Senate passes property tax credits, setting up final-week scramble over tax relief

The state Senate complicated the Legislature’s tax-relief debate Thursday by approving legislation that would provide homeowners with an annual tax credit payment.

The Senate passed a bill 31-2 that would send $425 to South Dakota homeowners each year as a way to relieve their property tax burden. The annual cost to the state’s general fund is estimated at just over $100 million.

That’s roughly the same cost as the grocery tax repeal Gov. Kristi Noem proposed during her reelection campaign and the overall general sales and use tax reduction — from 4.5% to 4.2% — that’s awaiting a Senate vote after passing the House. A legislative committee rejected Noem’s grocery tax bill earlier this session, and she has since threatened to oppose the budget legislators will send her if it doesn’t include the grocery tax repeal. All of the proposals have been enabled by a state budget surplus.

Merits debated

The property tax bill would not affect the revenues that schools, counties and other local governments rely on, said Sen. Casey Crabtree, R-Madison and Senate sponsor of the bill, because the payments would come from the state while taxpayers would continue paying their local property taxes in full.

House Majority Leader Will Mortenson, R-Pierre, introduced the legislation back in January as a nearly empty and vaguely worded “vehicle bill.” Representatives passed it through the House in that form last month, allowing it to be wholly amended with new text this week in the Senate.

A separate property tax reduction proposal was originally filed as a House bill, but the House Republican Caucus rejected that, along with Noem’s bill, in favor of the general sales tax reduction. The new property tax credit bill now heads back to the House for consideration next week, which is the last full week of the session.

The property tax credit payments would benefit 245,302 South Dakota families, Crabtree told legislators on the Senate floor. According to the U.S. Census Bureau, South Dakota has 345,779 family units, so the tax cut would apply to about 70% of families.

Crabtree added that he prefers property tax relief for owner-occupied homes because it only benefits South Dakotans. The grocery and general sales tax cuts would also benefit tourists and out-of-state businesses.

But Sen. Tom Pischke, R-Dell Rapids, said supporting the property tax credit payments and not supporting the general sales tax cut ignores the “promise” legislators made to reduce the state sales tax rate when it was raised in 2016 to support higher teacher salaries (South Dakota remains 50th in the nation for average teacher pay).

Issue comes to a head next week

Noem has not only threatened to pull budget support if lawmakers don’t pass her food-tax repeal, but also vetoed a bill Thursday that would allow local governments to increase hotel lodging taxes, posting on Twitter that “we are cutting taxes this legislative session, not increasing them.” 

And earlier in the session she told South Dakota Public Broadcasting she’d rather see a tax cut broadly applied to consumers than a property tax cut.

“I just don’t understand why they only want to help certain people and not the rest of the families in the state,” Noem told SDPB. “That only helps the wealthier individuals that own property in the state. So, if you’ve got a single mom out there renting an apartment, trying to put food on the table for her kids, that brings her no relief whatsoever.”

Crabtree said he is confident legislators will agree on “tax relief that people can be proud of.”

“Do we maybe disagree slightly on what this tax cut relief would look like? Yeah, well, I think that’s a good part of the process,” Crabtree told reporters at the weekly Republican leadership press conference Thursday. “And we’ll work through that. I think what we’ll end up with is some sort of relief for the folks of South Dakota at the end of this in a big, significant way.”

The Legislature is taking Friday off, and the state House of Representatives will reconvene at 9 a.m. Central on Monday. The Senate still plans to meet at its regularly scheduled time of 1 p.m. next week, which is the last week of the legislative session until lawmakers return March 27 to consider Noem’s vetoes.

While legislators finish their work on tax relief, there’s also a pending effort by petition circulators to place a measure on the ballot next year that would repeal the state sales tax on food.