State v. Board of Com'rs of Beadle County

Decision Date20 December 1928
Docket Number6408.
Citation222 N.W. 583,53 S.D. 609
CourtSouth Dakota Supreme Court

Appeal from Circuit Court, Beadle County; Alva E. Taylor, Judge.

Application by the State to the Board of County Commissioners of Beadle County for abatement of taxes on certain land on the ground of state ownership. The Commissioners rejected the application, and the State appealed to the circuit court. From an adverse judgment, and from an order denying a new trial, the State appeals. Reversed and remanded, with direction.

Buell F. Jones, Atty. Gen., and R. F. Drewry and E. D. Roberts Asst. Attys. Gen., for the State.

J. C McCoy, of Longview, Wash., for respondent.


By the provisions of chapters 333 and 334, Laws 1917, enacted pursuant to an amendment to section 1, art. 13, Constitution South Dakota (proposed by chapter 233, Laws 1915), adopted by popular vote at the November, 1916, election, the people of this state decided to engage the state, as a governmental function, in the business of loaning money upon real estate security. The objects and purposes underlying this extension of governmental function have been stated in a previous decision of this court in the following language:

"*** Knowing that the development of the potential resources of this state depends to a great extent upon the cheapness of the money needed therefor, and further believing that such money could be furnished to the people at a lower rate of interest if procured through the medium and backed by the credit of the state, the people, in the exercise of the plenary power in them vested, amended their compact so as to allow the state to 'establish and maintain a system of rural credits and thereby loan money and extend credit to the people of this state upon real estate security in such manner and upon such terms and conditions as may be prescribed by general law."' Opinion of the Judges (1917) 38 S.D 635, at page 642, 162 N.W. 536, 539.

The system thus inaugurated is commonly referred to in this state as "Rural Credits" and the constitutionality of the venture has been twice considered and approved by this court. In re Opinion of the Judges, supra; Schaaf v. South Dakota Rural Credits Board (1917) 39 S.D. 377, 164 N.W 964. The general scheme was that the state of South Dakota would borrow money upon its general faith and credit by the sale of bonds, which money would be reloaned by the state to individual owners of agricultural land, for certain purposes and subject to certain restrictions. Such loans would be secured by first mortgage upon such land at an interest rate not less than three-fourths of 1 per cent. nor more than 1 1/2 per cent. in excess of the interest rate contracted to be paid by the state upon its bonds, and would be upon an amortization plan, with annual or semiannual installments sufficient to terminate the debt at an agreed period of not less than 5 nor more than 30 years from the date of the loan. It was contemplated that the amortization payments so received by the state would be sufficient to meet the amounts required to be paid by the state from time to time to retire the bonds issued and the differential between the interest rate paid by the state on its bonds and the interest rate received by the state upon the loans would provide for operating expenses and contingencies. Thus the cycle might proceed indefinitely and the resources of the state could be developed by the use of money at an appreciably lower rate than was elsewhere or otherwise obtainable. So attractive did the plan appear that it was apparently somewhat by way of an afterthought that the Legislature, having inaugurated the scheme by chapter 333, Laws 1917, approved with an emergency clause on February 26, 1917, subsequently enacted chapter 334 of the same session, approved March 8, 1917, amending section 14 of chapter 333 by providing in the following words for the contingency that at some time there might not be sufficient funds in the rural credits treasury to pay bonds or warrants or interest thereon at maturity:

"If at any time there shall not be sufficient funds in the treasury of the South Dakota Rural Credit Board to pay the said bonds or warrants or interest thereon at maturity thereof, or when same shall become due, it shall be the duty of the Tax Commission of this state, upon request of said Board, to make a special assessment and levy immediately to pay same when due, which levy shall be collected in the same manner as other tax levies made by said Commission."

In considering the matter in May, 1917 (Opinion of the Judges, supra, 38 S.D. 635, 162 N.W. 536), at least three of the then members of this court entertained the view that chapter 334, Laws 1917, merely designated "a contingency under which a debt against the state will arise" and optimistically opined:

"*** When one considers the provisions of these two acts-the class and amount of security required for loans made by the board, the opportunity given the board to arrange so that the maturity of loans will meet or antedate the maturity of bonds and warrants, the margin between interest paid by and that received by the board-such contingency is reduced to but a remote possibility."

However, in the expressive phrase of Lord Bryce, "Many doctrines once held irrefragable need to be modified in the light of supervenient facts," and in this case many of the hopes entertained for the rural credit scheme at its inception have been disappointed, and supervenient facts have brought us face to face with realization of the "remote possibility" above mentioned. Whether we have so arrived because of inherent defects in the nature of the project, or because of faulty operation, or by reason of general and unforeseeable economic conditions, or by the conjoint operation of all those factors, has afforded and continues to afford a fertile field for speculation and argument in our state; but those are matters with which in this case we have, and can have, no possible concern. Whatever the causes and however varied they may be, and however much opinions may differ as to what they are, the fact remains that rural credit operations in this state at the present time are not self-sustaining and have not been. There have been many failures to make payments and comply with the terms and conditions of the mortgages, and the state has been obliged to take over a great amount of real estate by foreclosure, and there are outstanding at the present time rural credit bonds, general obligations of this state, in the amount of $45,000,000 at varying interest rates and upon various maturities.

Section 5, art. 11, Constitution South Dakota, provides as follows:

"The property of the United States and of the state, county and municipal corporations, both real and personal, shall be exempt from taxation."

Section 20 of the original Rural Credits Act (chapter 333, Laws 1917, carried into the Revised Code of 1919 as section 10168) reads as follows:

"All mortgages, real and other property taken by such board in its business of loaning, and all warrants or bonds issued by such board in the transaction of its business, shall be free from all general taxes, state, county and municipal, and shall not be subject to state income tax."

The state of South Dakota, by foreclosure of a rural credit mortgage, acquired title to a quarter section of land in Beadle county and thereafter applied to the commissioners of that county for abatement of taxes upon the tract, upon the ground of state ownership, as to all taxes levied after title vested in the state by sheriff's deed. The county commissioners rejected such application, whereupon the state appealed from their decision to the circuit court of Beadle county, S.D. Upon the trial the court made findings of fact and conclusions of law in substance sustaining the action of the county commissioners and holding that said land was not exempt from taxation. Judgment was thereon entered to the effect that the taxes so levied and assessed against said tract constituted a legal and valid tax thereon, and from that judgment, and from an order denying its motion for new trial, the state has appealed.

This court has previously held that the mere existence of a rural credit mortgage upon a tract of land, accompanied by the failure of the landowner to pay taxes thereon levied, did not mean that the taxes need not be paid, and without specifically determining the question of superiority between tax liens and the lien of a rural credit mortgage nevertheless held, under such circumstances, as a matter of public policy, that it was the duty of the rural credit board, inasmuch as it had the power, to pay the taxes when the same became delinquent. Hughes County v. Henry (1925) 48 S.D. 98, 202 N.W. 286. The instant case presents squarely the question of whether or not land incumbered by a rural credit mortgage continues subject to taxation after default in the conditions of the mortgage, foreclosure thereof, and the vesting of legal title to the land in the state of South Dakota.

The question is essentially public in its nature since, in view of present conditions and the fact that rural credit operations are not now self-sustaining, there are aligned upon the one side the interests of all taxpayers, citizens of the state as a whole, and upon the other the interests of all taxpayers as such in the local taxing districts where such foreclosed land is geographically situated.

The practical results that hinge upon the determination of this question may best be understood by a consideration of some figures furnished to us by the commissioner of taxation of this state from the reports and records of his department and by the rural credit...

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