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State of South Dakota  
SEVENTY-EIGHTH SESSION
LEGISLATIVE ASSEMBLY,  2003
 

690I0054  
HOUSE BILL   NO.     1091  

Introduced by:     Representatives Hundstad, Bradford, Elliott, Hanson, Hargens, Lange, and Sigdestad and Senators Dennert, Kloucek, Kooistra, and Symens  



         FOR AN ACT ENTITLED, An Act to  impose an intangible property tax.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF SOUTH DAKOTA:
     Section  1.  Terms used in this Act mean:
             (1)    "Abroad," in one or more foreign nations; in the colonies, dependencies, possessions, or territories of a foreign nation or of the United States; or in the Commonwealth of Puerto Rico;
             (2)    "Affiliated group," one or more chains of corporations or limited liability companies connected through stock ownership or membership interest in a limited liability company with a common parent corporation or limited liability company, for which:
             (a)    Stock or membership interest in a limited liability company possessing at least eighty percent of the voting power of all classes of stock or membership interest in a limited liability company and at least eighty percent of each class of the nonvoting stock or membership interest in a limited liability company of each corporation or limited liability company, except for the common parent corporation or limited liability company, is owned directly by one or more of

the other corporations or limited liability companies;

             (b)    The common parent corporation or limited liability company directly owns stock or membership interest in a limited liability company possessing at least eighty percent of the voting power of all classes of stock or membership interest in a limited liability company and at least eighty percent of each class of the nonvoting stock or membership interest in a limited liability company of at least one of the other corporations or limited liability companies; and
             (c)    As used in this subdivision, the terms, nonvoting stock, and membership interest in a limited liability company, do not include nonvoting stock or membership interest in a limited liability company which is limited and preferred as to dividends. For purposes of this Act, a common parent may be a corporation or a limited liability company;
             (3)    "Banking organization," is:
             (a)    A bank organized and existing under the laws of this state;
             (b)    A national bank organized and existing pursuant to the provisions of the National Bank Act, 12 U.S.C. § §  21 et seq., as amended on January 1, 2003, and maintaining its principal office in this state;
             (c)    An Edge Act corporation organized pursuant to the provisions of §  25(a) of the Federal Reserve Act, 12 U.S.C. § §  611 et seq., as amended on January 1, 2003, and maintaining an office in this state;
             (d)    A federal agency licensed pursuant to sections 4 and 5 of the International Banking Act of 1978 as amended on January 1, 2003, to maintain an office in this state;
             (e)    A savings and loan association organized and existing under the laws of this

state; or

             (f)    A federal association organized and existing pursuant to the provisions of the Home Owners' Loan Act of 1933, 12 U.S.C. § §  1461 et seq., as amended on January 1, 2003, and maintaining its principal office in this state;
             (4)    "Beneficial interest," a resident has a beneficial trust in a trust if the resident has a vested interest, even if subject to divestment, which includes at least a current right to income and either a power to revoke the trust or a general power of appointment, as defined in 26 U.S.C. §  2041(b)(1) as amended on January 1, 2003;
             (5)    "Department," the Department of Revenue;
             (6)    "In the state," within the exterior limits of South Dakota;
             (7)    "Intangible property," any property which is not in itself intrinsically valuable, but which derives its value from that which it represents, including the following:
             (a)    All stocks or shares of incorporated or unincorporated companies, business trusts, and mutual funds;
             (b)    All notes, bonds, and other obligations for the payment of money;
             (c)    All condominium and cooperative apartment leases of recreation facilities, land leases, and leases of other commonly used facilities; and
             (d)    Except for any leasehold or other possessory interests in real property owned by the United States, the state, any political subdivision of the state, any municipality of the state, or any agency, authority, and other public body corporate of the state, which are undeveloped or predominantly used for residential or commercial purposes and upon which rental payments are due;
             (8)    "International banking facility," a set of asset and liability accounts segregated on the books and records of a banking organization that includes only international banking

facility deposits, borrowings, and extensions of credit;

