)

Of the sixty-six counties in South Dakota, eight have chosen to take varying approaches on the valuation of conservation easements. (140) All counties that currently provide exemptions for conservation easements rely on statutory allowances permitting valuation adjustments. (141) The general consensus, however, is that actions need to be taken by the legislature to clarify specifically how conservation easements should be valued. (142)

C. SOUTH DAKOTA'S DISCUSSION REGARDING CONSERVATION EASEMENT EXEMPTIONS

The state has conducted limited discussion on the productivity valuation system's impact on conservation easements. (143) For instance, in 2012, the Agricultural Land Assessment Implementation and Oversight Advisory Task Force held a summer session meeting which discussed the issues associated with conservation easements and the productivity system. (144) Those in favor of adjustments to the assessed value of conservation easements stressed the need for statewide uniformity for exemptions. (145) The arguments against making changes to the current land valuation system mainly dealt with concerns about shifting the tax burden to other taxpayers after property owners with conservation easements voluntarily chose to make their land nonproductive. (146) The South Dakota Department of Revenue provided a variety of recommendations to the task force for solutions surrounding the valuation of land with conservation easements. (147) Possible solutions included allowing for either an adjustment reducing conservation easement valuations to the most unproductive soil type rating or a percentage reduction in the conservation easement land valuation. (148) The legislature, however, never implemented any of the potential recommendations, and thus, the issue still exists today. (149)

IV. RECOMMENDATIONS

A. AN ISSUE WITH NO EASY SOLUTION

The latest issues and arguments in the South Dakota Legislature and on the statewide level regarding conservation easements generally boil down to two opposing viewpoints. (150) On one side of the issue, there are those who want to ensure land is preserved into perpetuity but want to do so without paying higher tax rates on conservation easement land. (151) On the other side of the spectrum, there are essentially two different groups: those who either voluntarily took out conservation easements or bought land with conservation easements on it, but then changed their minds about preserving them into perpetuity; and there are taxpayers who do not want their share of taxes to increase simply because their neighbors voluntarily forwent the "highest and best use" of their land. (152)

To further complicate the issue, once a landowner has donated a conservation easement it is extremely difficult to remove that easement from the land because easement-termination is only permitted with permission from the easement holder, and even then, easements can only be removed under limited circumstances. (153) The easement holders, being either governmental or private land preservation entities, will not allow the termination of easements simply because the landowner has changed his or her mind. (154) Additionally, if landowners choose to disregard the terms of their conservation easements, the easement holder or a third party possess the right to bring an action for an injunction to prevent the landowner from using the land contrary to the goals of the easement. (155) Because of the impact that perpetual conservation easements can have on land, legislators, scholars, and people who dislike "dead hand" control in general, have argued that the legislature should severely limit and even retroactively regulate perpetual conservation easements out of existence. (156)

The issue, however, is more difficult than it may seem, because easement holders are not the only ones affected by the termination of some conservation easements. (157) All taxpayers could be negatively affected if conservation easements are terminated or prevented from lasting into perpetuity because federal regulations have tied funding of various programs to the implementation and continuance of perpetual conservation easements. (158) While not inclusive, Federal Highway Administration regulations, U.S. Department of Housing and Urban Development regulations, and U.S. Department of Agriculture regulations all require government entities, and even in some cases individuals, to mitigate any wetland loss they may create. (159) When an entity destroys or damages a wetland, the regulations generally require arrangements to preserve a similarly sized wetland into perpetuity. (160) Preservation is more cost-effectively done by purchasing perpetual conservation easements, rather than purchasing wetlands in fee simple. (161) Therefore, since federal funding is significantly affected by the ability of government entities to purchase perpetual conservation easements, future legislative efforts to limit the duration or eliminate conservation easements all together should cease for fear of jeopardizing federal funding to South Dakota. (162)

B. RECOMMENDATIONS FOR CHANGING THE VALUATION OF CONSERVATION EASEMENTS

Legislative proposals throughout the last several years have focused primarily on taking away the perpetual nature of conservation easements. (163) As stated previously, however, a more pertinent and timely issue exists. (164) Regardless of one's opinion as to whether or not an individual should possess a present right to prevent development on their property into perpetuity, demand for the sale of these easements demonstrates that many landowners favor them. (165) Further, if organizations stopped drafting conservation easements into perpetuity, it could negatively impact all taxpayers because of reductions in federal funding. (166)

The true issue arises out of South Dakota's shift from a fair market valuation of agricultural property to a productivity valuation system. (167) Although conservation easements were never given specific tax breaks by the state, they were valued based on the fair market. (168) Now, in most counties, conservation easement land is being valued at its potential highest and best use, while some counties are creating well-rationalized exemptions for these easements. (169) The most common exemptions utilized by these counties either reduce high soil-rated conservation easement land to a lower soil rating for purposes of taxation or use a fair market value system similar to South Dakota's previous land valuation system. (170)

A major benefit in South Dakota implementing the exemptions that some of these counties are using is that affected landowners would pay property taxes that more accurately reflect the permitted usage of their conservation easement land. (171) For instance, reducing higher-rated conservation easement land to a lower soil rating, provides a more accurate reflection of the actual use, as most perpetual conservation easements, especially wetland easements, generally prohibit farming and ranching on the land. (172)

Those counties that value conservation easements based on fair market value also merit discussion, as previous sales of substantially similar land should most accurately reflect the actual value of a conservation easement. (173) There are some problems with this method, however, because it essentially disregards the recently implemented state law requiring productivity valuation. (174) Some counties use an additional percentage discount or a flat rate of valuation as an exemption for conservation easements. (175) While these discounts may be beneficial to analyze, without further justification as to why a flat rate reduction is appropriate, such adjustments seem rather arbitrary and may not accurately reflect the approximate valuation of the land. (176)

The major downside to any valuation exemption, however, is that in order for taxing entities to satisfy their budgets, any exemption or reduction in property value to one parcel of land needs to be compensated for by increases in the amount of taxes levied on other properties. (177) Therefore, if the legislature decides to adopt an exemption for perpetual conservation easements, such a decision could potentially increase other property owners' taxes.

