SD lawmakers propose economic incentive planMeasure focuses on providing tax breaks for large projects that might not otherwise come to state.
By: Chet Brokaw , The Associated Press
PIERRE — Legislative leaders on Thursday unveiled a wide-ranging plan they say would not only help lure large industrial projects to the state, but also would help bring smaller projects to South Dakota.
The measure would focus on providing tax breaks for large projects that the state otherwise might not attract. It also would provide money for training workers and helping communities build the housing, roads and water systems needed to encourage development, the lawmakers said.
Senate Republican Leader Russell Olson of Wentworth said Republicans and Democrats have worked for the past two months to find a compromise plan, a contrast to the gridlock in Washington where the two parties are unable to reach agreement on budget cuts and other issues.
“We decided at the very beginning of the legislative session that there were certain things we wanted to work on jointly and come together to do what’s best for South Dakota and take the politics out of the conversation,” Olson said.
“This is really the way government ought to work,” House Democratic Leader Bernie Hunhoff said.
House Republican Leader David Lust of Rapid City said South Dakota needs to come up with an incentive package to compete with nearby states that offer substantial deals to attract new industrial projects and help existing businesses expand.
“We’re clearly at a disadvantage in South Dakota,” Lust said.
A written version of the plan was not available Thursday, but the legislative leaders said it would be introduced Monday in a bill to be considered by the House State Affairs Committee. The lawmakers hope to get the House and Senate to pass the measure before the main run of the legislative session ends late next week.
Senate President Pro Tem Corey Brown, R-Gettysburg, said South Dakota not only charges its 4 percent state sales tax on construction projects, but also a 2 percent excise tax on a contractor’s gross receipts. South Dakota is one of only a few states that has a contractor’s excise tax, which means construction is cheaper in states with no such tax, he said.
The plan would refund part or all of the state sales tax paid by projects of more than $20 million that would not locate in South Dakota without such an incentive. The contractor’s excise taxes paid by those projects would be placed in a special account, called the Building South Dakota Fund, which would be used support housing, infrastructure, workforce development and other programs needed to spur economic development.
The special fund also would get a portion of unclaimed property the state receives from abandoned bank accounts.
The legislative leaders said they do not know how much money would wind up in the special fund because there’s no way to predict how many projects would contribute contractor’s excise tax payments each year. They said unclaimed property receipts also vary from year to year.
Senate Democratic Leader Jason Frerichs of Wilmot said the sales tax breaks could be used to encourage manufacturing, wind power projects and agricultural processing plants. The state needs to boost development in rural areas, he said.
South Dakota now has no incentive program because a previous program that refunded construction taxes for big industrial projects was allowed to expire Dec. 31. A replacement plan suggested by Gov. Dennis Daugaard was rejected by voters in the November election. The governor’s plan would have taken money from the contractor’s excise tax to be used for discretionary grants to companies that would not have located in South Dakota without those incentives, but opponents said that would have used money that should instead be spent on education and other priorities.
The legislative leaders said their new plan would be funded largely by contractor’s excise taxes paid by companies that would not come to South Dakota without the program. The state also is getting more unclaimed property funds because a large bank has moved to South Dakota and the state has changed its laws.
Banks used to give the state unclaimed deposits after five years when owners could not be located, but the new law shortened that to three years.