South Dakota House and Senate deadlocked on tax relief deal with time running out

March 9, 2023

PIERRE — Lawmakers have just one regular day of business left in the 2023 legislative session to pass a tax cut for South Dakotans – and they still haven’t reached a deal.

Makenzie Huber with South Dakota Searchlight reports five options to reduce the state sales tax remain in the mix among leaders in the Senate and House of Representatives, ranging from a $70 million cut to $140 million. Also undetermined is whether the tax cut will be permanent or temporary.

This comes after weeks of whittling down tax relief proposals, including the rejections of a Gov. Kristi Noem-backed grocery tax repeal and a property tax rebate program. It was Noem’s promise to repeal the state sales tax on groceries that kick-started tax cut debates in September.

After reconvening at 5 p.m. Wednesday following hours of public and private talks, legislators agreed to postpone further work until 8 a.m. Thursday, the last regular day of the legislative session until lawmakers return March 27 to consider vetoed bills.

A budget cannot be adopted until legislators resolve their tax cut negotiations. And Noem has threatened – without using the word “veto” – to withhold her support for the budget if lawmakers don’t pass her proposal to eliminate the sales tax on groceries.

House leaders so far have held out for a permanent, across-the-board state sales tax reduction from 4.5% to 4.2%, worth about $104 million.

But senators proposed four other options, three of them within hours of each other, in hopes of convincing the House to agree to some sort of temporary tax cut.

The latest option suggested Wednesday night by the Senate Republican Caucus was a reduction to 4.2% paired with a formula. The formula would trigger a return to 4.5% if state revenues decline by $15 million compared to the prior year. The last time that happened was in 2010, due to the Great Recession.

Rep. Chris Karr, R-Sioux Falls, described the proposals as an attempt to “see what sticks” with the House.

Karr is a member of the conference committee that’s trying to work out a deal, and he’s the architect of House Bill 1137, which is the main tax cut legislation still in play. He said this session is the right time to give South Dakotans a tax break. Implementing a sunset or trigger wouldn’t be responsible, he said, because it’s an automatic decision rather than a debated and analyzed decision from lawmakers to raise taxes again.

He said a tax cut should be permanent.

“We just need to implement good tax policy, and I think that is,” Karr said. “And then we come back every year, we analyze and we appropriate accordingly.”

“I think this recession trigger is probably the worst tax policy idea that I’ve heard all session long,” Hansen said. “I think when a recession kicks in is the last time to be taking more money out of the pockets of people and giving it to the government. I hope that it gets defeated soundly.”

Senate Majority Whip Ryan Maher, R-Isabel, who introduced the trigger-formula amendment, predicted there won’t be a tax cut at all because the two chambers won’t agree on what is needed for South Dakota. He also expressed concern about the eventual loss of federal American Rescue Plan Act funding that has contributed to a state budget surplus.

“We know we’re going to have a lot of the ARPA money leave the economy. We know we’re bringing prisons online. We know Medicaid expansion’s coming on and that’s going to cost us money, and the potential for another sales tax repeal on food is out there,” Maher said, referencing an ongoing petition drive to put a food tax repeal on the ballot in 2024. “You’ve got five different things that are going to happen that all affect our revenue in big ways.”

He said the state will need $200 million in additional ongoing revenue by 2026 to sustain state projects and obligations.

“There’s a high potential that there is no tax cut,” Maher said.

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