Ultimately, the legislature must make a determination as to whether it should implement an exemption from the productivity system for conservation easement land or whether it should clarify that all counties must adhere to the J.J. Industries, L.L.C. decision requiring valuation based on productivity. (179) While the legislature can learn from the various county methods, it still must provide uniform guidance throughout the state in order to avoid discrepancies in conservation easement land valuation and subsequent taxation. (180)

Should the legislature choose to create valuation exemptions for conservation easement land, the most accurate and, therefore, best method appears to be a valuation based on fair market value. (181) Valuing land based on fair market value accurately portrays the land's actual value. (182) While an exemption based on fair market value would be counter to the recently implemented productivity valuation system, conservation easements differ from other types of agricultural property--they generally lack the ability to be productive. (183) Since the ability to yield crops is the main premise of the productivity system, valuations based on that system inaccurately reflect conservation easement land worth. (184) Valuation based on productivity of any kind on conservation easements creates the potential for overinflated taxation, as conservation easements usually do not allow for the production of crops. (185) Therefore, should the legislature choose to create a valuation exemption for conservation easements, it should strongly consider reverting conservation easement valuations back to fair market value. (186)

IV. CONCLUSION

Conservation easements are a complicated and contentious issue in South Dakota. While proposed legislation over the last several years has focused mainly on preventing conservation easements from being written into perpetuity, a more timely and pertinent concern has arisen since South Dakota's switch from a fair market valuation to a productivity valuation system for agricultural land.

South Dakotans owning conservation easement land have, in some cases, been required to pay significantly more in annual property taxes because of the productivity valuation system. While some counties have created special exemptions for conservation easement land, the vast majority of counties follow the Industries, L.L.C., Office of Hearing Examiners opinion, which requires these easements to be valued using the productivity system. The lack of uniform valuation has created a disparity between counties that provide valuation exemptions for conservation easements and counties that follow the J.J Industries, L.L.C. decision.

The South Dakota Legislature should implement a uniform statewide model for conservation easement land valuation; one which is based on the legislative mandate and intent rather than an unpublished Office of Hearing Examiner's opinion or individual county exemptions. The legislature needs to either provide an exemption to the productivity valuation system for conservation easements, or it should clarify that no valuation exemptions should be made regardless of whether such valuations accurately portray the permitted use of conservation easement land. Should the legislature choose to create a valuation exemption for conservation easement land, it should consider reverting valuations back to fair market value, as fair market value most accurately reflects the actual value of conservation easement land.

By creating a uniform method of valuing conservation easement land, the South Dakota Legislature would ensure taxpayers are being treated equally throughout the state, regardless of the county in which their property is located. Ultimately, it is up to the legislature to take action on this issue affecting many South Dakota landowners by passing legislation valuing conservation easement land in a uniform manner.

Terra M. Fisher, J.D. Candidate, 2016, University of South Dakota School of Law; B.S., 2007, Journalism, South Dakota State University, Brookings, S.D. I would like to thank the South Dakota Law Review for this opportunity and honor. Thank you to my editors Jonathon Sanborn, Melissa Knight, and Andrew Fick for dedicating their time, expertise, and patience throughout this process. I would also like to thank the following: Michael Houdyshell with the South Dakota Department of Revenue; Bill Mulvaney and Harris Hoistad with the United States Fish & Wildlife Service; Ben Bigalke with the United States Department of Agriculture, Natural Resource Conservation Service; and all of the South Dakota County Directors of Equalization for their willingness to not only share information with me, but also to explain the often esoteric issues surrounding conservation easements and taxation thereof. 1 would like to devote a special thank you to my husband, Gary Fisher, and my family for their continued support throughout this process.

(1.) See E-Mail from Joyce Dragseth, Brookings Cnty. Dir. of Equalization, to author (Jan. 5, 2015, 11:30 CST) (on file with author) [hereinafter Dragseth I]; E-mail Joyce Dragseth, Brookings Cnty. Dir. of Equalization, to author (Aug. 19, 2014 15:15 CST) (on file with author) [hereinafter Dragseth II], See also Telephone Interview with Lyle Johnson, landowner (Jan. 12, 2015) [hereinafter Johnson Interview] (explaining the issues Mr. Johnson dealt with following an increase in taxation on his conservation easement land, and describing his conservation easement land).

(2.) See supra note 1.

(3.) See Johnson Interview, supra note 1.

