Tax reformer says keep contractor's excise tax

Talk about it

PIERRE — A state legislator from 30 years ago who helped reform South Dakota’s contractor excise tax delivered a message Wednesday to some of the current lawmakers at the Capitol.

Keep the tax in place, Henry Carlson Jr. told them.

The tax was instituted in 1979 as part of a sweeping package of new taxes, tax increases and tax expansions. But the problem with the contractor tax was that the owner of a construction project often was paying it more than once.

That’s because the extra 2 percent was levied on the gross receipts of the prime contractor as well as any subcontractors.

Carlson, a prominent figure in South Dakota’s construction industry, was elected in 1982 as a Republican candidate to the state Senate from Sioux Falls. He tried to straighten out what he saw as double taxation. Eventually, a final deal was reached and subcontractors no longer were subject to the tax.

Today, the contractor excise tax is the third-largest source of revenue for state government’s general fund, after the sales and use tax and video lottery.

The tax brought in nearly $65.7 million in fiscal 2011 and nearly $83 million in fiscal ’12. It is forecast to generate nearly $84.6 million in the current 2013 fiscal year that ends June 30.

Carlson, now age 87, went to the Capitol on Wednesday at the suggestion of a current legislator, Rep. Hal Wick, R-Sioux Falls. Carlson sat down with the Senate Taxation Committee to explain the history of the tax.

Carlson said state government needed additional revenue to replace the funds lost through repeal of the personal property tax, which Carlson described as one of the worst taxes that South Dakota has ever had.

“It was well known as the liar’s tax,” he said.

Carlson generally favored the contractor excise tax but wanted it simplified so it didn’t fall on subcontractors too.

“It’s a fair tax,” he told the committee Wednesday. “I can’t see any reason why it should be repealed.”

Some legislators have discussed eliminating the tax as a step to make South Dakota more attractive for new and expanding businesses.

Last year, many of the Republicans in the Legislature approved Gov. Dennis Daugaard’s proposal to shift 22 percent of contractor excise tax revenues out of the general fund and earmark it for grants to large business projects. Voters rejected that plan in the November general election.

Daugaard, a Republican, said in his State of the Speech speech Tuesday that he would welcome a discussion of what could be done instead. “I need your help and your ideas,” the governor told legislators.

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