             (9)    "International banking transaction," is:
             (a)    The financing of the exportation from, or the importation into, the United States or between jurisdictions abroad of tangible personal property or services;
             (b)    The financing of the production, preparation, storage, or transportation of tangible personal property or services which are identifiable as being directly and solely for export from, or import into, the United States or between jurisdictions abroad;
             (c)    The financing of contracts, projects, or activities to be performed substantially abroad, except those transactions secured by a mortgage, deed of trust, or other lien upon real property located in the state;
             (d)    The receipt of deposits or borrowings or the extensions of credit by an international banking facility, except the loan or deposit of funds secured by mortgage, deed of trust, or other lien upon real property located in the state; or
             (e)    Entering into foreign exchange trading or hedging transactions in connection with the activities described in subsection (d) of this subdivision;
             (10)    "Ministerial function," an act the performance of which does not involve the use of discretion or judgment;
             (11)    "Money," United States legal tender, certificates of deposit, cashier's and certified checks, bills of exchange, drafts, the cash equivalent of annuities and life insurance policies, and similar instruments, which are held by a taxpayer, or deposited with or held by a banking organization or any other person;
             (12)    "Processing activity," an activity undertaken to administer or service intangible property in accordance with such terms, guidelines, criteria, or directions as are provided solely by the owner of the property. Methods, systems, or techniques chosen by the processor to implement such terms, guidelines, criteria, or directions are not considered the exercise of management or control;
             (13)    "Taxpayer," any person liable for taxes imposed under this Act and the heirs, successors, assignees, and transferees of any such person.
     Section  2.  The secretary of revenue shall compute and determine the just value of all intangible property that has a taxable situs in this state, except for notes and other obligations for the payment of money, other than bonds, which are secured by mortgage, deed of trust, or other lien upon real property situated in the state. The secretary shall certify to the county auditor of each county taxable value of such property and its owner. The county auditor shall extend a property tax levy on such property in the same manner as real property and such taxes due and payable in the same manner as taxes on real property.
     Section  3.  An annual intangible tax return shall be filed with the department by each corporation authorized to do business in this state or doing business in this state and by each person, regardless of domicile, who owns, controls, or manages intangible property which has a taxable situs in this state. For purposes of this Act, control or manage does not include any ministerial function or any processing activity. The return is due on November thirtieth of each year. The return shall list separately the character, description, and just valuation of all intangible property.
     Section  4.  No person, corporation, agent, or fiduciary is required to pay the annual tax in any year if the aggregate annual tax upon the intangible property, after exemptions but before application of any discount for early filing, is less than sixty dollars. If, an annual return is not

required. Agents and fiduciaries shall report for each person for whom intangible property is held if the aggregate annual tax on such person is sixty dollars or more.
     Section  5.  A husband and wife may file a joint return with regard to all intangible property held jointly or individually. The husband and wife shall then be jointly liable for the payment of the annual tax.
     Section  6.  The trustee of a trust is not responsible for returning the trust's intangible property and is not required to pay any annual tax on it, although the department may require the trustee to file an informational return.
     Section  7.  Each resident with a beneficial interest, as defined in this Act, in a trust is responsible for returning the resident's equitable share of the trust's intangible property and paying the annual tax on it. The trustee of a trust may return and pay the tax on the equitable shares of each resident having a beneficial interest, in which case the resident does not need to return the intangible property or pay the tax.
     Section  8.  The personal representative or curator of a South Dakota estate is primarily responsible for returning the estate's intangible property and paying the annual tax on it. The heirs or devisees, however, may individually return their equitable shares of the estate's intangible property and pay the tax on such shares. If this occurs, the personal representative or curator need not return the intangible property or pay the tax, although the department may require the personal representative or curator to file an informational return.
     Section  9.  The guardian of the property of a South Dakota incompetent shall return the incompetent's intangible property and pay the annual tax on it. The custodian of a South Dakota minor under a gifts to minors or similar act shall return the minor's intangible property which is subject to the custodianship and pay the annual tax on it.
     Section  10.  If an agent other than a trustee has control or management of intangible