(4.) See supra note 1 and accompanying text; Dep'T OF REVENUE PROP. & SPECIAL TAXES DIV., S.D. Dep't of Revenue, Productivity Valuation for 2010 Assessment Year 1 (July 1, 2009), available at http://dor.sd.gov/Taxes/Property_Taxes/PDFs/valualtion%20explanation.pdf. [hereinafter Productivity Valuation Explanation] (explaining the process by which the state implemented its productivity-based system of agricultural property valuation for taxation purposes).

(5.) See Productivity Valuation Explanation, supra note 4, at 4.

(6.) See Dragseth II, supra note I.

(7.) See supra note 1; infra Part III.A.

(8.) Johnson Interview, supra note 1.

(9.) See generally MINUTES, S.D. AGRIC. LAND ASSESSMENT IMPLEMENTATION & OVERSIGHT Advisory Task Force, S.D. Legislative Research Council (June 18, 2012), available at http://www.legis.sd.gov/interim/2012/minutes/MALA06182012.pdf (discussing landowner concern with paying increased property taxes for conservation easement land).

(10.) Id.

(11.) See infra Parts II-V.

(12.) See infra Part II.

(13.) See infra Parts III-V.

(14.) See id.

(15.) See infra Parts IV-V.

(16.) Restatement (Third) of Prop.: Servitudes [section] 1.2 (2000).

(17.) See id. [section] 1.5.

(18.) Id. [section] 1.5(1).

(19.) Id.

(20.) See id. [section][section] 4.6(1)(a), 1.5(1).

(21.) Id. [section] 4.6(1)(a).

(22.) See, e.g., id. [section] 1.2 cmt. c (2000) (exemplifying a private roadway easement as a appurtenant easement); id. [section] 1.5 cmt. a, illus. 1 (granting another access to water from the property owner's land is an appurtenant easement).

(23.) Id. [section] 1.5(2).

(24.) Id. [section] 4.5(1)(a)-(b).

(25.) See id. [section] 4.5 cmt. d, illus. 2; see. eg., id. [section] 4.5 cmt. d, illus. 5 (including, as well, in gross easements for camping, swimming, fishing, and other recreational use permissions).

(26.) Id. [section] 1.5 cmt. b.

(27.) See id. [section][section] 1.5, 4.6.

(28.) See id.

(29.) See infra notes 30-34 and accompanying text.

(30.) James W. Ely & Jon W. Bruce, The Law of Easements and Licenses in Land [section] 2:10, at 2-26 (2013).

(31.) See supra notes 22, 25 and accompanying text.

(32.) ELY & BRUCE, supra note 30, at 2-28.

(33.) Id. at 2-29 to -30.

(34.) Restatement (Third) of Prop.: Servitudes [section] 1.2 cmt. h (2000).

(35.) Id. [section] 1.6 cmt. a. See generally S.D.C.L. [section] 1-19B-59 (2004) (regulating conservation easements in South Dakota); Unif. Conservation Easement Act [section] 4(3)-(4), 12 U.L.A. 187 (2008) (providing model conservation easement language for states to adopt). Conservation easements may be written for any duration. See S.D.C.L. [section] 1-19B-59; UNIF. CONSERVATION Easement Act [section] 2(c), 12 U.L.A. 179 (2008). However, any discussion and references to conservation easements in this analysis, unless specifically stated otherwise, is limited to conservation easements written into perpetuity. See Parts IIV.

(36.) See S.D.C.L. [section] 1-19B-56 (2004); Unif. Conservation Easement Act [section] 4(3), 12 U.L.A. 187 (2008) (specifying the common law rules are trumped by the statutory language).

(37.) See, e.g., [section] 1-19B-56; id. [section] 4(3), 12 U.L.A. 187 (exemplifying the Uniform Conservation Easement Act and providing an example of state implementation).

(38.) See John L. Hollingshead, Conservation Easements: A Flexible Tool for Land Preservation, 3 Envtl. Law. 319, 333 (1997).

(39.) Id.

(40.) See id. at 334 (discussing how the National Parks Service, the Department of the Interior, and the Federal Highway Administration, through federal acts such as the Federal Highway Beautification Act, were authorized to use federal funds to purchase easements in order to preserve scenic lands along highways).

(41.) See Julia D. Mahoney, Perpetual Restrictions on Land and the Problem of the Future, 88 VA. L. Rev. 739, 749 (2002) (discussing the manner in which the government acquired conservation easements prior to the Uniform Conservation Easement Act).

(42.) Carol Ann Eiden, The Courts' Role in Preserving the Family Farm During Bankruptcy Proceedings Involving FmHA Loans, 11 LAW & INEQ. 417, 421 (1993) (discussing how the land and crop prices in the 1980s contributed to the recession).

(43.) Id.

(44.) See Cmty & Econ. Dev. Div., Gen. Accounting Office Resources, GAO B-242641, Farmers Home Administration Sales of Farm Inventory Properties (April 9, 1991), available at http://gao.gov/assets/220/213872.pdf.

(45.) Linda A. Malone, 1 Envtl. Reg. of Land Use [section] 5.06, at 5-62.11 to .12(2000).

(45.) See id.

(46.) See id.

(47.) See id.

(48.) See E-mail from Bill Mulvaney, Senior Realty Specialist, U.S. Fish & Wildlife Serv., to author (Aug. 8, 2014, 13:20 CST) (on file with author).

(49.) Restatement (Third) of Prop.: Servitudes [section] 1.2 cmt. h (2000).

(50.) Unif. Conservation Easement Act, 12 U.L.A. 165 (2008).

