SIOUX FALLS, S.D. (KELO) — The fate of possible tax cut for South Dakotans this year is in the hands of lawmakers on the House Appropriations Committee.
Three bills – House Bill 1075 (grocery tax cut), HB-1137 (sales tax cut to 4%) and HB-1043 (property tax cut) – will need majority support to advance to the full House floor. All House bills will need to pass the full House by the end of Wednesday (Crossover Day).
Republican Rep. Will Mortensen said all three tax cut proposals together represent $350 million in tax dollars.
“We couldn’t afford all three of them,” Mortensen, the House Majority Leader, said last week. “We’re going to have some hard decisions to make. We are going to take all the time allowed to us to consider these three tax proposals.”
Lawmakers set revenue projections of $2.38 billion for Fiscal Year 2024. Mortensen said those projections are even more critical when weighing tax cut proposals.
“Tax cuts can be done without having to make any cuts,” Mortensen said. “We can still afford to fund our core priorities while cutting taxes. The governor said that in December. We took her seriously, we took her lead, we are looking very closely at a lot of different tax cuts.”
While House lawmakers will weigh three difficult tax cut proposals, there is a fourth option – no tax cuts. That’s something Republican Sen. Helene Duhamel said she believed lawmakers were trending towards.
“Maybe we need to take care of our house, before we look at a tax cut,” Duhamel said. “Not everybody believes that.”
Duhamel said once inflation and stimulus money has played out, lawmakers want to see what revenues look like.
“If we’re still in this position in a couple of years then maybe we do, look at that,” Duhamel said. “I feel that sentiment growing.”
KELOLAND News spoke with two Sioux Falls-based lawmakers about the three tax cut proposals ahead of Tuesday’s committee hearing. Both said the tax discussion has been active throughout the session with both colleagues and constituents.
“They all have their pros and cons,” Republican Rep. Tyler Tordsen said. “You can find people in support of all of them.”
Tordsen, who represents eastern Sioux Falls in District 14, said he likes parts of each tax cut proposal and believes one will likely make it to the governor’s desk.
Democrat Sen. Reynold Nesiba said he believes only HB-1075 has a chance at making it through both chambers. Nesiba said it would likely need to be amended to clear the full Senate.
“I support HB-1075 and taking 4.5% off (groceries.) We can afford this in South Dakota. We have the revenue,” Nesbia said. “The main opposition to repealing the sales tax on food is the basic fear there could be some recession in the future and that we know we’re going to need to spend some money on prisons in the future.”
House Bill 1075
Cutting South Dakota’s tax on groceries has been discussed for a number of years by members of both parties. The issue gained more traction when Gov. Kristi Noem announced her support for cutting the state sales tax on groceries during her reelection campaign.
The Legislative Research Council’s Fiscal Note for HB-1075 says the estimated impact to the state would be $115.5 million.
Nesbia said there’s been concern HB-1075 was written without consultation of South Dakota’s Native American tribes. The state has tax compact agreements with tribes regarding food sales tax.
“We do have a signed letter from Gov. Noem saying she promises to negotiate in good faith should this go forward to make sure tribes aren’t adversely affected,” Nesiba said. “If we don’t get a tax cut this year it’s because Gov. Noem has failed to lobby members of the Republican Party.”
The prime sponsor introducing HB-1075 on Tuesday will be Republican Rep. Mary Fitzgerald.
House Bill 1137
Republican Rep. Chris Karr, a member of the House Appropriations Committee, is the prime sponsor behind HB-1137. The bill would lower the 4.5% sales and use tax on all items, not just food, to 4%. The fiscal note says the estimated impact to the state would be $173.5 million.
“Sales tax, everybody pays that,” Tordsen said. “That’s groceries, that’s clothes, that’s basically anything that you buy in South Dakota. Who doesn’t want a tax cut if you can afford it long term?”
Nesiba says HB-1137 reduces revenue but doesn’t address the problem of a regressive tax system.
“Our sales tax is broad and relatively low,” Nesiba said. “If you’re a lower income person that spends most of your income, you’re going to pay a much higher rate of sales tax than somebody who is wealthier and spends money somewhere else.”
House Bill 1043
Republican Rep. Trish Ladner is a prime sponsor of HB-1043, which was amended to require the county auditor to apply a property tax credit of $300 to the amount of tax owed on each owner-occupied single-family dwelling within the county.
The fiscal note for HB-1043 says the total impact could be $61 million in local property tax revenue for education and school districts would receive $3.9 million less in property tax revenue.
Tordsen said he sees the benefit of property tax cut, especially as a young home-owner.
“Seeing property taxes go up and my mortgage rate increase by no fault of my own,” Tordsen said. “That’s a big one that I’ve heard a lot of feedback on.”
Nesiba said property tax cuts are problematic because the state government doesn’t receive property taxes, counties and school districts do. He called it a tax shift and not a tax cut.