S.D. House committee rejects city sales tax bill

PIERRE, S.D. (AP) — South Dakota cities failed Thursday in their bid for authority to impose an extra penny sales tax to pay for special projects or upgrades in roads, water lines and other service facilities.

The House Local Government Committee voted 10-3 to reject the measure after lawmakers said taxes should not be raised while the economy is struggling.

Rep. Val Rausch, R-Big Stone City, said taxes should never be raised unless government has no other option.

“The timing is not now,” Rausch said.

Opponents also argued that cities already can raise money for special projects or other services by voting to exceed state limits on property taxes. An extra sales tax would hit low-income people harder than wealthier people because they spend most of their income on goods and services subject to the sales tax, they said.

Cities can impose a general sales tax of up to 2 percent, with the option of a third penny on lodging, alcohol, food and entertainment.

The bill would have let cities impose an extra 1 percent general sales tax to pay for identified projects or services. Those could have included building projects such as events centers or basic services such as roads or sewer systems.

The extra sales tax could not have been imposed without approval by voters in a city election, and the tax could have levied only until the project was paid for.

Rep. Mike Verchio, R-Hill City, said the bill would not raise taxes but would let city residents decide whether to tax themselves.

“It’s the perfect example of local control. I don’t know that we know better than local people exactly what they need to do,” Verchio said.

Yvonne Taylor, director of the South Dakota Municipal League, said 92 cities and towns supported the measure. Many cities need extra revenue to provide services essential to businesses and jobs, she said.

For example, the city of Howard needs to upgrade its sewer system to get a meat processing plant, Taylor said.

Sioux Falls Mayor Dave Munson said the state’s largest city has talked about using an extra penny sales tax to build a community events center. The cost would be greater if the city had to issue bonds and pay interest, he said.

But opponents said low-income people would be hit hard by a sales tax, even though they likely would never attend a concert or sporting event at the proposed center.

Cathy Brechtelsbauer of Sioux Falls said plans to give low-income families tax refunds would likely be ineffective because many people fail to sign up for refund programs.

Rep. Jason Frerichs, D-Wilmot, said cities can already raise extra revenue by boosting property taxes. Businesses also might move outside city limits to avoid an extra sales tax, he said.

Jane Page of the state Department of Revenue and Regulation spoke against the bill, saying cities shouldn’t be allowed to raise their sales taxes because the state sales tax might have to be raised as a last option for balancing the state budget.

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