(51.) See id. 12 U.L.A. 166-69, prefatory note.

(52.) Conservation Easement Act Summary, UNIF. LAW COMM'N, http://www.uniformlaws.org/ActSummary.aspx?title=Conservation%20Easement%20Act (last visited Jan. 5, 2015).

(53.) See Unif. Conservation Easement Act [section] 4(3). 12 U.L.A. 165 (2008).

(54.) See Unif. Conservation Easement Act (1981) (original version, omitting U.L.A citation).

(55.) See A Guided Tour of Conservation Easement Enabling Statutes-Appendix A, LAND TRUST Alliance (Jan. 2009), http://www.landtrustalliance.org/policy/cestatutesappendixA.pdf (listing all fifty states and describing when and how they adopted conservation easement restrictions).

(56.) S.D.C.L. [section][section] 1-19B-56 to -60 (2004 & Supp. 2005) (codifying the Uniform Conservation Easement Act).

(57.) Restatement (Third) of Prop.: Servitudes [section] 1.6 (2000).

(58.) Id.

(59.) Ely & BRUCE, supra note 30, at 12-3 to -5.

(60.) Id. at 12-3.

(61.) See generally Michael Houdyshell, S.D. Dept, of Revenue, Conservation Easements and Deed Restrictions in South Dakota, Address Before the S.D. Agric. Land Assessment Implementation & Oversight Advisory Task Force (June 18, 2012) [hereinafter Conservation Easements and Deed Restrictions] (unpublished PowerPoint presentation) (on file with author) (describing various types of easements and the entities that hold them); Conservation Easements and Deed Restrictions in South Dakota, S.D. Dept, of Revenue (June 2012) (unpublished pdf) (on file with the author) (exemplifying various conservation easement restrictions and listing typical governmental easement holders).

(62.) Maureen Rudolph & Adrian Gosch, A Practitioner's Guide to Drafting Conservation Easements and the Tax Implications, 4 GREAT PLAINS Nat. RESOURCES J. 143, 148-49 (2000).

(63.) See infra notes 71-88 and accompanying text.

(64.) About Us, The Nature Conservancy, http://www.nature.org/about-us/visionmission/index.htm (last visited Feb. 24, 2015). Founded in 1951, the Nature Conservancy's mission is to conserve lands and waters and to advance conservation worldwide. Id.

(65.) One Property at a Time, NORTHERN PRAIRIES Land TRUST, http://www.northernprairies.org (last visited Feb. 24, 2015). The Northern Plains Land Trust works with private landowners to conserve land in Nebraska and South Dakota. Id. Its recent projects include establishing conservation easements along the Missouri River, the Big Sioux River, and the Tallgrass Prairie Ecoregion of Nebraska. Id.

(66.) About Ducks Unlimited, DUCKS UNLIMITED, http://www.ducks.org/about-du?poe=hometxt (last visited Jan. 5, 2015). Founded in 1937, Ducks Unlimited grew to be the world's largest waterfowl and wetlands conservation organization. Id. Its mission is to preserve and restore wetlands and habitats throughout North America. Id.

(67.) See infra Part II.F and accompanying text.

(68.) See generally Rudolph & Gosch, supra note 62 (explaining the various provisions one might include in their conservation easement including: prohibitions or restrictions on dumping, commercial activity, dredging, hunting, tilling, etc., but noting the provisions are not exclusive and depend on the conservation easement agreement between landowner and conservation organization).

(69.) See Conservation Easements and Deed Restrictions, supra note 61.

(70.) See id. See also Agricultural Conservation Easement Program, Natural Res. Conservation Serv., U.S. Dept. of Agric., http://www.nrcs.usda.gov/wps/portal/nrcs/main/national/programs/easements/acep (last visited Feb. 24, 2015) (describing the various types of easements offered by the Department of Agriculture including: Agricultural Land Easements and Wetland Reserve Easements, as well as generally describing how land may be eligible for these easements); Conservation Easements. Private Rights and Public Benefits, U.S. Fish & Wildlife Serv., http://www.fws.gov/mountain-prairie/pfw/r6pfw8b.htm (last visited Feb. 24, 2015) (explaining the types of easements offered by the FWS to include: wetland easements, grassland easements, general conservation easements, and land trust conservation easements).

(71.) State of South Dakota and All Easements, Nat'L CONSERVATION Easement Database, http://conservationeasement.us/reports/easements?report_state=South%20Dakota&report_type=All (last visited Feb. 24, 2015).

(72.) Michael Houdyshell, S.D. Dept, of Revenue, FWS Easement Acres Spreadsheet (2014) [hereinafter FWS Easement Acres Spreadsheet] (unpublished pdf) (on file with author).

(73.) Id. Faulk County is notably saturated with conservation easements, as the county's total agricultural acreage is 634, 377, meaning over one-sixth of the county's agricultural land contains conservation easements. Id. See also Telephone Interview with Trevor Cramer, Faulk Cnty. Dir. of Equalization (Jan. 6, 2015) (explaining the total amount of agricultural acreage in the county). Faulk County's saturation of conservation easements is not a normal representation of easements in South Dakota. See FWS Easement Acres Spreadsheet, supra note 72.

(74.) See infra notes 75-82 and accompanying text.

(75.) See E-mail from Bill Mulvaney, Senior Realty Specialist, FWS, to author (Aug. 8, 2014, 13:20 CST) (on file with author).

