UPDATE: House gave its approval 70-0 and Senate 31-2.
PIERRE, S.D. (KELO) — House and Senate negotiators have reached a compromise on reducing South Dakota’s state 4.5% sales-tax rate.
The deal calls for shaving it to 4.2% through June 30, 2027. That would save taxpayers approximately $104 million in the next year. It also permanently repeals a 2016 clause that called for the 4.5% rate to gradually go down as more tax revenue came in from remote sellers but was never used.
The agreement needs final approval later today from the House of Representatives and the Senate.
Many House members watched the 8 a.m. meeting of the conference committee and applauded after the 5-1 vote to accept it.
“I would have really been bummed to walk out of here another year without a tax cut,” Republican Rep. Chris Karr told some of them afterward.
Karr has pushed for a tax cut for several years. He is prime sponsor of this year’s legislation, HB1137. He originally wanted to reduce the rate to 4% but compromised at 4.2%.
The House position was that state government has seen unexpectedly large growth in tax revenues in recent years amid the coronavirus pandemic and a surplus of roughly $400 million could result again this year.
Senators took a more cautious stance and wanted some type of trigger to force a second look in a few years. Their concerns included a drop-off in the economy as the billions of dollars of federal COVID-19 aid finish washing through, the voters’ decision last year to expand Medicaid eligibility that potentially could add tens of thousands more people, the costs of providing more ongoing funding to nursing homes and of state government building two new prisons, and the possibility of a national recession. There’s also the possibility of a 2024 ballot measure that would seek elimination of the sales tax on groceries.
Republican Sen. Ryan Maher offered four proposals at various rates with various sunsets on Wednesday. The committee took no action.
Later Wednesday night and then early this morning, the sides reached middle ground. Maher formally offered that fifth proposal when the conference committee gathered again Thursday.
“It takes two to tango,” House Republican leader Will Mortenson said. Senate Republican leader Casey Crabtree said reaching the deal with the House was “a great thing.”
An hour later, House Republicans came together in a private caucus to go over the final package. “Historic day,” Republican Rep. Bill Shorma said.
Mortenson praised the governor for proposing a 2024 budget built around a $100 million tax cut. She wanted to eliminate the state sales tax on groceries, but the House refused her proposal.
After the Senate briefly resurrected the grocery-tax repeal, Noem told reporters she didn’t favor a temporary tax cut.
The Legislature could override a veto with a two-thirds majority in each chamber. Karr said a veto would be the governor’s prerogative.
“All we can do is work with her,” he said.
The conference committee met three times on Wednesday and agreed to get together again Thursday morning. That began with Mortenson saying, “We narrowed this negotiation from three different types of tax cuts to one, and with our friends in the Senate we worked to find a mutually agreeable version.”
Maher then offered the amendment that was seconded by Republican Rep. Taylor Rehfeldt. After Maher explained it, Rehfeldt said, “Well, I think this is a day we should all be proud of. The House and the Senate were able to come to a compromise that works for everybody and delivers the largest tax cut in the history of South Dakota. So it’s a great day for South Dakota.”
Democrat Senate leader Reynold Nesiba said he still preferred eliminating the grocery tax and would vote against Maher’s change to the bill.
Karr then called for the committee to agree to the change. “I’ve been here long to know we have to find consensus in what we do. That’s the reason we have the process we have — we have two chambers, we have an executive branch,” Karr said. “I started this journey a few years ago with the good Senator Maher and the former Senator (Brock) Greenfield. We’ve been working on this project, we’ve been working in Appropriations (Committee), analyzing different ways to provide tax relief, and I still believe this is good tax policy.”
He continued, “I was comfortable with something different. That’s where we started at a 4.0. But I do think, everybody has different opinions, and I don’t have a crystal ball either, so I acknowledge that. I acknowledge that we have to find consensus and compromise to get success and to get the taxpayers of South Dakota these surplus dollars back in their hands.
“So I’m going to support this, and we’re going to look at this, this sunset. It was proposed that maybe a two-year sunset was appropriate. I thought that creates way too much market disruption out there, especially in our business climate, to have a two-year sunset. The four-year sunset, I think we can work with that. We can hopefully the folks that maybe looking at the future and have some hesitation, maybe next year we can look at it and go, You know what, I feel more comfortable with the future, how things look, and we can keep talking about the sunset and the future of South Dakota, and making sure that we do have a permanent tax cut.
“But I’m just saying I understand, appreciate everybody coming together working this late hour and look forward to this tax cut” — Karr smiled and gestured toward Rehfeldt on his left — “the largest in the history of South Dakota, and hopefully provide some relief to our good citizens here.”
Then Crabtree spoke. “From the very beginning of this session, even long before, this has been a special session where the House and Senate work together, maybe like never before,” he said. “And that remained true, even during the most difficult negotiations at the last hour of this particular bill.
“So I appreciate that work, and I think that it holds true — Nobody can do big things alone, you have to do them together. And so to do this together with the House is a great thing for the people of South Dakota. And the Senate will be excited about hearing more about this soon,” Crabtree said.
Mortenson, serving his third regular session, said he would echo a lot of what had been said. “And a lot of credit goes to Representative Karr who has proposed cutting the general sales tax every year I’ve been in the Legislature. He’s been steadfast in his commitment that this is the best and most efficient tax policy for the people of South Dakota.
“I know this amount isn’t exactly what he (Karr) wanted,” Mortenson continued, “and I appreciate that everyone up at this rostrum, even you Senator Nesiba, have been –” laughter spread through the room — “have been consulted (and) have been working together on this.
“The House, it’s no secret, would have preferred a permanent tax cut. But it takes to two to tango, it takes two to cut taxes. I’m proud of the process we’ve been through. We’ve been talking about this with each other, with the people of South Dakota now for two months. We’re going to deliver the largest tax in the history of our state,” Mortenson said.
He continued, “I think we also would be remiss not to mention we probably would not be in this position, and we would not actually be cutting taxes, had Governor Noem not proposed a hundred-million-dollar-plus tax cut in her budget, that if she’d spent all those dollars, we would not be in a position to consider large tax cuts like this. And now this tax cut cuts the taxes on food and fireworks and fencing supplies. It cuts taxes across the board on things we need, things we want, things we like. Everything that we purchase now will have a tax cut applied to it. I think it will apply across the board. It will provide strong tax relief to every South Dakotan.”