Rep. Chris Karr, R-Sioux Falls, speaks to the state Senate Committee on Appropriations on Jan. 18, 2024. (Makenzie Huber/South Dakota Searchlight)
PIERRE — A bill to permanently keep South Dakota’s state sales tax rate at a reduced 4.2% was tabled Thursday at the Capitol by the Senate Committee on Appropriations on a 7-2 vote.
Senators questioned the impact of federal pandemic relief funds inflating the state budget and revenues, and the impact of a potential elimination of the state’s sales tax on anything sold for human consumption, commonly referred to as the grocery tax or food tax. Petitions to place that measure on the November ballot are circulating.
“Our appropriators, I think, were pretty clear based on that vote where they think things are overall,” said Senate Majority Leader Casey Crabtree during Thursday’s Republican leadership press conference.
The House passed a state sales tax reduction from 4.5% to 4.2% last legislative session before a sunset clause was added in the Senate to make the tax cut expire in 2027. Senators urged caution at the time with talk of a potential recession, preferring to wait to make any permanent decisions until after hundreds of millions of federal pandemic aid is fully spent.
Senators see keeping the sunset as the most “prudent and smart” decision, Crabtree said, adding that the Senate intends to make the tax cut permanent when the sunset lifts, unless something unforeseen happens.
“We have no intention of that going way,” Crabtree said. “We’re just being cautious and careful with the taxpayer dollar moving forward.”
Bureau of Finance and Management Commissioner Jim Terwilliger told legislators that the food tax accounts for about 7% of the state’s sales tax base, adding that the elimination of the food tax would present “some challenges” and would have to “be dealt with through the budget process” if the ballot measure passes.
Gov. Kristi Noem supports the permanent sales tax cut and opposes the food tax elimination effort, despite campaigning on eliminating the food sales tax in 2022. The switch is due to concerns expressed by Attorney General Marty Jackley in his official ballot explanation released last year, including that the measure could impact funds from a tobacco litigation settlement.
The bill to make the tax reduction permanent sailed through the House of Representatives last week on a 54-12 vote. House Majority Leader Will Mortenson, R-Fort Pierre, countered Crabtree on Thursday, saying that the measure is “by far the most prudent way” to permanently cut taxes.
Prime sponsor of the bill Rep. Chris Karr, R-Sioux Falls, said it’s too early in the session to say if the permanent tax cut discussion will be revived.
“I do think that in the Senate there’s a good portion who have made it clear they’re not interested in talking about repealing the sunset this year, but I’ve talked with several others who’ve said they support it,” Karr told South Dakota Searchlight after the appropriations meeting. “It really comes down to the Senate.”
A few other tax cut bills have been introduced so far this session, including a property tax relief bill, and a bill that would eliminate the sales tax on baby food, infant formula and children’s diapers. The property tax bill was withdrawn last week and the other bill has not yet had a hearing.
Aside from the permanent sales tax cut, which Mortenson said the House still has an appetite for, both Republican leaders say lawmakers are interested in a public university tuition freeze. Mortenson said a tuition freeze is “the closest thing to a tax cut.”
This would be a fourth consecutive tuition freeze. Crabtree said freezes benefit South Dakota families and the economy, and serve as a workforce development tool.
“That is one that I’d like to keep looking at and talking about going forward,” Crabtree said.
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