(76.) Ronald E. Reynolds et al., The Farm Bill and Duck Production in the Prairie Pothole Region: Increasing the Benefits, 34 WILDLIFE SOC'Y BULL. 963, 964 (2006) (on file with author). See also Email from Harris Hoistad, Project Leader, FWS, to author (Aug. 8, 2014, 07:53 CST) (on file with author) (explaining that the survey referenced in Reynolds' article in the Wildlife Society Bulletin is the basis for determining conservation easements).

(77.) See Reynolds et al., supra note 76, at 965, Figure 1 and accompanying text.

(78.) See id. at 967-68. See also Hoistad, supra note 76.

(79.) Reynolds et al., supra note 76, at 967-68.

(80.) See generally Wetland Reserve Program, NATURAL RES. CONSERVATION SERV., U.S. DEPT. OF AGRIC., http://directives.sc.egov.usda.gov/RollupViewer.aspx?hid=17111 (last visited Feb. 24, 2015) (describing the entire process of obtaining a conservation easement through NRCS' Wetland Reserve Program); 7 C.F.R. [section] 1467.12-14 (2014) (providing regulations for the Wetland Reserve Program).

(81.) See id. [section] 1467.9.

(82.) See E-mail from Ben Bigalke, Easement Programs Analyst, NRCS, USDA, to author (Aug. 11, 2014, 11:10 CST) (on file with author).

(83.) See infra notes 84-87 and accompanying text.

(84.) See E-mail from Bill Mulvaney, Senior Realty Specialist, FWS, to author (Aug. 18, 2014, 08:32 CST) (on file with author).

(85.) Id.

(86.) See infra note 87 and accompanying text.

(87.) See E-mail from Ben Bigalke. Easement Programs Analyst. NRCS, USDA, to author (Aug. 14, 2014, 14:31 CST) (on file with author).

(88.) See E-mail from Bob Paulson, Rapid City Program Dir., The Nature Conservancy, to author (Aug. 20, 2014, 18:36 CST) (on file with author).

(89.) See infra notes 90-100 and accompanying text.

(90.) See generally 26 U.S.C. [section] 170 (2013) (prescribing allowances for individual charitable contributions including allowances for conservation easements).

(91.) See id.; Rudolph & Gosch, supra note 62, at 160-75 (discussing the various qualifications landowners must meet for federal tax incentives).

(92.) A taxpayer has a specific donative intent when he or she has a reason for donating, which is independent of a tax break. See Rudolph & Gosch, supra note 62, at 160-61.

(93.) Rev. Rul. 83-104, 1983-2 C.B. 46 (defining donative intent according to the Internal Revenue Service).

(94.) 26 U.S.C. [section] 170(h)(5)(A).

(95.) Id. [section] 170(h)(4)(A). Conservation purpose includes:

(i) the preservation of land areas for outdoor recreation by, or the education of, the general public,

(ii) the protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem,

(in) the preservation of open space (including farmland and forest land) where such preservation is--

(I) for the scenic enjoyment of the general public, or

(II) pursuant to a clearly delineated Federal, State, or local governmental conservation policy, and will yield a significant public benefit, or (iv) the preservation of an historically important land area or a certified historic structure.

Id.

(96.) Id. [section] 170(b)(l)(B)(i)-(ii). Contribution base is defined as the taxpayer's gross income. Id. [section] 170(b)(G).

(97.) See Rudolph & Gosch, supra note 62, at 154.

(98.) See infra note 100 and accompanying text.

(99.) See 26 U.S.C. [section] 2031(c) (2012).

(100.) See id. [section] 2031 (c)(2)-(3); see also STEPHAN R. LEIMBERG ET AL., The Tools & TECHNIQUES OP ESTATE Planning 423 (Jonathan H. Ellis ed., 16th ed. 2013) (providing examples of how to calculate estate tax deductions using section 2031).

(101.) See infra notes 102-106 and accompanying text.

(102.) Conservation Easements and Deed Restrictions, supra note 61. See also Christen Linke Young, Conservation Easement Tax Credits in Environmental Federalism, 117 Yale L.J. POCKET Part 218 (2008) (explaining the various tax incentives that certain states provide for conservation easements).

(103.) Conservation Easements and Deed Restrictions, supra note 61.

(104.) Fla. St at. Ann. [section] 196.26 (West 2015).

(105.) Hollingshead, supra note 38, at 359-60. See also Daniel C. Stockford, Comment, Property Tax Assessment of Conservation Easements, 17 B.C. ENVTL. AFF. L. REV. 823, 825-26 (1990) (describing how conservation easements prevent the land from being used at its highest and best use, which ultimately reduces the property valuation).

(106.) See supra note 105.

(107.) See H.B. 1195, 2011 Leg., 86th Leg. Assemb., Reg. Sess. (S.D. 2011) (seeking an amendment to require county commissioners approve conservation easements prior to permitting them); H.B. 1087, 2012 Leg., 87th Leg. Assemb., Reg. Sess. (S.D. 2012) (seeking to limit the term of conservation easements to thirty years); H.B. 1007, 2013 Leg., 88th Leg. Assemb., Reg. Sess. (S.D. 2013) (seeking to limit the term of conservation easements to thirty years); H.B. 1083, 2014 Leg., 89th Leg. Assemb., Reg. Sess. (S.D. 2014) (seeking to limit the term of conservation easements to ninety-nine years); H.B. 1152, 2015 Leg., 90th Leg. Assemb., Reg. Sess. (S.D. 2015) (seeking to limit the term of conservation easements to one-hundred years).

