PIERRE, S.D. — A proposed cut that would bring the state sales tax down from 4.5% to 4% is moving forward, filling the second of three “parking spots” in the House Appropriations Committee, reserved for three competing tax cuts in front of the legislature this session.
With a unanimous vote in the House Taxation Committee on Jan. 31, the proposal, sponsored by Republican Rep. Chris Karr, of Sioux Falls, is on its way to sit under the microscope of appropriators. It carries 17 sponsors between both chambers.
Legislative leaders have said those proposals will wait until projected revenues crystallize in the middle of February, when appropriators will begin thinking about how grocery tax, sales tax and property tax proposals fit into the larger picture of the state’s finances.
“The debate will continue, and [appropriators] will be able to tell us what we can afford and what we can’t afford once those revenues are in place,” said Rep. Liz May, a Republican from Kyle.
In terms of costs to the state, the $170 million price tag attached to the sales tax is well above the $100 million grocery tax cut. The owner-occupied property tax cut, which will be heard by the tax committee on Thursday on its way to appropriators, carries a price tag somewhere in the realm of $70 million or $80 million, with a final fiscal note from legislative staff expected shortly.
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“I think we probably get it that we want to send this on to House Appropriations and have them analyze this proposal, along with others,” Sioux Falls Republican Rep. Greg Jamison, a member of the House Taxation Committee, said before posing a question to Karr. “Why this approach versus the grocery approach we've already heard?”
One reason Karr pointed to in arguing that the simple amendment to the state sales tax is preferable to the grocery tax is that, should revenues fall to the point where the state is suffering financially, slightly raising a tax could be easier than re-introducing a tax that was cut entirely.
“I think times are good, and when times are good, and we have excess dollars that I think are going to be sustainable for a time, we need to throw out a mechanism to get those dollars back in the hands of the people,” Karr said. “I think [the sales tax] is a more responsible way to do it if we ever need to increase it.”
May also noted that, as a business owner, the simple change to the sales tax rate would be easier to implement than a carve-out for certain grocery items.
The lone proponent of the bill, Karr was countered by one opponent to it: Derek Johnson, the state economist with the Bureau of Finance and Management.
As with nearly every proposed appropriation or tax cut not included in the governor’s proposed budget, various representatives from the administration have used their opposing testimony to simply explain the cost and ask the proposal to be forwarded to appropriators rather than to the floor.
“I think we know at the end of the day that we can't afford to do all of these proposals without looking at pretty substantial budget cuts,” Johnson said. So for that reason, we would ask that you also please refer this bill to the House Appropriations committee.”
In the committee record, Karr included a set of estimates laying out what a more minor cut would cost: a cut of three-tenths, for example, would be nearly exactly equivalent to the cost of the grocery cut. Though he favored a full cut, he left a future discussion on exactly how much to cut the sales tax up to the wider legislature.
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“Not everybody will maybe come to the same conclusion that we can afford to provide $170 million in tax relief, and maybe the consensus will be that we can only do $125 or $100 million,” Karr said.
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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