Bank-tax changes go to state Senate

PIERRE--South Dakota's laws regarding bank taxes would move into the 21st century under two measures that advanced Wednesday in the Legislature. A state Senate committee made some substantial changes to one of the bills and unanimously endorsed b...

South Dakota State Capitol

PIERRE-South Dakota's laws regarding bank taxes would move into the 21st century under two measures that advanced Wednesday in the Legislature.

A state Senate committee made some substantial changes to one of the bills and unanimously endorsed both of them.

The full Senate could consider SB 52 as early as this afternoon. It would carve an exemption to the three-year statute of limitations on tax refunds and tax underpayments, so that South Dakota fits within the federal audit framework for banks.

Mike Houdyshell, a state Department of Revenue official, said the change would protect the taxpayer and state government. It would allow banks to notify the state department of changes in their reported net income when federal audits are completed.

"I think the Revenue Department has done an excellent job with all parties that are concerned," Sen. Jim Peterson, D-Revillo, said.


This would align South Dakota with other states and the federal government, Peterson said.

The committee voted 7-0 to endorse SB 52. It goes to the Senate floor on the consent calendar, meaning it will automatically pass unless a senator asks for it to be put on the normal debate calendar.

Houdyshell described the other measure, SB 53, as a cleanup and modernization of bank franchise tax laws. He said the last round of changes came two years ago, but the chapter of law hasn't been extensively revised since 1977.

South Dakota levies a 6 percent tax on banks' net income, up to $400 million. There are rates less than 6 percent for net income above $400 million.

The department wanted to remove those smaller rates. Houdyshell said it is "virtually unlikely" a taxpayer ever will reach $400 million of net income apportioned to South Dakota.

SB 53 also called for mandatory electronic filing of tax reports and payments by banks. Houdyshell said electronic filing started in January 2014. Thirty percent of the returns and 47 percent of the payments were made electronically in 2015, he said.

The goal is 100 percent.

No other witnesses testified on either side.


Sen. Brock Greenfield, R-Clark, said the lower rates for net income above $400 million could serve as an incentive for Citibank to bring other operations to South Dakota.

"I could see that argument," Houdyshell said. But it might not make much difference because net income is apportioned for each state's customers and getting above $400 million isn't likely, he said.

Greenfield said mandatory electronic filing has been "a sticking point" for him for years. He wondered if the department could move taxpayers increasingly to electronic filing without "the hammer."

Houdyshell said the department doesn't post paper forms on its website any longer for bank franchise taxes. "I think this industry probably will get there, anyway, 100 percent in the future," he said.

The department expects a lag time on electronic filing, and there isn't a penalty if they don't file electronically, Houdyshell said.

"This is just kind of moving forward in modern times," Houdyshell said.

Greenfield, who has battled with the department for two decades over legislation, asked the committee to consider removing the repeal of the tax breaks for net income above $400 million and to remove the electronic-filing mandate.

"I guess my point is simply this-if it doesn't matter, it doesn't matter," Greenfield said about the tax breaks.


Sen. Jason Frerichs, D-Wilmot, said the 6 percent flat rate gives certainty. The Legislature can make changes again later if there is an opportunity, Frerichs said.

Greenfield said he would respect the vote of the committee, but didn't see any reason to remove the lower rates from state law.

"Other than ideology, we're talking about something that doesn't really apply in South Dakota," Sen. Jim Peterson, D-Revillo, said.

Evidently, it hadn't been reached in the past, Peterson continued. "I don't think it really matters which way we go on it," he said.

Greenfield's amendment to keep the lower rates for net income above $400 million passed 4-3 as the chairman, Sen. Jeff Monroe, R-Pierre, cast the decisive aye.

Greenfield next move offered an amendment to remove the electronic-filing requirement. "I like Sen. Greenfield's amendment here. I'm an old paper guy," Peterson said. He added that he doesn't want to submit to "Big Brother."

Sen. Scott Fiegen, R-Dell Rapids, said he favored electronic payments. Fiegen said the Federal Reserve requires electronic filings from banks.

Greenfield, in turn, described it as "an extra burden on business."

The committee approved Greenfield's second amendment 4-3, with Peterson voting for it and Monroe voting against it.

The amended version of SB 53 won the committee's endorsement 7-0.

"We'll see how it comes out on the floor and what happens on the House side," Greenfield said.

Frerichs called it a "significant" piece of legislation that need to be "taken seriously."

The earliest the amended version of SB 53 could be up for debate by the full Senate would be Friday afternoon.

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