(108.) See supra note 107.

(109.) See infra notes 110-115 and accompanying text.

(110.) See, e.g., H.B. 1087, Hearing Before the H. Agric. & Natural Res. Comm., 2012 Leg., 87th Leg. Assemb., Reg. Sess. (S.D. 2012) (statements by Rep. Betty Olson, R-Prairie City) (urging the legislative committee to limit conservation easement duration).

(111.) See, e.g., H.B. 1083, Hearing Before the H. Agric. & Natural Res. Comm., 2014 Leg., 89th Leg. Assemb., Reg. Sess. (S.D. 2014) (statements by Jerry Mork, representing himself as an owner of a conservation easement, Pierpont, SD) (urging the legislative committee to limit the perpetual duration of conservation easements).

(112.) See, e.g., H.B. 1083, Hearing Before the H. Agric. & Natural Res. Comm., 2014 Leg., 89th Leg. Assemb., Reg. Sess. (S.D. 2014) (statements by former Rep. David Sigdestad, D-Pierpont) (urging the legislative committee to limit the duration of conservation easements).

(113.) See, e.g., House Floor Debate on H.B. 1087, Before the H. of Reps., 2012 Leg., 87th Leg. Assemb., Reg. Sess. (S.D. 2012) (statements by Rep. Mike Verchio, R-Hill City) (asking the legislative committee to honor decisions of landowners regarding conservation easements).

(114.) See, e.g., H.B. 1083, Hearing Before the H. Agric. & Natural Res. Comm., 2014 Leg., 89th Leg. Assemb., Reg. Sess. (S.D. 2014) (statements by George Vandel, representing himself as a second-generation owner of a conservation easement in Lincoln County) (requesting the legislative committee not to change the perpetual duration of conservation easements).

(115.) See, e.g., H.B. 1083, Hearing Before the H. Agric. & Natural Res. Comm., 2014 Leg., 89th Leg. Assemb., Reg. Sess. (S.D. 2014) (statements by Jeff Vonk, Dep't of Game, Fish & Parks Secretary) (recommending the legislative committee consider the tax ramifications behind amending the conservation easement statutes).

(116.) See supra note 107.

(117.) See infra notes 121-132.

(118.) See S.D.C.L. [section] 10-6-33.1 (2004) (repealed July 1, 2009).

(119.) Id. Conservation easement prohibitions of certain uses of land lead to a reduced fair market value because land may not be utilized to its highest and best use. See Hollingshead, supra note 38, at 359-60; Stockford, supra note 105, at 825-26.

(120.) See infra notes 121-132 and accompanying text.

(121.) H.B. 1005, 2008 Leg., 83rd Leg. Assemb., Reg. Sess. (S.D. 2008).

(122.) S.B. 3, 2009 Leg., 84th Leg. Assemb., Reg. Sess. (S.D. 2009).

(123.) See 2009 S.D. Sess. Laws, Ch. 40 [section] 1; S.D.C.L. [section] 10-6-33.28 (2004 & Supp. 2009).

(124.) See 2009 S.D. Sess. Laws, Ch. 40 [section] 1. The productivity-based system for valuation was and currently is highly contested by certain legislators for non-conservation easement reasons. See S.B. 182, 2009 Leg., 84th Leg. Assemb., Reg. Sess. (S.D. 2009); S.B. 129, 2010 Leg., 85th Leg. Assemb., Reg. Sess. (S.D. 2010); S.B. 210, 2013 Leg., 88th Leg. Assemb., Reg. Sess. (S.D. 2013); S.B. 167, Leg., 89th Leg. Assemb., Reg. Sess. (S.D. 2014).

(125.) See 2009 S.D. Sess. Laws, Ch. 40 [section] 1; S.D.C.L. [section] 10-6-33.28.

(126.) See generally PRODUCTIVITY VALUATION EXPLANATION, supra note 4 (outlining the state's valuation criteria for agricultural property valuation using soil types.).

(127.) Id. at 4.

(128.) Id.

(129.) Id.

(130.) See id. (explaining that the soil surveys are based on soil ratings).

(131.) Id.

(132.) Id.

(133.) See generally MINUTES, S.D. AGRIC. LAND ASSESSMENT IMPLEMENTATION & OVERSIGHT Advisory TASK FORCE, supra note 9. See, e.g., supra notes 1-8 and accompanying text (describing one Brookings County landowner's issues with increased property taxes resulting from the state's change in valuation method).

(134.) J.J. Indus., L.L.C. v. Yankton Cnty., EQ 12-11 (S.D. Office of Hearing Exam'rs 2012) (unpublished opinion).

(135.) Id. at 5-6.

(136.) See Terra M. Fisher, How Counties Value Conservation Easements (August 2014) (unpublished spreadsheet based on telephone interviews with all S.D. County Directors of Equalization) (on file with author).

(137.) S.D.C.L. [section] 10-6-33.31 (2004 & Supp. 2008). Justification is generally supported by sales of similar property containing conservation easements, and a demonstration that those properties sell for less than valued. See Fisher, supra note 136 (describing the various exemptions counties provide for conservation easements statewide); see also infra notes 138-140. Section 10-6-33.31 also permits exemptions due to terrain and topography, which have permitted some counties to make exemptions for certain conservation easements. S.D.C.L. [section] 10-6-33.31.

