PIERRE, S.D. (KELO) — Despite Gov. Kristi Noem using the full power of her office to lobby in favor of a sales tax cut on groceries in South Dakota, a panel of House lawmakers killed the bill by an 8-1 vote.
In a rare move by an acting governor, Noem testified in front of state lawmakers on the House Appropriations Committee meeting Tuesday morning. The committee was hearing testimony on three bills with competing tax cut proposals.
Ultimately, Republican lawmakers said the House GOP caucus supported cutting the state sales tax across the board from 4.5% to 4.2%. House Bill 1137 was amended and passed to the House floor 8-1. Republican Rep. Chris Karr’s first version cut the state sales tax down to 4%. The change to 4.2% instead of 4%, makes the impact to the state budget $104 million instead of $170 million.
On Tuesday afternoon after the House gaveled in, an attempt to revive the bill on the House floor via joint rule 7-7 failed. The rule, known as the “smoke out,” requires support of 1/3rd (24 lawmakers) of the 70-member House.
Republican Rep. Ernie Otten made the motion to move House Bill 1075 to the 41st Day and Republican Rep. Lance Koth seconded the motion. HB-1075 would have lowered the state sales tax on food from 4.5% to 0%.
Democrat Rep. Linda Duba said she would support the motion to kill HB-1075 because she’d like to see a compromise. She said there should be a stair-step approach to cutting the sales tax on groceries.
“I will support the motion, but I wish we could find a compromise,” Duba said, noting all the other needs for higher teacher pay, higher state employee pay and more state support for Medicare and Medicade programs.
Republican Rep. Tony Venhuizen said it was a tough vote for lawmakers. Republican Rep. Mike Derby said it was the biggest vote he’s taken in his nine years in the legislature. He said the Republican caucus took a position against HB-1075.
“We try to provide our caucus with as much information as possible,” Derby said.
The final tally was 8-1 with Republican Rep. John Mills as the lone vote against killing HB-1075. Voting in favor of killing the bill were Republicans: Debry, Venhuizen, Karr, Koth, Otten, Chris Kassin and Dennis Krull. Duba, the lone Democrat, also opposed.
In support of HB-1075, Noem told lawmakers she’s a wife, mother and grandmother. She said she’s spent her entire career in public office focused on tax policy. She said she supports the tax cut on groceries because it doesn’t pick winners or losers.
“It’s about time somebody shows up for the taxpayer,” Noem said. “The best policy is always to focus on the people who live here.”
Noem said polling showed South Dakotans would like to see the sales tax cut on groceries.
“We’re in the minority here,” Noem said. “If you pick a different tax cut to do this year. You’ll be back here in two years and will have to deal with another $102 million.”
Noem said HB-1075 is responsible and allows cities and municipalities to keep a tax on groceries.
Lt. Governor Larry Rhoden said Noem is a tough act to follow. He said he’s seen the record revenue numbers in South Dakota but that came at a price.
“We owe that to the people of South Dakota,” Noem said. “They had a chance to accomplish that because the governor trusted the people with their freedom.”
Bureau of Finance and Management commissioner Jim Terwilliger said the bill doesn’t involve prepared food, alcohol, tobacco or cannabis products. Terwilliger said the bill doesn’t impact cities’ ability to asses sales tax on groceries.
Republican Sen. John Wiik said it’s rare to talk about tax cuts in the appropriations committee. He said state government had record revenues three years in a row and can afford this tax cut.
Opponents share concerns
Nathan Sanderson with the SD Retailers Association spoke against HB-1075. He said lawmakers should proceed with caution in regards to the budget in the future.
He said tax cuts on groceries are based on an assumption it helps lower income people the most.
“We don’t make policy decisions based on what may happen,” Sanderson said.
David Reiss, lobbyist for the South Dakota Municipal League, said the group opposes exemptions from changes to sales tax laws.
“Municipalities are concerned they’ll have to defend their tax on groceries in court,” said. “House Bill 1075 does impact municipalities. It puts local communities in a position of having to defend their local sales taxes on food.”
Kevin Killer, representing the Rosebud Sioux Tribe, opposed HB-1075 because he said there needs to be more planning on the revenue impact to tribes.
Alli Moran, with the Cheyenne Sioux River Tribe, also opposed HB-1075. She said a sales tax cut on groceries would disproportionally impact Native American tribes.
“It limits our ability to provide essential services to our people,” Moran said, adding there needed to be a formal commitment to Indian tribes to protect or increase other tribal tax bases.
In rebuttal, Noem said cities can continue to impose a sales tax on groceries if they choose to.
“There is a legal standing and it will allow cities to continue to do that,” Noem said.
Noem said the bill doesn’t eliminate the tax from law but makes the tax scalable. She said there would be ways to renegotiate tax contracts with tribes.
“The one (tax cut) that helps the people the most is eliminating the sales tax on groceries,” Noem said. “It’s our job to treat everybody the same. The people who live here all eat here. They buy food.”
“This is the tax cut the people want,” Noem said.
Noem brought up a possible 2024 ballot measure on cutting the sales tax on groceries. She said lawmakers should plan for the tax cut on groceries now and not after the 2024 ballot measure, which she believed would pass.
Noem also said House Republicans shouldn’t take a caucus position on the bill.
Sales tax cut bill moves on
Before the discussion on HB-1075, HB-1137 was amended and passed to the House floor 8-1. It was amended to cut the state sales tax rate from 4.5% to 4.2%.
Karr said 4.3% is the average sales tax growth when taking out outlier years.
“Our economy is going very strong,” Karr said. “This growth and this expected growth is not all due to the federal dollars.”
Sanderson, with the SD Retailers Association, said they support HB-1137 after the amendment.
“Time will tell whether this is sustainable long term,” Sanderson said. “We’re taking a scalable approach. This has the ability to have more flexibility than some of the other options that are out there.”
Terwilliger, BFM commissioner, said HB-1137 would benefit people out-of-state more than people who live in South Dakota. Terwilliger said it would benefit many major projects and businesses like big wind energy projects and pipeline projects which could get $300,000 in tax cut benefits.
“This rate cut will benefit out-of-state businesses,” Terwilliger said.
Karr responded that South Dakota is a business-friendly tax climate and the state should want
“I see this as a positive for investment into our state which helps everybody,” Karr said. “It’s a good thing.”
Venhuizen said the state is in a great spot to even discuss three tax cut bills. He thanked Noem for her leadership in helping South Dakota’s economy.
“We should all be very proud we’re in this position,” Venhuizen said.
“We don’t just need the tax off food, we want the tax off food,” Cathy Brechtelsbauer, a woman from Sioux Falls, told lawmakers when discussing HB 1137.
A third tax cut proposal was also defeated by the House panel. House Bill 1043, which would have gave a tax cut for property owners, was defeated -9-0.