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State gets $19 million windfall from uncollected tax refunds

By Bob Mercer

Capitol Correspondent

PIERRE — The Legislature has an extra $19.4 million to spend next year, because businesses didn’t take everything they were owed under South Dakota’s construction-tax refund program.

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Gov. Dennis Daugaard disclosed the existence of the windfall in his budget speech to legislators earlier this month.

Businesses had paid the money in state taxes on large projects that were eligible for partial refunds under a Rounds-era incentive program.

The Legislature made changes in the incentive program in 2010 and shut it down effective Dec. 31, 2012.

Forty-nine companies were paid more than $99.6 million in refunds through Nov. 30, 2013, according to a report from the state Department of Revenue, which administered the program.

Some companies have multiple projects. Eight companies received state permits to apply for refunds but their names don’t appear on the department’s list showing payments.

The Legislature’s Republican majorities approved a replacement program in 2011 at the urging of Daugaard.

But Democrats successfully petitioned for a statewide referendum on the replacement plan and voters in 65 of 66 counties rejected it in the November 2012 election. The results were 139,751 in favor of the replacement and 190,126 against it.

The period for applying for refunds under the old program is now closed for those projects that started after the 2010 changes took effect. Those projects left behind the $19.4 million.

Another $5.1 million of liabilities remain on the state’s books in potential refunds for projects that enrolled in the program prior to the 2010 changes. Those companies don’t have a deadline to make a request for refund payment.

There are various reasons why companies didn’t receive refunds in the amounts that they originally estimated they would be owed, according to Candy Holbrook, a spokeswoman for the state Department of Revenue:

  • Many companies carried forward their refunds until projects were completed and they made requests for refund payments in amounts less than anticipated;
  • Some companies for internal administrative reasons requested refunds smaller than they could have sought under state laws;
  • Some projects turned out smaller than estimated;
  • The program used a sliding scale that allowed bigger refunds to bigger projects, and estimating the refund amounts became “very difficult” in some instances; and
  • Some companies didn’t apply for their refunds and some projects simply didn’t happen.

One of the changes made in 2010 partially opened the refund program’s books so that the names of companies receiving the refunds and the corresponding amounts became publicly available for the first time.

Previously, only the names of companies that received refund permits were public records. That was accomplished through a state hearing examiner’s decision in response to a newspaper reporter’s challenge to the Department of Revenue.

Legislators decided to take the next step and require the department to publicly report the refund amounts by company.

Still unknown is which companies specifically left behind some of the $19.4 million and how much.

Likewise for the specific companies that could still collect some of the other $5.1 million that remains an open liability for state government.

State taxpayer-confidentiality laws protect that specific information, according to Revenue Secretary Andy Gerlach.