(138.) See Fisher, supra note 136. The counties referenced are Brookings, Day, Brown, Grant, Lake, Lyman Moody, and Roberts. See id.

(139.) See generally MINUTES, S.D. AGRIC. LAND ASSESSMENT IMPLEMENTATION & OVERSIGHT Advisory Task Force, S.D. Legislative Research Council (June 18, 2012), available at http://www.legis.sd.gov/interim/2012/minutes/MALA06182012.pdf (summarizing public testimony regarding inconsistencies in conservation easement valuation); see also Fisher, supra note 136 (demonstrating that counties value conservation easements in different ways).

(140.) Fisher, supra note 136. The counties are Brookings, Brown, Codington, Day, Grant, Moody, Lake, Roberts, and Hutchinson. Id. Brookings County utilizes previous sales of properties containing conservation easements and has determined that there is a twenty to twenty-five percent reduction in value for property containing conservation easements. Id. Thus, for perpetual wetland conservation easements, the county chooses to value them using grassland soil values versus cropland soil values. Id. Brookings County has also considered a uniform seventeen percent reduction in value for these easements, because it considers an easement as the giving away one-sixth of the bundle of rights that are an individual's property rights. Id. Brown County uses South Dakota Codified Laws section 10-6-33. Id. Brown County does not consider perpetual wetland easements within the definition of agricultural property; rather it considers these easements as nonagricultural property. Id. Additionally, Brown County has found justification through statutes permitting exemptions at the Director of Equalization's discretion due to terrain and topography. See S.D.C.L. [section][section] 10-6-32 to -33.31 (2004 & Supp. 2008). As such, the county lowers the assessed value of land containing perpetual wetland conservation easements to $200 per acre. Fisher, supra note 136. Perpetual grassland easements with crop rated soils receive a fifty percent reduction in valuation for their crop rating. Id. Moody County provides adjustments only to perpetual conservation easements, and allows for crop rated soil to be adjusted to grassland soil with an additional fifty percent reduction, thereafter. Id. The other counties listed above provide adjustments either adjust crop rated easements to grassland ratings, or base valuations on the market value of the easements using previous sales. Id. Hutchinson County has not been approached by a landowner for an exemption, but stated, they would make an exemption if needed using the topography rationale in South Dakota Codified Laws sections 10-6-32 to -33.31. See id.

(141.) See Fisher, supra note 136.

(142.) Id. It is important to note, however, that all valuations, including those of properties containing conservation easements, affect the overall method of collecting property taxes. See S.D. Dep't of Revenue & Regulation, Your Property Taxes 3 (2006), available at http://dor.sd.gov/Taxes/Property_Taxes/PDFs/Your%20Property%20Taxes2.pdf. In general, each year all property in a county is valued for the purpose of taxation. Id. at 4. For every dollar worth of land that a person owns, a certain amount of cents per dollar is placed into the mill levy imposed by various taxing entities for the purposes of payment for governmental services. Id. Any reduction in value of certain properties will lead to an increase in taxes paid by all other properties in a county, in order for taxing entities to satisfy their budgets. Id.

(143.) See generally MINUTES, S.D. AGRIC. Land ASSESSMENT IMPLEMENTATION & OVERSIGHT Advisory Task Force, S.D. Legislative Research Council (June 18, 2012), available at http://www.legis.sd.gov/interim/2012/minutes/MALA06182012.pdf.

(144.) See id. at 1.

(145.) Id. at 7-8.

(146.) Id. at 7.

(147.) See S.D. Dept, of Revenue, Legislative Options for the S.D. Agric. Land Assessment Implementation & Oversight Advisory Task Force (unpublished document) (on file with author).

(148.) Id.

(149.) See generally Fisher, supra note 136 (exemplifying that discrepancies between county valuation approaches for conservation easements still exist).

(150.) See supra notes 110-115 and accompanying text.

(151.) See supra notes 113-115 and accompanying text.

(152.) See supra notes 110-112 and accompanying text.

(153.) Mahoney, supra note 41, at 772-75 (discussing the difficulty in terminating conservation easements); see also RESTATEMENT (Third) OF PROP.: SERVITUDES [section] 7.11 (2000); S.D.C.L. [section] 1-19B-57 (2004 & Supp. 2008).

(154.) Mahoney, supra note 41, at 772-75 (discussing the difficulty in terminating conservation easements).

(155.) S.D.C.L. [section] 1-19B-58 (2004).

(156.) See generally Mahoney, supra note 41 (discussing the issues associated with allowing conservation easements to last into perpetuity); Susan F. French, Perpetual Trusts, Conservation Servitudes, and the Problem of the Future, 27 Cardozo L. Rev. 2523 (2006) (exemplifying some of the issues that may result in permitting conservation easements to last for an unlimited amount of time).

(157.) See infra notes 159-162 and accompanying text.

