$104 million tax cut plan amended to end in two years

February 28, 2023

PIERRE, S.D.–The last major tax cut bill still alive in the Legislature would now only last two years, based on an amendment that the Senate Taxation Committee passed Monday morning.

House Bill 1137 plans to reduce South Dakota’s state sales and use tax rate from 4.5% to 4.2%, about a $104 million tax break. The cut would also partially fulfill plans from 2016 when legislators raised the state tax rate by a half-percentage point in hopes of boosting teacher pay, with an intent to reduce the tax rate as collections from online sellers increased.

Makenzie Huber with South Dakota Searchlight (https://southdakotasearchlight.com) reports the new amendment adds a sunset date of June 30, 2025, for the tax cut, which would return the tax rate to 4.5% at that time unless legislators act to extend it.

The amendment serves as a precaution in case of a recession or if South Dakota voters pass an initiated measure that would eliminate the state sales tax on groceries. The amendment would also force future legislators to re-evaluate if the tax cut is feasible, said Sen. Jim Stalzer, R-Sioux Falls and Senate Taxation chair. Stalzer introduced the amendment.

Gov. Kristi Noem testified to the House Committee on Appropriations last week in support of her own grocery tax repeal bill, which died in the committee. She warned legislators that they could be in a bind two years down the road if they pass a general tax reduction bill and then voters repeal sales taxes on food.

“If you pick a different tax cut to do this year, you’ll be back here in two years to figure out how to do another $102 million tax cut,” Noem said last week.

Stalzer said adding a sunset amendment addresses some legislators’ concerns about “not being able to afford both” tax cuts down the road.

“This would give some people a little more confidence going forward,” Stalzer said. “That’s why I was asked to entertain this by leadership.”

The bill now goes to the full Senate.