Revenue head tells council South Dakota’s government will lose $20 million of taxes

Capitol News Bureau

PIERRE, S.D. (KELO) — South Dakota’s state government will lose $20 million or more next July when a federal law takes full effect.

Congress has banned states and local governments from collecting sales taxes on internet services.

South Dakota is one of the remaining states where the services are still taxed.

Jim Terwilliger gave his estimate Tuesday to the state Council of Economic Advisors.

He is secretary of revenue for Governor Kristi Noem’s administration. The council members are business people and academic professionals from throughout South Dakota.

Terwilliger said he now expects the impact to be $20 million to $25 million.

That’s up from his previous estimate of $15 million to $20 million.

Meanwhile the financial effect from South Dakota’s victory in the Wayfair case remains less than many expected.

The U.S. Supreme Court decided in favor of South Dakota and other state governments last year.

The justices said state and local governments could tax goods and services that people buy over the Internet and through the mail.

Terwilliger said South Dakota’s state treasury has seen an additional $1 million to $3 million per month through new state laws taxing remote sales and third-party marketplaces.

Governor Noem named Terwilliger as state revenue secretary when she took office in January.

He had been deputy commissioner for the state Bureau of Finance and Management in the administration of Governor Dennis Daugaard.

Terwilliger has continued in his other position as state economist while the Noem administration seeks a successor.

The new governor reappointed Liza Clark as finance and management commissioner. That means Clark oversees the bureau as the governor’s budget director.

Clark and Terwilliger sat at the front of the room Tuesday with the council’s consultant, Ralph Brown, a retired business professor from the University of South Dakota.

Brown and Terwilliger gave their analyses of the national and state economies.

Terwilliger said the bureau is getting ready to start assembling the budget recommendations for fiscal 2021. The governor will formally present them to the Legislature in December.

Terwilliger described the revenue outlook as “cloudy” given the federal tariffs that President Donald Trump has imposed and the South Dakota farms that couldn’t plant. 

Clark said the governor isn’t optimistic about the revenue forecast.

“We’re trying to paint that picture that we’re concerned about the economy,” she said. 

Council members described business conditions in their areas and sectors.

Steve Zellmer of Rapid City, for example, said the first months of the summer tourism season were slow in western South Dakota but activity picked up in July and into August.

He and another council member, Curt Everson of Pierre, who is president for the South Dakota Bankers Association, were budget directors for previous South Dakota governors.

Terwilliger said he doesn’t see South Dakota revenue picture as sunny as it once was.

“From my perspective, the three and a half to four percent growth rate is probably the new normal going forward long-term,” he told council members.

“It used to be 5 percent was our long-term average. Now it’s less than that,” Terwilliger said. He said sales tax finished lower than he expected for fiscal 2019 that ended June 30. 

“’16 and ‘17, looking back, were pretty poor years in the South Dakota economy,” Terwilliger said. “2018 we started seeing things turn around.” So far 2019 has been better, he said. 

He said the Legislature in February adopted a 4.7 percent growth rate for state government’s remaining 2019 budget. He said the final number was lower at about 3.6 percent.

Nationally, there is now a 35 percent chance of a recession in the months ahead, according to a forecast that Brown uses.

Terwilliger said that’s the highest percentage since 2011.

“Us — our group as a whole — is probably a little bit more pessimistic than we were in the last meeting, which was in May, and certainly more pessimistic than we were when we met in January or February,” Terwilliger told the group.

He continued: “And with all the uncertainty going on with the tariffs and trade policy — and the ag sector, we think, is certainly going to be a drag on our growth, certainly through the second half of 2019 going into 2020 — I mean, who knows? — kind of a wild card — but I would say that we have to be cautious.

“Does anybody disagree?”

No one said a word.

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