Noem issues first veto of legislative session against optional hotel tax increase

Stamping the bill with a custom V-E-T-O livestock brand dipped in red ink, Gov. Kristi Noem has issued her first veto of this year’s legislative session. The bill would allow hotels and motels in “business improvement districts,” or BIDs, to raise the per-room tax they charge. 

Today, I VETOED a tax increase.

We are cutting taxes this legislative session, not increasing them. pic.twitter.com/jv8JZtFW1b

— Kristi Noem (@KristiNoem) March 2, 2023

Businesses can create a BID to self-impose an extra tax and use the revenue for special projects, such as tourism promotion or downtown beautification efforts. BIDs that include hotels can currently charge up to $2 per night in extra taxes, beyond regular state and local taxes.

House Bill 1109 would increase the maximum tax to $4 per night or 4% of the rented room charge.

“The occupation tax is not just paid by out-of-state travelers,” Noem said in a veto message to the Legislature. “South Dakota residents are traveling every day for business, medical visits, youth activities, weddings – the list goes on. South Dakotans vacation in South Dakota, as well.”

Noem also rejected the argument that South Dakota should follow the example of other states that have raised maximum BID taxes.

“That shouldn’t dictate what we do in South Dakota,” she said.

Sen. Tim Reed, R-Brookings, is the prime sponsor of the bill in the Senate. Reed said in his eight years serving previously as Brookings’ mayor, he saw how using BID funds to recruit entertainment for one venue, for example, can spill over and benefit other businesses in the district. 

Reed said it’s important to note the bill does not require BIDs to raise the fee. It only allows them to consider it.

“I’m disappointed that the governor would veto a bill that gives communities more local control,” Reed said. “Communities want to be empowered to do this. They want to improve tourism.”

Reed said he hopes to override the veto but added, “I realize it’s going to be a pretty big lift in the Senate.” 

The bill’s prime sponsor in the House, Rep. Becky Drury, R-Rapid City, fears the bill may be dead.

“I do not think that I have the votes to do a veto override,” Drury said. “But it was worth bringing the conversation and getting it as far as we did.” 

Overriding a governor’s veto requires a two-thirds majority vote of the Legislature. Lawmakers will finish the main run of the current legislative session March 9 and then return March 27 to the Capitol in Pierre to consider vetoes.

Lt. Gov. Larry Rhoden, a rancher, made Noem’s veto branding iron several years ago.