South Dakota counties collect several revenue streams (bank franchise tax, rural electric tax, telephone tax, transient farmer tax, etc.) and pass them through to school districts. Some counties split the money across the school's General Fund, Capital Outlay Fund, Bond Redemption Fund, and Special Education Fund based on the current year's tax levy ratios. Other counties just credit everything to the General Fund. Which approach is correct?

Plain-English summary

South Dakota school districts maintain multiple funds for accounting purposes: the General Fund (operating expenses, instruction, administration), the Capital Outlay Fund (buildings and major equipment), the Bond Redemption Fund (debt service on issued bonds), and the Special Education Fund (special education programs). When a county collects revenue on behalf of a school district (the bank franchise tax, the rural electric company tax, the telephone tax, the transient farmer tax, state fines, public shooting area taxes, national forest receipts, Bankhead-Jones Farm Tenant Act payments) and passes it through, the question arises: does the county itself split the revenue across the school's funds, or does it just dump everything into one fund?

The counties had been doing it inconsistently. Some split the pass-through revenue across all four school funds based on the school district's current year tax levy ratios for each fund. Others put everything in the General Fund and let the school district decide what to do internally. Mr. Christiansen asked AG Meierhenry to settle the practice.

Meierhenry reviewed each of the nine statutes governing the listed revenue sources. None of them direct the county to apportion the money across school funds. Every statute treats the county as a simple conduit: the county collects, the county delivers to the school district, end of county involvement. The county's role does not include determining how the money is allocated internally within the school district.

The answer, then, was that everything goes to the General Fund. The school district receives the pass-through revenue into its General Fund and treats it as General Fund money from that point.

Meierhenry added an internal-handling note. SDCL 13-16-26 allows a school district to transfer surplus General Fund money to other funds. So if the General Fund is fully funded for the year and money received from these pass-through sources creates a surplus, the district can move the surplus to the Capital Outlay Fund, Bond Redemption Fund, or Special Education Fund. The transfer is a board decision and depends on having surplus.

Currency note

This opinion was issued in 1983. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. The school district fund structure and the revenue apportionment statutes cited here may have been amended since the early 1980s. Modern questions about school district revenue apportionment and fund transfers should be checked against current SDCL chapters 13-16 and 13-13 before relying on this opinion.

What the opinion meant at the time

For county auditors, the opinion provided a clean instruction: dump pass-through revenue into the school district General Fund and stop there. No tax-levy-ratio math, no per-fund allocation. The county's job ends at the General Fund.

For school district business managers, the corresponding answer was: receive the money into General Fund, run the year's operations, and at year-end (or whenever surplus appears), look at SDCL 13-16-26 to decide whether to move surplus to other funds. The internal apportionment was a board decision, not a county decision.

For school district boards, the opinion preserved flexibility. They were not boxed into a county-driven allocation. They could choose how aggressively to fund non-General Fund accounts based on actual financial conditions during the year.

For counties that had been splitting revenue across school funds, the opinion required a process change. The historical practice was wrong as a matter of statutory authority.

Common questions

Q: Why was apportioning across funds wrong?
A: Because no statute authorized counties to do it. Counties are creatures of statute and can only do what statutes authorize them to do. The pass-through statutes named the school district as the recipient, not specific funds within the district. So the county had no authority to slice the money across school funds before delivering it.

Q: Was there a real difference between the two approaches in practice?
A: Yes. When counties pre-allocated, the school district's Capital Outlay Fund, Bond Redemption Fund, and Special Education Fund automatically received some of every pass-through revenue check. When everything goes to General Fund first, the school board decides whether to push surplus to other funds. The pre-allocation approach effectively put more money into non-General Fund accounts; the General Fund approach kept the money flexible.

Q: What is SDCL 13-16-26?
A: It is the school district statute that authorizes transfer of surplus General Fund money to other district funds. The transfer is permissive, not automatic. Without surplus, no transfer is allowed. The opinion identified this as the correct vehicle for moving pass-through revenue beyond the General Fund.

Q: Could the school district choose not to transfer surplus?
A: Yes. SDCL 13-16-26 permits transfer; it does not require it. A board could decide to keep all surplus in the General Fund for the next year's operations or for unforeseen contingencies. The choice is theirs.

Q: What about revenue specifically dedicated by statute to a particular fund?
A: The opinion addressed only the listed pass-through revenues, and it turned on the fact that none of those statutes directs the money to a particular fund. Where a statute does specifically direct a revenue stream to a specific fund, that direction would control; the opinion's general-fund result rests on the statutes here being silent on internal allocation.

