PIERRE, S.D. (KELO) — The governor’s proposed 0% tax rate on groceries now has at least one rival.
Republican Rep. Chris Karr saw his proposal to reduce South Dakota’s state sales tax rate of 4.5% down to 4% win support Tuesday from the House Taxation Committee.
The tax panel voted 12-0 to move HB-1137 to the House Committee on Appropriations.
That’s the same place where the tax panel sent Governor Kristi Noem’s HB-1075 on a 12-1 vote last week.
Noem’s plan drew stiff opposition from lobbyists for South Dakota Retailers and K-12 education groups.
Those same lobbyists stayed in their chairs during the hearing on Karr’s bill Tuesday. The only opponent was Derek Johnson, state economist in the governor’s Bureau of Finance and Management.
Johnson told the committee that Karr’s bill would cost $168 million. That’s about $68 million more than the governor’s bill.
“I think we know at the end of the day we can’t do all of these proposals without looking at pretty substantial budget cuts,” Johnson said.
The tax panel plans a hearing Thursday on a third approach that seeks to reduce property taxes for owner-occupied homes. Republican Rep. Trish Ladner, on behalf of an interim legislative committee, has introduced HB-1043. It calls for exempting the first $100,000 of taxable value.
Karr led the House last year in completely amending a Senate bill and turning it into a repeal of the sales tax on food. The Senate refused to accept it and the bill died.
Noem then proposed repealing the state tax on groceries during her re-election campaign last fall.
Karr remains a member of the House Committee on Appropriations, although he’s no longer chairman. He said Tuesday that the House and Senate appropriators plan to set revenue estimates on February 15 and those decisions will help guide what happens on a tax cut.
Karr showed the tax committee a chart tracking online taxable sales that rose from $91 million in 2016 to $1.9 billion in 2022. “You can see there’s significant growth there,” he said. “We know we are collecting online sales, and it’s a significant amount.”
He said his projection for the current budget year ending June 30 is 8.5% revenue growth, followed by 4.5% growth for the coming budget year that starts July 1. Those would provide an ongoing surplus of $206 million if they hold true.
Johnson didn’t dispute Karr’s numbers.
Karr said he could be flexible and accept a smaller cut, say to 4.2%, should the estimated surplus turn out to be smaller.
“Let’s give the people of South Dakota their money back,” Karr said. “I think this plan is realistic.”
Republican Rep. Greg Jamison asked Karr why the 4% approach is better than the governor’s. Karr said his way is cleaner and he wants to get rid of the Partridge amendment, which was added when the Legislature increased the sales tax to 4.5% in 2016 at the urging of then-Gov. Dennis Daugaard. The additional revenue went to property-tax relief and teacher salaries.
The amendment, named for its sponsor, then-Rep. Jeff Partridge, called for reducing the sales-tax rate by one-tenth of 1% for every $20 million of ongoing tax revenue paid by remote sellers. That reduction has never happened.
“All sorts of issues with that. I won’t belabor it,” Karr told Jamison. Karr added that it would be “really hard” to reinstate a tax that had been completely removed, such as the tax on groceries. “I think this is a better way to do it,” Karr said.
Republican Rep. Carl Perry asked Karr about the size of the cut. “I think we can go all the way,” Karr said. He acknowledged that perhaps some legislators want a smaller reduction. “Not everybody is going to agree with a hundred-seventy (million dollars),” he said.
More will be known on February 15.
“After that, we have discussions,” Karr said. “And then make a decision.”
Republican Rep. Liz May, who took part in the 2016 debate, called for the tax committee to keep Karr’s plan going forward. May, who has a grocery store at Kyle, said businesses could more easily have their check-outs changed with his approach.
”It’s pretty much the click of the button. The other way is complicated,” she said, comparing the two plans. “The debate will continue (in appropriations,)” she noted. “We don’t want to move it to the (House) floor at this point because we don’t have the revenue projections.”