PIERRE, S.D. — As she promised on the campaign trail, Gov. Kristi Noem put into writing her promise to repeal the state’s grocery tax, a $102.4 million reduction in revenue for the 2024 fiscal year that would bring South Dakota in line with most other states that don’t tax groceries at the full sales tax rate.
Rather than directly replacing that revenue, Noem and her team of economists say the continued growth of the economy — to the tune of some $300 million in expected revenue growth over 2024 — will more than make up for the ongoing revenue hit.
“My team and I are fully confident that this is the right tax cut at the right time,” Noem said during her address.
And, although most lawmakers are in agreement with giving some of the state’s ballooning revenues back to their constituents, how exactly that should be done remains up for debate.
“I certainly think that it's time that we all sit down and look at how we're going to deal with these surpluses,” said Rep. Chris Karr, who will sit on the House Appropriations Committee this session. “Hopefully, we're in agreement to do that.”
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Some lawmakers favor responding to rising home values, property taxes
One topic Noem did not hit on in her speech was a proposal that emerged from a summer study looking at how to relieve homeowners struggling to keep up with property taxes, especially elderly South Dakotans who own their homes but have found rising property taxes eating away at fixed incomes.
“That’s been a prime issue that I continue to hear about from people, and so I’d like to know if people want the food tax or property tax relief,” Rep. Jess Olson, who will serve as vice chair on the House Taxation Committee, told Forum News Service after the governor finished speaking.
The major proposal coming from the property tax summer study would forgive the school portion of the first $100,000 in property taxes for owner-occupied, single-family homes in the state. Rather than leaving local schools on the hook, the state’s general fund would fill in the gap left by those dollars.
According to a presentation by the Department of Revenue to the property tax study, South Dakota’s property tax rate outpaces several other states in the region; only 14 states in the nation pay a higher property tax rate.
Outgoing Rep. Mary Duval, who served as the vice chair of the summer study, estimated savings per household from this relief at around $315.
“If that were to happen [as written], we're talking probably around $100 million,” Rep. Lance Koth, who sat on the property tax summer study and will serve on the House Appropriations Committee this coming session, said. So clearly, we probably can't do both food tax relief and real estate property tax relief. So that could surface as an issue as we work through that and also honor and look at the governor's proposal.”
While Noem did not directly mention the property tax proposal, both her line on the grocery tax being the “right tax at the right time” and her point that “every South Dakotan is paying more for food” appear to make an argument against property tax relief; after all, the South Dakotans who rent would be left out.
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“She drove that home really well yesterday, I think,” said Sen. Jon Wiik, who made clear he was keeping an “open mind” on the two tax proposals.
Will the Partridge Amendment debate resurface?
Another way to return tax dollars to South Dakotans would come in the form of rolling back the overall state sales tax rate, which in 2016 increased from 4% to 4.5% mainly to fund an increase in education spending.
Needing a few more votes to pass the increase, lawmakers added an amendment to the hike known as the “Partridge Amendment” after Jeff Partridge, a former appropriator who now serves on the Board of Regents.
“That helped pass that 0.5% increase,” said Sen. Jack Kolbeck, who was not in the legislature at that time but has revisited the tax several times as a member of the Appropriations Committee. “Because there were legislators that probably moved in favor of it, and probably were opposed to it until that was attached.”
The amendment laid out a mechanism for getting the sales tax back to 4% if the state was able to collect taxes from remote sellers, reading the sales tax rate “shall be reduced by one-tenth percent on July 1 following the calendar year for which each additional twenty million dollar increment of net revenue is collected and remitted by such remote sellers.”
Despite now being able to collect sales taxes from online transactions following a 2018 Supreme Court decision, the rate has not dropped from its 4.5% level. That’s because many of the largest remote sellers in the state are not counted as revenue under the amendment, since they have some form of physical location in the state.
“This is why people hate lawyers and politicians. The bill was written poorly on purpose, and they never wanted to roll back this tax,” said Karr, a House appropriator who has introduced bills to clear up this loophole. “So Walmart, Amazon, all these places sell online, and we're collecting that sales tax, but they have a shipping center or a return center, so all of a sudden they don't count [as remote sellers.] Well, that's ridiculous, because we obviously are collecting more sales tax overall.”
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Karr, who also would support repealing the grocery tax, says rolling back the overall rate has the added benefit of lowering the burden on anything South Dakotans buy. Taking the projected 2024 sales and use tax collection of just over $1.4 billion, lowering the tax rate entirely back to its 2016 level would cost the state $160 million in revenue, significantly more than the grocery tax projection.
And, although a return to 4% has been bounced around unsuccessfully in previous sessions, Sen. Kolbeck says at least some reduction to the overall rate will likely come up in 2023 in the overall discussions about lowering tax burdens.
“I don't know if we could take off all the 0.5%,” Kolbeck said. “But 0.1 or 0.2, that would benefit everybody in the whole state whether they bought groceries, whether they bought clothing or whatever else they bought. I wouldn't be opposed to that.”
Jason Harward is a Report for America corps reporter who writes about state politics in South Dakota. Contact him at 605-301-0496 or jharward@forumcomm.com.
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