House amends overall tax reduction bill eliminating sunset date

MARCH 1, 2023:

South Dakota legislators and Governor Kristi Noem are engaged in a back and forth contest over tax cuts.

The Governor is pushing for the elimination of state’s portion of the sales tax on groceries (4.5%), while lawmakers have backed a cut in the overall sales tax rate from 4.5% to 4.2%.

House Majority Leader Will Mortenson of Pierre added an amendment yesterday (Feb. 28, 2023) to remove the sunset provision that would have ended the tax cut in 2025.

Mortenson says this cut is what the state can afford.

The amended version passed out of the House back to the Senate on a vote of 66-6.

(News partner WNAX contributed to this story.)

FEBRUARY 28, 2023:

Governor Kristi Noem has released a video again asking South Dakota legislators to support permanently cutting the state’s 4.5% sales tax on groceries.

Noem says the grocery sales tax cut is the fairest tax cut for all people. She says a recent poll found that 58% of those surveyed prefer the grocery sales tax repeal to other options.

Last week (Feb. 21, 2023), the House of Representatives opted to instead reduce the overall sales tax rate from 4.5% to 4.2%– or 30 cents for every $100 spent. Yesterday (Feb. 27, 2023), the Senate Tax Committee put a 2-year sunset on that tax cut because, Noem says, legislators know the people will support repealing the sales tax on groceries on the ballot in the near future so they should be giving the people of South Dakota what they want now instead of thinking they know better how to spend someone else’s money.

Noem says, “I have proved in the past that I am willing to make hard decisions – and I will again, especially if it is something that respects our Constitution and the will of the people.” She says the state can afford eliminating the sales tax on groceries because of permanent economic growth, incomes are going up, low unemployment and a population that’s growing at five times the national average.

You can watch Noem’s video here.

FEBRUARY 23, 2023:

(SD Broadcasters Association)– Democratic legislative leaders say Republican Gov. Kristi Noem is to blame for failing to pass her campaign promise to take the sales tax off food. They say the lack of gubernatorial news conferences to sell her plan to the public and her failure to engage legislators before the vote led to the defeat.

The House Appropriations Committee defeated HB 1075, 8 to 1 Tuesday (Feb. 21, 2023), sending it to the 41st Legislative Day.

“The Governor hasn’t been at a press conference in seven weeks,” said Democratic House Minority Leader Erin Healy from Sioux Falls (Feb. 23, 2023). “She could have been promoting it. The Governor was not willing to advocate.”

Healy said Gov. Noem tried to “bully” her fellow Republicans to vote for her bill. “That’s not acceptable,” she said.

Republican leaders, however, say it is because of Noem’s prudent budgeting and leadership that legislators can consider historic tax cuts, such as reducing the state sales tax from 4.5 to 4.2 percent. HB 1137 would save taxpayers $104 million if it passes the Senate and the Governor signs it. That measure passed the House Wednesday 66 to 3.

Also, a governor being rebuffed by their party is not unusual, Republican leaders say.

“It’s not unique,” said Republican Senate President Pro Tem Lee Schoenbeck from Watertown. “The Governor has a better relationship with legislators than she knows. (Gov.) Mike Rounds hated us.”

Republican Senate Majority Leader Casey Crabtree from Madison says Republicans and the Governor have different methods to get to the same place.

“We are working on the same goal,” Crabtree said. “There’s no animosity. The Governor has a couple of hundred wins (in the session). She’d be going to the hall of fame.”

Republicans hinted that the Senate might have other ideas about the best approach to cutting taxes. Those include a property tax reduction, a sales tax reduction, or an end or reduction of the sales tax on food.

Both parties say that at this stage of the legislative session, nothing is truly “dead” until they adjourn the final day.

FEBRUARY 21, 2023:

PIERRE, S.D. (AP) — South Dakota lawmakers rejected a proposed repeal of the state’s grocery tax on Tuesday (Feb. 21, 2023)— despite Republican Gov. Kristi Noem’s testimony in support of the measure.