property, the principal is primarily responsible for returning the property and paying the annual tax on it if the principal fails to do so. The agent shall return the property on behalf of the principal and pay the annual tax on it. The department may require the agent to file an informational return.
     Section  11.  An affiliated group may elect to make a consolidated return for any year. The election shall be made by timely filing a consolidated return. Once made, an election may not be revoked, and it is binding for the tax year. The mere making of a consolidated return does not in itself provide a business situs in this state for intangible property held by a corporation. The fact that members of an affiliated group own stock in corporations or membership interest in limited liability companies which do not qualify under the stock ownership or membership interest in a limited liability company requirements as members of an affiliated group does not preclude the filing of a consolidated return on behalf of the qualified members. If a consolidated return is made, intercompany accounts, including the capital stock or membership interest in a limited liability company of an includable corporation or limited liability company, other than the parent, owned by another includable corporation or limited liability company, is not subject to annual taxation. However, capital stock, or membership interest in a limited liability company, and other intercompany accounts of a nonqualified member of the affiliated group shall be subject to annual tax. Each consolidated return shall be accompanied by documentation identifying all intercompany accounts and containing such other information as the department shall require. Failure to timely file a consolidated return does not prejudice the taxpayer's right to file a consolidated return, provided that the failure to file a consolidated return is limited to one year and the taxpayer's intent to file a consolidated return is evidenced by the taxpayer having filed a consolidated return for the three years prior to the year the return was not timely filed.


     Section  12.  Any securities held in margin accounts by a security broker not acting as a fiduciary shall be returned, and the annual tax on the securities shall be paid, by the customer owning the securities. The security broker is not required to return or pay the tax on the securities.
     Section  13.  Except as otherwise provided in this Act, the owner of intangible property is liable for the payment of annual tax on it, and any other person required to return the property is liable for the tax if the owner fails to pay it.
     Section  14.  If a bank or savings and loan association acts as a fiduciary or agent of a trust other than as a trustee, the bank or savings and loan association is not responsible for returning the trust's intangible property and is not required to pay any annual tax on it. The management or control of the bank or savings and loan association may not be used as the basis for imposing any annual tax on any person or any assets of the trust. If a person acts as a fiduciary or agent for purposes of managing intangible assets owned by another person, the intangible assets do not have a taxable situs in this state pursuant to this Act solely by virtue of the management or control of the assets by the person who is not the owner of the assets.
     Section  15.  Except as provided in this section, each bank and financial organization filing annual intangible tax returns for their customers shall file return information for taxes due using machine-sensible media. The information required by this section shall be reported by banks or financial organizations on machine-sensible media, using specifications and instructions of the department. A bank or financial organization that demonstrates to the satisfaction of the department that a hardship exists is not required to file intangible tax returns for its customers using machine-sensible media. A taxpayer may choose to file an annual intangible property tax return in a form initiated through an electronic data interchange using an advanced encrypted transmission by means of the Internet or other suitable transmission. The department shall

prescribe the format and instructions necessary for such filing to ensure a full collection of taxes due. The acceptable method of transfer, the method, form, and content of the electronic data interchange, and the means, if any, by which the taxpayer will be provided with an acknowledgment shall be prescribed by the department.
     Section  16.  Each corporation incorporated or qualified to do business in this state may elect each tax year to pay the annual tax on any class of its stock, as agent for its South Dakota stockholders holding such stock. To make the election, the corporation shall:

             (1)    File written notice with the department on or before November thirtieth of the year for which the election is made;
             (2)    File an annual return with respect to such stock and its own intangible property;
             (3)    Furnish its South Dakota stockholders with written notice, on or before April first of the year for which the election is made, that the election is being made, including a description of the class or classes of stock which are affected. An electing corporation shall certify on its notice to the department that its stockholders were timely notified of the election; and
             (4)    No election may be valid unless timely notice is given to the department. Once made, an election may not be amended or revoked, and it is binding for the tax year.
     Section  17.  On or before November thirtieth of each year, all security dealers and investment advisers registered under the laws of this state shall file with the department a position statement as of October thirty-first of the preceding year for each customer whose mailing address is in this state or a statement that the security dealer or investment adviser does not hold securities on account for any customer whose mailing address is in this state. The position statement shall include the customer's name, address, social security number, or federal identification number; the number of units, value, and description, including the Committee on Uniform Security

Identification Procedures (CUSIP) number, if any, of all securities held for the customer; and such other information as the department may reasonably require. The information required by this section shall be reported by the dealer or investment adviser on magnetic media, using specifications and instructions of the department, unless the dealer or investment adviser demonstrates that an undue hardship exists.