Q: Did the opinion address Capital Outlay levy proceeds?
A: No. Property tax levies are governed by separate statutes and feed directly into the levied-for fund. The pass-through revenue question is about non-property-tax revenue sources collected by the county on the school's behalf.

Background and statutory framework

South Dakota's school finance regime distinguishes between the General Fund (operations) and special-purpose funds (capital, debt service, special education). Property tax levies are set separately for each fund, and revenue from those levies flows directly into the levied fund. But non-property-tax revenue sources (bank franchise tax, rural electric tax, transient farmer tax, etc.) do not have a similar levy-based allocation mechanism. The legislature directs those revenues to school districts but leaves the internal allocation undefined.

That silence created the inconsistency Mr. Christiansen reported. Without an explicit allocation directive, counties were each making their own choice. Some accepted the silence as a default to General Fund. Others reverse-engineered an allocation rule from the school's tax levy ratios.

Meierhenry's reading was that statutory silence cuts in favor of the General Fund and against county-level apportionment. The county does not have implicit authority to apportion school district money. The school district itself does, through SDCL 13-16-26 surplus transfers, but only when surplus actually exists.

The opinion grouped nine revenue sources, each tied to its own statute: the bank franchise tax (SDCL 10-43-77), the rural electric company tax (SDCL 10-36-10), the telephone company tax (SDCL 10-33-28), the county apportionment (SDCL 13-13-5), state fines (SDCL 23A-27-25 and 13-13-4), the transient farmer tax (SDCL 10-42-7), the tax base on public shooting areas (SDCL 41-4-8), national forest lands (SDCL 41-16-15), and the Bankhead-Jones Farm Tenant Act (SDCL 13-14-3). Meierhenry's point was that, whatever their individual character, none of these statutes tells the county how to split the money among a school district's funds.

Citations and references

Statutes:

• SDCL 10-43-77 (bank franchise tax)
• SDCL 10-36-10 (rural electric company tax)
• SDCL 10-33-28 (telephone company tax)
• SDCL 13-13-5 (county apportionment to schools)
• SDCL 23A-27-25 (state fines)
• SDCL 13-13-4 (state fines to schools)
• SDCL 10-42-7 (transient farmer tax)
• SDCL 41-4-8 (public shooting areas tax base)
• SDCL 41-16-15 (national forest lands)
• SDCL 13-14-3 (Bankhead-Jones Farm Tenant Act)
• SDCL 13-16-26 (surplus General Fund transfer)

Source

• Landing page: https://atg.sd.gov/OurOffice/OfficialOpinions/opinionhtml.aspx?id=1225

Original opinion text

Apportionment of Revenue

Dear Mr. Christiansen:

You have requested an official opinion from this office in regard to the following factual situation:

FACTS:

Inconsistent procedures are being used by counties in the distribution and apportionment of certain revenue sources collected by the counties on behalf of school districts. Some counties are apportioning these resources based on the current year tax levy to the individual funds of the school district, such as General Fund, Capital Outlay Fund, Bond Redemption Fund and Special Education Fund. Other counties are crediting these resources only to the school district's General Fund.

Based upon the above facts you have asked the following question:

QUESTION:

Which of the following revenue sources must be apportioned to all of the funds of the school district and which ones may be credited to the General Fund?

(a) Bank Franchise Tax (SDCL 10-43-77

(b) Rural Electric Company Tax (SDCL 10-36-10)

(c) Telephone Company Tax (SDCL 10-33-28)

(d) County Apportionment (SDCL 13-13-5)

(e) State Fines (SDCL 23A-27-25; SDCL 13-13-4)

(f) Transient Farmer Tax (SDCL 10-42-7)

(g) Tax Base on Public Shooting Areas (SDCL 41-4-8)

(h) National Forest Lands (SDCL 41-16-15)

(i) Bankhead-Jones Farm Tenant Act (SDCL 13-14-3)

After reviewing each of the statutes providing for the apportionment of the various fund sources listed in your question, one can see that there is no provision for the apportionment of the money to a particular fund of the school district. Rather, these statutes make clear that the county's only function is to deliver the money to the school district. Therefore, it is my opinion that the answer to your question is that this money should be apportioned by the county to the school district's general fund.

Although you did not ask what is to happen to this money once it is placed in the school district's general fund, it is my opinion that this money can be transferred from the general fund to the particular funds of the school district only if there are surplus general funds. SDCL 13-16-26.

Respectfully submitted,

Mark V. Meierhenry

Attorney General