The South Dakota Capitol grounds and lake in Pierre. (John Hult/South Dakota Searchlight)
A bill that would reduce the state sales and use tax by half a percentage point unanimously passed the House Taxation Committee and will head to House Appropriations.
Noem touted the controversial proposal as the largest tax cut in state history, cutting about $120 million from the state budget annually.
Rep. Chris Karr, R-Sioux Falls, said Tuesday during a committee hearing that his bill, HB 1137, would cut $168 million in taxes.
The Noem administration’s Bureau of Finance and Management was the only opponent to testify at the committee meeting, though the bureau’s representative encouraged the committee to send it forward to House Appropriations for further debate.
“At the end of the day, we can’t afford to do all these proposals without doing substantial budget cuts,” said the bureau’s Derek Johnson.
Karr said his bill is easier to modify and implement, especially for retailers to adjust tax calculations in their payment software.
“This applies to all goods and services, including food,” Karr said. “Less tax creates more discretionary dollars. This is good for retailers in our state; this is good for our citizens.”
The bill would reduce the state sales and use tax from 4.5% to 4%, returning the tax to what it was before 2016 when the half-percentage tax was implemented to support raising teacher salaries in the state.
South Dakota is facing a worse teacher shortage than in 2015, experts say, with 176 statewide teacher openings at the end of December 2022, compared to 111 at the end of December 2021. South Dakota’s average teacher salary ranks 50th in the nation, according to the National Education Association.
Lobbyists for the state’s largest school districts and School Administrators of South Dakota oppose the bill but did not testify during the committee meeting.
Karr said there was a plan in place to reduce the sales tax incrementally as the state saw more remote, online sales. But that has not happened since the increase was implemented.
“Now we are fully realizing tax collection, and this bill will live up to the promise in the statute,” Karr said. “This is a realistic and more responsible way to look at surplus dollars and tax relief.”
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