Noem’s testimony before the House Appropriations Committee was an unusual move for the leader who has rarely appeared in public this session. She had opposed the $102 million tax cut in the final days of the 2022 legislative session, but she changed course months later to make it a centerpiece of her reelection campaign. Since her win, she has been trying to do right by her campaign, culminating in Tuesday’s final shot at swaying lawmakers in her favor.

“The narrative is going to be that the legislators in this capitol think they know better than the people in this state, and I would disagree. We have to always keep our perspective on the people here that keep this state running, and it’s certainly not policymakers who run around during session for 40 days,” Noem told reporters.

During her testimony, she said the taxes would have helped people across different socioeconomic statuses and it was a good time to implement the long-suggested tax cut, while the state has a surplus.

Lawmakers have discussed various tax relief proposals since the beginning of the session, agreeing that between cuts to taxes on groceries, general sales and property, only one plan is feasible. The Republican caucus voted over the weekend for the general sales tax cut, favoring its general scope of relief.

Republican House Majority Leader Will Mortenson said that after deep scrutiny on each of the proposals, his fellow representatives agreed that a single exemption to groceries was too narrow of an issue to tackle in a tax cut.

“The caucus decided that they would prefer to keep a broad sales tax base and cut the rates,” Mortenson said. “We wanted to cut taxes on food and fireworks and fencing supplies and everything.”

Noem hopes people in the state feel that rate drop should it pass further, but she was disappointed at losing the opportunity to remove South Dakota from the list of seven states that continue to tax groceries. The loss adds to other legislation she campaigned on that lawmakers have halted, like state investments into family welfare.

She added that grocery tax discussions would continue in future legislative sessions.

“What has always been refreshing about the state of South Dakota is that we have those hard policy debates, and we make the best decisions,” Noem said. “Today they did not make the best decision. They made the easy decision, and it was the wrong one.”

JANUARY 26, 2023:

The House Taxation committee favors and recommends sending a bill eliminating the state sales tax on most grocery items to the House Appropriations Committee this morning (Thursday). House Bill 1075 passed on a 12 to 1 vote after about an hour and a half of testimony and debate.

The measure was a significant plank in Governor Kristi Noem’s 2022 reelection platform.

Commissioner Jim Terwilliger of the state Bureau of Finance and Administration was the point person on the bill for the Noem Administration. He says ending the tax on most non-prepared food items would save South Dakotans about $102 million. He added the state would still have about $200 million in new revenue.

Terwilliger also said it is essential for South Dakota to stay competitive. “Other states are looking at additional tax cuts,” Terwilliger said. “We are one of only three states with a full sales tax rate on food.” Terwilliger says the state has a booming economy, the population is growing, and other revenues are coming in ahead of estimates.

Erik Nelson with S.D. AARP also supported the bill. “This is a burdensome tax on older South Dakotans,” he said. Because it will free up more money for food, he added, “Nutrition is more important to aging than previously thought.”

Other proponents said it was a tax savings all South Dakotans could enjoy, just not a special interest.

Opponents warned that the federal government has infused the state with high amounts of one-time funds because of COVID-19 and federal infrastructure initiatives. They reminded legislators about lean years in 2012 and 2013 when Governors Mike Rounds and Dennis Daugaard asked for a 10% across-the-board program cut. Daugaard eventually reduced the overall amount to eight percent. Others said state education funding would be adversely impacted.

Nathan Sanderson with the S.D. Retailers Association said ending the state sales tax on food is “not sustainable.” “Federal government funding and high inflation are the not signs of a healthy economy,” Nathanson said.

Also, an unexpected issue arose. Democratic Rep. Peri Pourier from Rapid City, who represents the Pine Ridge Indian Reservation, said tribal nations were not consulted about the proposed tax cut. She said the state has sales tax compacts with all seven tribal nations. Pourier said that while the cut would be good for her constituents, it would significantly reduce tax revenue to the tribes.

Alli Moran with the Cheyenne River Sioux Tribe said it would “deeply impact our ability to provide social services.”

Commissioner Terwilliger said the state would be willing to work with the tribes to come to an accommodation. However, he wasn’t sure everything could be in place before the possible passage of the tax cut.

