PIERRE, S.D. — And then there was one.
What had looked like a three-horse tax cut race Monday quickly shook out in favor of the sales tax cut on the morning of Tuesday, March 7, with lawmakers sending proposals on food tax and property tax out to pasture.
Barring any unforeseen detours, all that’s left for lawmakers is to negotiate on the specifics of the overall sales tax cut.
On one side is the House version, which lowers the current 4.5% rate to 4.2% in perpetuity. On the other is the Senate version, which sets the rate at 4.3% and positions an expiration date two years after implementation, a hedge for more cautious lawmakers facing down economic uncertainty.
“I actually don't think we’re that far off,” Senate Majority Leader Casey Crabtree, of Madison, said. “This is just the way this process works.”
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On the other side, House Republicans have made clear time and time again that the permanent, three-tenths sales tax cut is their preferred option.
“I can understand the logic behind the sunset. But it seems a little disingenuous, saying, ‘I'm going to give you a break but I'm going to take it back automatically in two years,” said Rep. Kirk Chaffee, of Whitewood, the chair of the House Taxation Committee. “If it's a good idea today, it should be a good idea tomorrow.”
Still, speaking with reporters Tuesday morning, House Majority Leader Will Mortenson, of Pierre, left open the potential for House support of a sunset clause in the sales tax if that was accompanied by a larger cut to the sales tax. It's one of several potential compromises in front of a climactic conference committee set for 9:30 a.m. Wednesday.
Grocery tax fails following short-lived rebirth
Just after gaveling in on Tuesday morning, the South Dakota House of Representatives entertained the option of “concurring” with the food tax cut that had passed the Senate by a single vote about 16 hours earlier.
Not only did the House vote against concurring, but, by a 55-14 vote, lawmakers also decided not to appoint any representatives to a conference committee, a mechanism for the two chambers to hash out differences between amended versions of the same bill.
The decision certainly comes as a disappointment to Gov. Kristi Noem, who spoke with reporters on Monday afternoon to again lay out the merits of her preferred tax cut.
“South Dakotans want a tax cut that's fair, that doesn't pick winners and losers,” Noem said. “They want one that makes sure they really do get some relief in this high inflationary environment that they're dealing with.”
She added that even a sales tax cut sans sunset clause would be “easier to move in the future,” and said she was concerned that “these legislators really don’t want to cut taxes.”
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On the specifics of the grocery tax, House lawmakers appeared to agree with a critique leveled by Sen. Ryan Maher, of Isabel, who said it would disrupt the “broad-based” nature of the sales tax and potentially open up South Dakota to greater swings in revenue.
“We studied the issue for a month, we held numerous committees and decided on a broad-based tax cut that will help every single South Dakotan,” Mortenson said.
Ever-morphing property tax cut finally put to bed
This weekend, thousands of South Dakota residents checked their mailboxes to see, in most cases, their home valuations skyrocketing.
The nominal increase in valuation does not mean an equal rise in property tax since counties, municipalities and schools are often capped as far as how much they can increase levies.
However, lawmakers are not ignoring the issue, as the ever-increasing burden on property owners in the state was the subject of an interim study last session.
The problem with finding solutions, of course, is that the issue gets complex, and quickly.
“You start talking about ag land, commercial, homeowner-occupied and then you take all the different kinds of taxing districts within that,” said Rep. Oren Lesmeister, of Parade, who sat on the interim study. “You add in TIFs, BIDs. It's a huge, huge mess.”
Initially, that committee decided on a proposal to cut part of the school levy on owner-occupied homes and backfill those education dollars with general funds.
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Through several revisions, that policy turned into a $425 rebate to every owner-occupied, single-family home in the state to help cover rising property taxes.
On Tuesday morning, lawmakers in a conference committee on that policy voted unanimously to shelf the idea; Mortenson opined that it was “not ready for primetime.”
During her press conference, Noem scorched this policy, too, noting that it does nothing to actually reform the state’s property tax system.
“What they did was pass a rebate program to send people checks,” she said. “It's not very conservative. It's not very Republican. South Dakota doesn't do that and then try to sell it as property tax reform.”
Even initial backers of the property tax cut agreed that the Frankenstein property tax rebate that emerged from the Senate was not what they had envisioned. Still, the issue is not going away, and several lawmakers and members of leadership left open the possibility of continued study on system-wide reform for agricultural and non-agricultural land alike.
"I think we need property tax reform," said Rep. Trish Ladner, of Hot Springs, who chaired that property tax interim study. “But I think we're going to have to look at the whole system.”
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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