A legislative panel Tuesday (2/21/23) killed Republican Gov. Kristi Noem’s plan to reduce the state sales tax on food from 4.5% to 0%.
The House Appropriations Committee defeated the bill 8 to 1, sending it to the 41st legislative day.
Gov. Noem spoke in favor of HB 1075, her groceries tax cut measure, as did Lt. Gov. Larry Rhoden.
After taking a shot at special interest lobbyists, Gov. Noem told the committee, “It’s about time we represent the taxpayer.”
The Noem administration also showed the results of a survey taken Feb. 16-18.
It showed 58% support for her removal of the sales tax on food, 29% support for a property tax reduction, and 3% support for a slight decrease in the state’s broad-based sales tax.
Gov. Noem said her proposal would help every South Dakotan, particularly those on fixed or low incomes.
The bill also had the support of the Presentation Sisters and Kathy Brechtelsbauer, a longtime advocate for the poor in South Dakota on food issues.
“Since 2003, we’ve been told we’re going to get more revenue (from online sales),” Brechtelsbauer said. “We were told we’ll take the tax off groceries.”
David Reiss with the South Dakota Municipal League said the bill would endanger city sales taxes on food, either legally or because of political pressure.
“We’re concerned exempting food will destabilize revenue,” he noted.
Tribal representatives also said taking the state sales tax on food would decrease their funding because of the current sales tax collection agreement with the state.
Gov. Noem has assured the state’s tribal nations that it would work with them to neutralize the impact if the bill passed.
Before consideration of the Governor’s proposal, the committee passed a bill that would reduce the sales tax on nearly all goods and services from 4.5 to 4.2%.
Republican Rep. Chris Karr from Sioux Falls, the sponsor, said it was a scalable way of reducing taxes.
Rep. Karr said the state could handle the reduction in revenues.
“The state is doing well,” he said. “It’s the highest metrics we’ve ever seen.”
Nathan Sanderson with the S.D. Retailers Association said now is the time to enact a reduction in the overall sales tax.
“I think this makes a lot of sense if we can do it on a long-term basis,” he said.
That bill, HB 1137, passed on an 8 to 1 vote and heads to the floor of the House.
Both bills would reduce state sales tax revenue by $102 to $104 million.
The committee defeated another tax cut bill, HB 1043.
It would have exempted the first $100,000 of an owner-occupied single-family home from property taxes.
That was defeated on an 8 to 1 vote and sent to the 41st day.
The bill had come out of a summer study.
Several legislators observed that it was good that they had so many options for cutting taxes because of the health of the South Dakota economy and Gov. Noem’s leadership.