PIERRE, S.D. (KELO) — At the South Dakota Capitol the Legislature is struggling whether to provide relief through a sales-tax reduction or a property-tax credit. Meanwhile, the governor is warning lawmakers they might face a second problem if voters decide next year to take the sales tax off groceries too.
Lawmakers and the governor are stuck in a political thicket, and starting Monday the sides have five working days left to find a way out. One way might be the path the Legislature took a generation ago when lawmakers approved a ‘trigger’ law on a much different issue — abortion.
Lawmakers in 2005 passed an act prospectively banning nearly all abortions at some then-unknown point in the future. The legislation sponsored by Republican Rep. Joel Dykstra and Republican Sen. Tom Hansen was to take effect only when and if the U.S. Supreme Court let states regulate or prohibit abortions at all stages of pregnancy.
That day arrived on June 24 of last year, when the nation’s highest court issued the Dobbs decision, triggering the South Dakota law into effect.
The Legislature could add a similar trigger to the current tax-cut legislation. It could say that whatever tax cut does finally get passed, the cut would no longer be effective if and when voters ever approve removing the state tax on groceries.
The House of Representatives has twice this session voted overwhelmingly for reducing the current 4.5% state sales-tax rate to 4.2%. The Senate on Thursday voted overwhelmingly for a $425 property-tax credit on owner-occupied homes. Each approach would remove about $104 million of taxes from state government’s revenue stream.
Republican Governor Kristi Noem wanted the Legislature to pursue a third way: Take the sales tax off groceries. But the House Appropriations Committee set aside her proposal and the Senate on Thursday rejected a Democrat compromise that sought to cut the grocery tax to 2.5%.
Noem continues to warn legislators about the potential danger to state government’s budget from a possible 2024 ballot measure that would ask voters to take the sales tax off anything sold for eating or drinking by humans, except alcoholic beverages, tobacco and prepared food. The Legislative Research Council recently estimated that its passage would take $119 million of tax revenue away in 2025.
That’s a valid point, especially because some legislators remain worried that the burst of unexpected growth South Dakota’s economy is experiencing might have resulted from the billions of dollars of federal aid that Congress distributed in the state during the COVID-19 pandemic.
But it’s also worth noting that the Senate, in passing the $425 property-tax credit Thursday afternoon, didn’t make a big deal about those concerns. Earlier in the week, both the COVID-fueled economy and the possibility of the 2024 ballot measure seemed to weigh more heavily among senators.
The Senate Taxation Committee for example put a two-year sunset on the 4.2% sales-tax legislation that Republican Rep. Chris Karr brought. It would cause Karr’s cut to expire on June 30, 2025. The Senate Appropriations Committee left the sunset in place when it voted 8-1 to send Karr’s bill forward to the full Senate.
Yet those same senators voted Thursday for the property-tax credit, without any sunset. During the debate, Senate Republican leader Casey Crabtree indicated that the underlying uncertainty about the economic growth and the uncertainty posed by a possible 2024 ballot measure no longer seemed to be of concern.
Said Crabtree, “We’re talking about providing relief for the taxpayer at $104 million, and guess what, our great appropriators have already gone through that and they have showed us we can take care of our obligations, they’ve showed us we can be sustainable and that we can cut out $104 million worth.”
Both Crabtree and House Republican leader Will Mortenson had expressed confidence at a news conference Thursday morning that the Legislature will deliver a tax cut. And the governor announced her first veto of the session Thursday afternoon, against letting municipalities raise the tax on people staying at lodging establishment, declaring in the letter, ““We should be working to cut taxes this legislative session, not increase them.”
So the Republicans’ theme of giving some of the tax growth back to taxpayers, rather than spending it all on state government or on more aid to K-12 schools or local governments or other public needs, is set. Their challenge now is how they make good on it.