The measure now moves to the House Appropriations Committee.

JANUARY 18, 2023:

PIERRE, S.D. (AP) — South Dakota lawmakers are considering a number of tax cuts this year. Gov. Kristi Noem has promised to repeal the grocery tax as part of her reelection campaign. But many of the governor’s fellow Republicans have been resistant to that idea. Republican lawmakers are proposing alternative tax cuts, such as scaling back the sales and property taxes. Other lawmakers also say the state has a long list of programs to fund this year, leaving little room in the surplus for tax cuts.

Extended version:

PIERRE, S.D. (AP) — South Dakota lawmakers are considering a number of tax cuts this year, including Gov. Kristi Noem’s campaign promise to repeal the grocery tax. The only problem is deciding on which ones.

Republican lawmakers are proposing alternative tax cut schemes, such as scaling back the sales tax and property tax. Other lawmakers also say the state has a long list of programs to fund this year, leaving little room in the surplus for tax cuts.

Although Democrats have proposed grocery tax cuts for years, they gained a powerful bipartisan ally when Noem made it a key part of her reelection campaign. Noem, who is considering a 2024 White House bid, has trumpeted the proposal as the largest tax cut in South Dakota history.

Noem says cutting the tax, which brings in more than $100 million annually, would help household budgets squeezed by inflation.

“They need relief — and we can afford to give it to them,” the Republican governor said in a statement.

Advocates for repealing the grocery tax say it weighs heaviest on low-income people who spend a larger percentage of their income on food. Only 13 states levy taxes on groceries, and South Dakota is just one of three that tax groceries at the rate of other sales, according to the Tax Foundation, a pro-industry think tank.

But many of the governor’s fellow Republicans have been resistant.

House Speaker Hugh Bartels said that when he has discussed the grocery tax repeal with the governor’s staff, his message has been that constituents are not calling for it.

“I’m waiting until the budgeting process is done,” he said, adding “You’ve got to weigh the option of unfunded programs and tax cuts.”

For people like Fred Steffen, who traveled to the Capitol on Wednesday (Jan. 18, 2023) to tell lawmakers of shortfalls in the state’s program to provide home health aides to disabled adults such as his son, it made little sense to discuss tax cuts when it appears government programs lack necessary funding.

“If they are talking about cutting the food tax, there’s a place in there that could benefit the disabled population,” he said.

Pierre resident Barry Sargent said he generally supports tax cuts but fears they could cut into essential government services if not well planned.

“I don’t think anybody’s against paying taxes as long as they’re used for stuff that they can see — that benefits people or pays for schools or pays for roads,” he said.

Republican state Rep. Chris Karr, who has pushed for a reduction in the state’s sales tax, pointed to the state’s $310 million in ongoing revenue growth and argued that the state could afford to fund programs and cut taxes.

“Those dollars belong to the people,” he said.

But a recent report from the state’s legislative research office shows that South Dakota’s revenue growth has been driven by inflation and federal stimulus funds rather than organic economic growth.

State Sen. Reynold Nesiba, the Senate’s Democrat leader, suggested the competing proposals and pressing needs could result in an incremental tax cut, such as reducing, rather than repealing the tax on groceries.

He said, “I think there is a way forward to compromise.”

JANUARY 17, 2023:

The bill that would repeal the state’s 4.5% tax on groceries has been filed with the South Dakota Legislative Research Council.

The prime sponsors on HB 1075 are Representative Mary Fitzgerald of Spearfish and Senator John Wiik of Big Stone City.

The tax cut would not impact sales taxes collected by cities.

Jim Terwilliger, Commissioner of the Bureau of Finance and Management, says even with “conservative projections for future revenue growth, we can afford this tax cut.”

Governor Kristi Noem says the proposal would put $102 million back in the pockets of South Dakotans. She says so far this fiscal year, ongoing general fund collections are up $146 million above the legislative adopted level.

South Dakota is one of only three states that fully taxes food.

House amends overall tax reduction bill eliminating sunset date

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