Makenzie Huber /South Dakota Searchlight – A bill to permanently set South Dakota’s state sales tax rate at a reduced 4.2% passed through the House of Representatives on a 54-12 vote Friday at the Capitol, but a Senate leader said it could be doomed in his chamber.
Senate President Pro Tempore Lee Schoenbeck, R-Watertown, expects senators to reject the bill.
“They know it’s not going to get out of the Senate, so it’s a pretty easy vote for somebody over there,” Schoenbeck said. “I don’t think the Senate’s attitude has changed from last year.”
Gov. Kristi Noem has spoken in favor of making the tax cut permanent.
Prime sponsor Rep. Chris Karr, R-Sioux Falls, told lawmakers the bill would “live up to the intent” of what the House passed last year.
The House passed a state sales tax reduction from 4.5% to 4.2% last legislative session, before a sunset clause was added in the Senate to make the tax cut expire in 2027. Senators urged caution at the time with talk of a potential recession, preferring to wait to make any permanent decisions until after hundreds of millions of federal pandemic aid is fully spent.
“I don’t like sunset clauses very much. I don’t,” Karr said on the House floor Friday. “I think it’s disingenuous.”
Karr focused on the positive economic growth South Dakota has experienced in the years since the pandemic started — including strong unemployment rates and personal income growth. He also pointed out that the state has had over $180 million in surpluses in recent years.
The state expects $115 million in surplus ongoing revenue this fiscal year, which Gov. Kristi Noem hopes to put toward a 4% increase in funding for education, health care providers and state employees.
Rep. Liz May, R-Kyle, said the sales tax rate was supposed to be cut to 4% based on the now-repealed Partridge Amendment. When legislators raised the state sales tax rate in 2016 by a half-percentage point in hopes of boosting teacher pay, they intended to reduce the tax rate as collections from online sellers increased.
“The only reason that bill passed, to start with, was because of the Partridge Amendment,” said May, who was a representative at the time.
Rep. Phil Jensen, R-Rapid City, who was in the Senate in 2016, said the amendment was a “gimmick” designed to push lawmakers off the fence.
May said she hopes the vote in favor of a permanent tax cut will “send a message” to the Senate that politicians should follow through with promises.
But some legislators voted against the permanent cut. House Minority Leader Oren Lesmeister, D-Parade, worried about the impact if the cut becomes permanent and if South Dakotans vote in November to eliminate the state sales tax on anything sold for human consumption, commonly referred to as the grocery tax or food tax. Petitions to place that measure on the ballot are circulating.
Gov. Kristi Noem cautioned legislators last session that the proposed ballot measure will likely pass, which could leave lawmakers scrambling for revenue. A statewide South Dakota News Watch poll released in December showed that 60.6% of registered voters support eliminating the grocery tax.
Rep. Roger Chase, a Republican from Huron, voted against the bill Friday because he’s unsure about economic growth and stability in the next few years, calling the tax cut “irresponsible.” He recalled tight budgets in the years before the pandemic and federal influx of funds.
“On our farm, corn is $2 a bushel less today than when we voted on this sales tax reduction in March. Beans are significantly less,” Chase said. “… We have no idea what the economy is going to be like in years to come in South Dakota.”
Schoenbeck said the Senate will be committed to fiscal responsibility. After years of high inflation and increased federal funding, he pointed to some state revenue streams not hitting their targets — such as sales tax revenue — and expenses increasing as well.
“There’s a whole lot of people voting for tax cuts with bills to spend money, which is an interesting magical act,” Schoenbeck added.
Karr cited at least five times in the last six years the Legislature repealed sunset clauses on laws.
“We do it all the time,” Karr said. “We do it, I guess, when politically we can and when there’s a certain comfort level.”