Tax Shakedown: Changes to sales tax, grocery tax reborn as lawmakers careen toward final SD legislative days
An amendment in the Senate turned the originally proposed cut from 4.5% to 4.2% into a more modest 4.5% to 4.3%. Later that same session, the chamber voted 18-17 to advance a cut to the food tax.
PIERRE, S.D. — First it was a three-tenths sales tax cut worth $100 million. Then lawmakers attached a sunset clause two years into implementation.
And, as should be expected in the final legislative week, chaos abounds.
During floor debate in the Senate on March 6, the House-approved, three-tenths tax cut in House Bill 1137 was amended yet again, changing the proposed cut to a two-tenths reduction, which would move the rate from 4.5% to 4.3% and return some $70 million to taxpayers next year.
“The savings will be left on our bottom line to help with whatever the Legislature deems necessary,” said Sen. Ryan Maher, of Isabel, who filed the amendment.
The change passed the Senate overwhelmingly and will now require negotiations between the two chambers.
Yet this major alteration was just one of several tax-related earthquakes Monday afternoon, accompanied by a revival of the cut to the sales tax on food as well as a third House-approved "clean sales tax cut," a reduction of the rate to 4.2% in perpetuity.
"The Senate sure seems scattershot to me," House Majority Will Mortenson, of Pierre, said. "The House has never had more consensus or more clarity on a tax cut."
Lawmakers in the often more fiscally cautious Senate defended both the change to the sales tax and the sunset clause as key to helping the state respond to a potential recession as well as oncoming spending needs such as Medicaid expansion and prison funding.
“We need to consider what the economics are in the future. That is, we don't know,” said Sen. Jean Hunhoff, of Yankton, the Senate’s top budgeter. “With that uncertainty, I think we need to be wise. Give us that time to see if our economy is going to continue to flourish or if there's going to be some changes.”
These considerations are also occurring under the threat levied by Gov. Kristi Noem of a veto on the general budget if a temporary tax cut is favored by lawmakers.
Last-minute maneuvering of this sort happened several times over the past few days and will continue throughout the final week of the 98th legislative session, all in a rush to the finish line on finalizing the budget and delivering on promised tax cuts.
Lawmakers are racing against several deadlines: first a Monday, March 6 hurdle for policy bills to pass both chambers and, most importantly, a mandate to put together a full budget by the end of Thursday.
Since every policy bill has already passed one chamber, any changes at this stage throw the proposal into one of two options: a “concurrence,” meaning the other chamber will vote in favor of the changes, or, if concurrence fails, a “conference committee,” a six-member committee composed of three lawmakers from each chamber that aims to find agreement on the different versions.
The headliners in this week’s conference committees will be, as any avid legislative followers might expect, a set of tax bills — an overall sales tax cut, a $425 rebate to every owner-occupied home in the state and the return of the cut to the grocery tax, with a proposed amendment from Sen. Herman Otten, of Tea.
Otten's amendment was approved by the Senate in an 18-17 vote Monday
Debate over the details of these bills will begin at 10 a.m. Tuesday with a conference committee on the property tax amendment.
On top of taxes, these committees will be peppered with items jockeying for a spot at the very end of the line of budget priorities.
With hundreds of millions in one-time funds having already been disbursed, the majority of that headed to a generational investment in prisons, a handful of proposals will wait to see what budgetary scraps might fall to them.
“As we get down to the end of the dollars and into the budget setting, it's about working with House and Senate leadership with things that we agree on,” said Sen. Bryan Breitling, of Miller, the vice chair on the Senate budget committee. “There end up being a few what you call, ‘budget balancers.’ We're negotiating on some of the things that have more favourability in the Senate than in the House and vice versa, and just figuring out where those different issues come together.”
For example, grants to schools to make often costly investments in the infrastructure required for career and technical curricula, while favored in the House, have fewer proponents in the Senate; in comparison, an investment into helping upgrade the Sisseton-Milbank Railroad, which has neared disrepair in the past few years, is more strongly favored in the Senate.
“It’s a huge value-added ag application,” Breitling said of the proposal, which seeks to leverage $6.25 million in state funds for some $25 million in a federal match.
An amendment proposed by Rep. Tony Venhuizen, of Sioux Falls, cuts that state share to just $1,869, in honor of the culmination of the effort to build a transcontinental railroad, a move with the intention of sending the bill to conference.
Other budget priorities, such as how to use leftover dollars for water projects and how much to give to increased construction costs on the state public health laboratory, will take similar paths.
“It's just a process of negotiation and give and take,” said House Speaker Hugh Bartels, of Watertown. “We might not spend on any of them, just let it fall to the bottom line and go to the prisons.”
Jason Harward is a Report for America corps reporter who writes about state politics in South Dakota. Contact him at 605-301-0496 or firstname.lastname@example.org.