PIERRE, S.D. — A glimmer of tax cut light briefly appeared Wednesday, as a potential mechanism emerged for delivering a tax cut while quelling fears in the Senate of coming economic instability.
Following a day of back-and-forth on sales tax reduction in the South Dakota Legislature on March 8, the six lawmakers tasked with finding common ground on lowering the state's overall sales tax rate met one last time.
The proposal, laid out by Sen. Ryan Maher, of Isabel, would attempt to tie the sales tax rate to the percentage growth of sales tax collections in an attempt to recession-proof the cut down to 4.2%.
If the gross revenue generated by the state sales tax drops by 1% compared to the following year, the sales tax would increase back to 4.5% the following year.
“The attempt is to move away from a sunset clause and go to a recession trigger,” Maher said, though specific text for the amendment has not yet emerged.
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Speaking with reporters after the meeting adjourned, Maher was not confident that the two chambers could square the circle and pass an oft-promised tax cut.
“I’m disappointed because we're so close, but so far away,” he said.
The session’s headline issue has dominated the conversation over the past two days, with the key disagreement between the House and Senate hinging on whether there should be a “sunset clause,” a deadline inscribed in law that would increase the sales tax back to 4.5% after two years.
Maher’s proposal would replace the sunset clause currently favored by the Senate, though it does come with similar intentions.
“When we talk about the sunset, it's just an opportunity to visit this down the road,” Senate Majority Leader Casey Crabtree, of Madison, explained during a previous meeting of the conference committee Wednesday morning.
But any potential release of constantly building tax cut pressure from this Maher-led compromise was short-lived, as the instant opposition of some important voices in the House of Representatives emerged.
“This recession trigger is probably the worst tax policy idea that I've heard all session long,” Rep. Jon Hansen, of Dell Rapids, said after the meeting. “When a recession kicks in, it's the last time to be taking more money out of the pockets of the people and giving it to government.”
Rep. Chris Karr, of Sioux Falls, chimed in with similar thoughts.
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“You’ve got to make hard decisions here,” Karr said. “And that's what the people want from us. Not some easy out.”
The House-approved version of the sales tax cut permanently lowers the rate to 4.2%, returning about $104 million next year if enacted.
The Senate-approved version of the bill lowers the rate to 4.3%, returning $70 million next year, and has a two-year “sunset,” meaning that without future lawmakers approving an extension it would go away in July 2025, two years after implementation.
The six lawmakers on the sales tax conference committee will reconvene at 8 a.m. on Thursday, March 9, the final day of the regular legislative session.
Jason Harward is a Report for America corps reporter who writes about state politics in South Dakota. Contact him at 605-301-0496 or jharward@forumcomm.com.
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