Makenzie Huber/South Dakota Searchlight
South Dakota homeowners will see the effects of two new property tax reduction laws as early as next year — automatically and without any formal notice in one case, and with notification from their county if it chooses to participate in the other case.
Both laws, approved in March, allow higher sales tax revenue to be applied toward the reduction of owner-occupied property taxes. One law uses revenue from a July 2027 restoration of the state sales tax rate from 4.2% to 4.5%, after several years of a temporary reduction. The other uses a new, optional sales tax of up to 0.5% at the county level.
County-level relief timing will vary, state financial officer says
The county sales tax can be implemented by county commissions or a vote of the public. In counties that enact a sales tax, the revenue will be used to reduce the county portion of property taxes on owner-occupied homes. Homeowners will see the reduction as a credit on their property tax bill.
The Governor’s Office estimates the average credit could be $660, although that could vary widely depending on individual circumstances.
The earliest counties can implement the sales tax is January 2027. The earliest they can provide property tax credits is on property tax bills for that same year — usually sent out in January and February.
South Dakota Bureau of Finance and Management Commissioner Jim Terwilliger said counties with larger populations and budgets — such as Pennington, Minnehaha and Lincoln — could credit homeowners’ property tax bills as soon as next year with a “little planning and cash flow management.”
Smaller counties with less dependable sales tax income would likely have to wait until 2028 or a year after the county sales tax is implemented to issue credits based on what is collected over a full year, said Lawrence County Commissioner Eric Jennings.
That means, Jennings said, that homeowners in some counties could pay a “double tax” for a year — a full property tax bill and an increased sales tax — before they see any property tax relief.
“At the end of the month, that makes a difference for people’s budgets,” Jennings said, “whether they think about it or not.”
Statewide property tax relief to come next year
When the statewide sales tax rate increases in July 2027, South Dakota homeowners won’t see a credit on their property tax bill specifically listing how much money they’ve saved on their property taxes. Instead, lawmakers will put the extra sales tax revenue into state funding for public schools, which will reduce the funding schools need from local property taxpayers.
Even though the state sales tax increase doesn’t take effect until July 1, 2027, homeowners should see lower property taxes on their bills arriving in January or February of 2027. That’s because lawmakers are using $56 million in state reserve funds along with the first six months of revenue from the increase in the sales tax rate to fill a property tax reduction fund and kick-start the relief.
Many homeowners will save $168.30 for every $100,000 of their home’s valuation, according to the state Revenue Department. That’s $547 in savings for a $325,000 home.
Those figures apply to school districts that use the maximum allowable property tax levy on homes. Some school districts set their levy lower because they collect enough in taxes at a lower rate due to higher property values. Taxpayers in those districts will see a smaller, though still “meaningful level of savings,” said Kendra Baucom, of the state Department of Revenue.
In future years, the property tax reduction fund will rely entirely on revenue from the increased portion of the state sales tax. That’s expected to be about $114 million annually at first.
Because the fund is dependent on sales tax collections, it can fluctuate.
“If those funds continue to grow, that means future levies could be reduced even further,” Terwilliger said.