PIERRE, S.D. (KELO) — State government will see $20 million to $25 million less in revenue for the coming fiscal year because South Dakota must stop collecting sales tax on internet services next July 1.
Revenue Secretary Jim Terwilliger issued that caution Wednesday during a meeting of the Governor’s Council of Economic Advisors. He said 13 states were affected by the federal law.
Governor Kristi Noem will deliver her budget recommendations in December. The Legislature opens the 2020 session January 14 and must write a state budget before lawmakers adjourn for the final time March 30, 2020. Noem signed the 2020 budget into law March 27, 2019. It began July 1.
Meanwhile the state treasury hasn’t seen much boost from collecting sales tax on goods and services sold over the internet, according to Terwilliger.
He said sales tax collections finished up 3.7 percent for the 2019 fiscal year that ended June 30. That was roughly $10 million below what the Legislature expected.
Three months into the new year, sales tax collections are up 3.6 percent. To cover the difference, he said collections would need to finish up 4.9 percent.
Lawmakers didn’t count on more revenue from the Wayfair decision. The U.S. Supreme Court decided in the case that a state government can tax goods and services bought from remote sellers and third-party marketplaces that don’t have a physical presence within the state’s borders .
“It was good we didn’t do that, because we finished the year lower,” Terwilliger said.
He said the Wayfair decision hadn’t produced “robust” growth for the treasury.
Ralph Brown, a retired University of South Dakota economist, presented his latest overview of U.S. and state financial conditions. His 62 pages of slides included a new comparison showing South Dakota per-capita income was 22nd in the nation for 2018 and rose to fifth when adjusted for taxes and cost of living.
Council member Susan Johnson of Deadwood said 2019 had the worst start to a tourism season she’s seen. She is a former state secretary of tourism.
Johnson cited statistics that visits to national parks in western South Dakota through September were off 3.2 percent from 2018 and lodging was down “almost two percent” in the Black Hills.
“That traditional tourist, it was very soft until mid-July,” she said.
On the other hand, Johnson has hope for 2020 because of events such as the 75th anniversary of the Sturgis motorcycle rally that already has campgrounds sold out a year out.
Council members told a generally similar story as they went around the table: Farmers couldn’t plant more than 3 million acres because of wet weather and are having trouble trying to harvest what did get in the ground, banks have built loan-loss reserves in expectation that producers will need to sell off land and cattle, non-farm unemployment is low and Sioux Falls-area jobs have been growing faster than South Dakota overall, especially in the healthcare field.
Terwilliger’s presentation showed some state revenue sources such as video lottery were producing more than expected.
“We’re kind of in uncertain times right now,” Terwilliger said.