PIERRE, S.D. (KELO) — Official estimates made by the Legislature’s budget staff suggest that the South Dakota treasury might take a smaller hit from cutting the state sales-tax rate to 4.2% than from eliminating the 4.5% sales tax on groceries.
The Legislative Research Council prepares what are known as fiscal notes. A comparison shows a roughly $10 million greater impact would result from the grocery-tax repeal that Governor Kristi Noem continues to push than from a broader sales-tax reduction that Republican Rep. Chris Karr has proposed.
The fiscal note for Noem’s HB-1075, which sought to cut the 4.5% rate to zero on groceries, says it would reduce state revenue by $115,578,750. That is based on the sales-tax estimate for fiscal 2024 that the Legislature’s Joint Committee on Appropriations set February 15.
The final sentence of the LRC note said, “A continuation of higher food inflation in the short-term, like what was seen in 2020 and 2021, could result in the estimated revenue reduction to be greater.”
The governor’s finance commissioner, Jim Terwilliger, told a House committee on January 26 that Noem’s approach would cost the state treasury about $102.4 million. That was three weeks before the JCA made its estimate for the coming 2024 budget year that starts July 1.
The LRC estimate of $115 million-plus for Noem’s tax repeal is in line with fiscal notes that the agency recently prepared for possible 2024 ballot measures that would take the state sales tax off “anything sold for human consumption, except alcoholic beverages and prepared food.” The most recent, dated January 20, estimates the fiscal 2026 impact of the ballot proposal at S123.9 million.
Karr’s HB-1137 originally proposed reducing the sales-tax rate to 4% across the board. The LRC fiscal note for that approach showed an estimated impact of $173,541,667, based on the February 15 sales-tax estimate. Karr subsequently scaled back his proposal to 4.2%. The LRC hasn’t prepared a new fiscal note. However, that change points to an estimated impact of $103.8 million.
Karr, who serves on the House Appropriations Committee, told the panel’s members on February 21 that his 4.2% rate would cost the treasury about $104 million. The committee that day chose his approach rather than the governor’s bill.
The Senate Taxation Committee on Monday attached a two-year sunset to Karr’s bill and sent the amended version of it to the Senate Appropriations Committee, which was scheduled to meet Wednesday morning for a hearing on it.
Noem attacked that sunset amendment in a video Tuesday afternoon while continuing to push for her grocery-tax repeal.
The House late Tuesday amended Karr’s 4.2% wording into another bill and passed it, without the sunset, on a 63-6 vote, returning it to the Senate for a decision. It likely will be on the Senate calendar Thursday.