(158.) See, e.g., 23 C.F.R. [section] 777.3(a)(2) (2014) (tying federal funding to mitigating wetlands loss caused by highway projects using federal funding); 23 C.F.R. [section] 777.11(c) (2014) (mandating that wetlands mitigation measures preserve similar wetlands into perpetuity); 24 C.F.R. [section] 55.20(e)(2) (2014) (recommending wetland mitigation for Housing and Urban Development projects of over one acre that require destruction of wetlands); 16 U.S.C. [section] 3821(a) (2012) (prohibiting the Department of Agriculture from providing funding to "person" who produces agricultural commodities on converted wetlands); 7 C.F.R. [section] 12.5(b)(vi) (2014) (permitting individuals to convert wetlands to cropland if they receive a permit in accordance with section 404 of the Clean Water Act authorizing preservation of similar wetlands).

(159.) See supra note 158.

(160.) See supra note 158. For instance, if the South Dakota Department of Transportation (DOT) destroys a wetland during a road construction project, it must place an equal amount of wetland acreage into perpetual conservation. See 23 C.F.R. [section] 777.3 (tying federal funding to mitigating wetlands loss caused by highway projects using federal funding); 23 C.F.R. [section] 777.11 (mandating that wetlands mitigation measures preserve similar wetlands into perpetuity). According to DOT officials, most South Dakota landowners are unwilling to sell wetlands in fee simple, but are willing to grant perpetual conservation easements. See H.B. 1083, Hearing Before the H. Agric. & Nat'l Res. Comm., 2014 Leg., 89th Leg. Assemb., Reg. Sess. (S.D. 2014) (statements by Bill Nevin, Dep't of Transp. Counsel) (explaining to the legislative committee the potential repercussions of limiting the duration of conservation easements). Taking away the DOT'S ability to obtain perpetual conservation easements has the potential to jeopardize federal highway funding. Id.

(161.) See H.B. 1083, Hearing Before the H. Agric. & Nat'l Res. Comm., 2014 Leg., 89th Leg. Assemb., Reg. Sess. (S.D. 2014) (statements by Bill Nevin, Dep't of Transp. Counsel) (explaining that taking away the DOT's ability to obtain perpetual conservation easements has the potential to jeopardize federal highway funding because landowners are more willing to allow for a conservation easement over their land than to allow for sale in fee simple).

(162.) See supra notes 158, 160 and accompanying text.

(163.) See supra Part III.

(164.) See supra Part III. A.

(165.) See supra notes 75, 80 and accompanying text.

(166.) See supra note 158; I LB. 1083, Hearing Before the House Agric. & Natural Res. Comm., 2014 Leg., 89th Leg. Assemb., Reg. Sess. (S.D. 2014) (statements by Bill Nevin, Dep't of Transp. Counsel) (explaining to the legislative committee the potential repercussions of limiting the duration of conservation easements).

(167.) See supra Part III.A.

(168.) See supra notes 105, 118 and accompanying text.

(169.) Fisher, supra note 136 (describing whether the various South Dakota counties provide exemptions for conservation easement land and explaining the exemptions some counties implement).

(170.) Id. (e.g., Brookings County, Brown County, and Codington County).

(171.) See supra notes 105, 118 and accompanying text.

(172.) See Fisher, supra note 136 (explaining that Brookings County bases its justification for exemptions on the fact that the value previous sales of conversation easement land is comparable to a reduced soil valuation from cropland to grassland). See also Conservation Easements and Deed Restrictions, supra note 61 (discussing the most common restrictions for conservation easements, and demonstrating that many prohibit substantial use of conservation easement land).

(173.) See Fisher, supra note 136 (describing Grant County's justification for using previous WPR conservation easement sales to provide a separate valuation for conservation easement land based on market value of them).

(174.) See supra Parts III.A-B.

(175.) See Fisher, supra note 136 (explaining that counties such as Moody County provide a reduced valuation based on soil value, but then also provide an additional percentage discount in valuation on perpetual conservation easements).

(176.) See id.

(177.) Id.; see also supra note 142 (describing the need for property taxes to satisfy mill levy requirements).

(178.) See FWS Easement Acres Spreadsheet, supra note 72 (exemplifying that Faulk County as an example of a county where almost one-sixth of its land is tied into perpetual conservation easements). An exemption in Faulk County could greatly impact the amount of taxes all property owners pay in that County. See id.

(179.) See Fisher, supra note 136 (demonstrating that some counties make exceptions for conservation easement land while other counties do not); J.J. Indus., L.L.C. v. Yankton Cnty., EQ 12-11 (S.D. Office of Hearing Exam'rs 2012) (unpublished opinion).

(180.) See Fisher, supra note 136 (demonstrating that some counties make exceptions for conservation easement land while other counties do not).

(181.) Hollingshead, supra note 38, at 359-60 (explaining how conservation easements reduce the fair market valuation of the property on which they are located). See also Stockford, supra note 105, at 825-26 (stating that conservation easements' lack of ability to be farmed or ranched on reduces their value for taxation purposes).

(182.) Hollingshead, supra note 38, at 359-60. See also Stockford, supra note 105, at 825-26

(183.) See Conservation Easements and Deed Restrictions, supra note 61 (providing a list of the various types of conservation easements found in South Dakota).

(184.) See generally PRODUCTIVITY VALUATION Explanation, supra note 4 (explaining the state's productivity valuation system).

(185.) See Conservation Easements and Deed Restrictions, supra note 61 (providing a list of the various types of conservation easements found in South Dakota).

(186.) See supra notes 181-185 and accompanying text.
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Author:Fisher, Terra M.
Publication:South Dakota Law Review
Date:Jun 22, 2015
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