PIERRE, S.D. (KELO) — A proposal to partially reduce the state 4.5% sales tax on groceries to 2.5% has joined the revenue-reduction conversation in the South Dakota Legislature.
The House Taxation Committee tried Thursday but couldn’t kill HB-1095 from House Democrat leader Oren Lesmeister. The panel instead forwarded it to the House Committee on Appropriations without recommendation.
Not having a recommendation is a key message about a piece of legislation. The tax panel previously sent three other tax-cut plans to the appropriators. All of those received recommendations that they should pass. The appropriators will signal later this month which approach — if any — could fit best.
One is the 0% sales tax on groceries that Governor Kristi Noem wants. Another is Republican Rep. Chris Karr’s proposed rollback of the 2016 sales-tax increase, when the Legislature raised the rate from the old 4%. The third is a property-tax reduction for owner-occupied homes that would be accomplished by making the first $100,000 of taxable value exempt from school levies.
Lesmeister told the panel Thursday that his caucus backs the Republican governor’s plan and his proposal — which has a mix of mostly Democrat and a few Republican co-sponsors — was a backup plan in case of trouble.
The House-Senate Joint Committee on Appropriations will set revenue estimates on February 15. After that, the 18 appropriators will see how each of the now four approaches fits into their new forecast.
The most recent revenue report from the state Bureau of Finance and Management shows state government was ahead of the current-year projection by $165.7 million through seven months.
Karr’s proposed cut would provide the most benefit at $168 million. Noem’s would be next at $102 million. The property-tax cut would cost $70 million to $80 million; an official estimate hasn’t been completed. Lesmeister’s partial cut would cost about $53 million, according to testimony.
The governor’s finance commissioner, Jim Terwilliger, testified as an opponent Thursday against Lesmeister’s proposal. Terwilliger said the preference is taking “a rifle shot” with Noem’s plan rather than “a shotgun” approach.
South Dakota Retailers executive director Nathan Sanderson also spoke against Lesmeister’s bill. He said the key to holding off a state income tax — which South Dakota doesn’t have, other than for banks and trusts — is having a low, broad-based sales tax.
Jessica Filler, policy director for Associated School Boards of South Dakota, was an opponent too. She said her organization’s members want to be sure that any tax cut has replacement revenue.
After the committee sent forward the 2.5% approach, Lesmeister asked that his proposal to cut the groceries tax to 3.5% be set aside. His wish was granted.