     The department may require security dealers and investment advisers registered in this state to transmit once every two years a copy of the department's intangible tax brochure to each customer whose mailing address is in this state.
     The department may require property appraisers to send, at a time and in a manner as the department and the property appraisers jointly determine, a copy of the department's intangible tax brochure to each owner of South Dakota property.
     Section  18.  All fiduciaries shall serve the department with a copy of each inventory required to be prepared or filed in the circuit court under general law or rules adopted by the Supreme Court relating to decedent's estates, trusts, or guardianships. No such inventory required to be filed in the circuit court may be approved by the court until the copy as required by this section has been filed with the department. If an inventory is not required to be filed in the circuit court, the personal representative of a decedent's estate shall serve the department with a copy of the inventory.
     Section  19.  All intangible property is subject to the annual tax at its just valuation as of November first of each year. The property shall be valued in the following manner:
             (1)    Shares of stock of corporations, or any interest of a limited partner in any limited partnership, regularly listed on any public stock exchange or regularly traded over- the-counter shall be valued at their closing prices on the last business day of October;
             (2)    Shares or units of companies or trusts registered under the Investment Company Act

of 1940, as amended on January 1, 2003, including mutual funds, money market funds, and unit investment trusts where such shares or units are not exempt under this Act, shall be valued at the net asset value of the shares or units on the last business day of October;

             (3)    Bonds regularly listed on any public stock exchange or regularly traded over-the- counter shall be valued at their closing bid prices on the last business day of October;
             (4)    Shares of stocks, bonds, or similar instruments of corporations not listed on any public stock exchange or not regularly traded over-the-counter shall be valued as of November first of each year on the basis of those factors customarily considered in determining fair market value;
             (5)    Accounts receivable shall be valued at their face value as of November first of each year, less a reasonable allowance for uncollectible accounts;
             (6)    All notes and other obligations shall have a value equal to their unpaid balance as of November first of each year, unless the taxpayer can establish a lesser value upon proof satisfactory to the department;
             (7)    All other forms of intangible property shall be valued on the basis of those factors customarily considered in determining fair market value; and
             (8)    Stocks or shares of a savings and loan association or middle tier stock holding company, held by a parent mutual holding company, whose depositors are members of the mutual holding company, which converted from a mutual savings association to a mutual holding company pursuant to 12 U.S.C. §  1467a.(o), as amended on January 1, 2003, shall be valued as of November first each year on the same basis as ownership in the mutual savings association was valued for intangible tax purposes prior to the conversion. Stocks or shares of such a converted association which are

held by individuals or entities other than the parent mutual holding company shall be valued pursuant to subdivision (1) or subdivision (4) of this section.
     Section  20.  For intangible property that has been deemed to have a taxable situs in this state solely pursuant to this Act, a credit against the tax imposed by this Act is allowed to a taxpayer in an amount equal to a like tax lawfully imposed and paid by that taxpayer on the same property in another state, territory of the United States, or the District of Columbia. For purposes of this section, the term, like tax, means an ad valorem tax on intangible property that is also subject to tax under this Act. The credit may not exceed the tax imposed on the property under this Act. Proof of entitlement to the credit shall be made to the department. Any credit provided by this section shall apply retroactively.
     Section  21.  For intangible property that has a taxable situs in this state, a credit against the tax imposed by this Act is allowed to a taxpayer in an amount equal to a like tax lawfully imposed and paid by that taxpayer on the same property in another state, territory of the United States, or the District of Columbia when the other taxing authority is also claiming situs under provisions similar or identical to those in this Act. For purposes of this section, like tax, means an ad valorem tax on intangible property which is also subject to tax under this Act. The credit may not exceed the tax imposed on the property under this Act. Proof of entitlement to such a credit shall be made by the department. Any credit provided by this section shall apply retroactively.
     Section  22.  The secretary of revenue may promulgate rules pursuant to chapter 1-26 concerning:

             (1)      The filing of returns and payment of the tax;
             (2)      Determining the application of the tax and exemptions;
             (3)      Taxpayer record-keeping requirements; and
             (4)      Determining auditing methods.