There’s a showdown brewing in the South Dakota legislature over the state’s sales tax rate. Both legislative chambers have a bill in play that could reduce the sales tax.
Both measures assume a new source of revenue – from online sales taxes.
However, it’s not even clear the state will bring in enough revenue from online purchases.
This debate over sales tax revenue started a few years ago. It was 2016, and lawmakers were considering a sales tax hike of half a percent to fund teacher pay and property tax relief. Then-state representative Jeff Partridge threw in a last-minute, golden-hour amendment to save the legislation.
It’s called the Partridge Amendment.
It says if South Dakota won a court case allowing sales taxes from online purchases, the tax rate would go down. One tenth of a percentage point for every $20 million dollars collected online.
It passed the house – and then the senate.
“Since it was passed it’s become legendary like the Peanuts character Linus and his belief in the Great Pumpkin," says David Owen, president of the South Dakota Chamber of Commerce and Industry.
Owen says the Partridge Amendment was a long shot. Because the one-hundred- and fifty-word amendment all centered on a big if… if the United States Supreme Court ruling would allow South Dakota to collect online taxes.
The ruling said yes. And now lawmakers are looking to honor the intent of that amendment.
Now state Senator Partridge, has a bill that seeks to clarify ambiguity in the law.
Partridge says the governor’s office will report how much revenue is generated from remote online sellers.
“Department of Revenue supplies the number to us and the appropriations committee decides whether or not that number fits in with the parameters set out in the original—because I’m not changing any of that, regarding the $20 million and reducing by .1 [percent]. The appropriations committee then goes forward to reduce taxes as such," Partridge says.
Partridge says his bill gives the legislature the authority to decide whether to reduce taxes across the board.
In a surprise move yesterday during a committee hearing, Democrats and the conservative caucus of the Republican party tacked on an amendment that would reduce the sales tax on food bought in the grocery store.
Democratic Representative Ray Ring wants the state to keep the additional revenue from online remote sellers. He says the state does not need to off set that revenue by lowering the sales tax rate. However…
“If we’re going to give up some revenue, then I’d rather see it given up in a way that makes our tax system more fair,” Ring says.
Ring says taxing food purchases creates a regressive tax structure because lower income people pay a higher percentage overall for food. A committee will take up that bill next week.
But there’s a separate bill, which tosses all of that out the window. Proponents say it’s a clearer mechanism for reducing the state sales tax.
Republican State Representative Chris Karr is the prime sponsor of a bill that got a complete redo last week. He says the state needs to look at its entire sales tax revenue structure.
His bill defines sales tax this way. If revenues exceed $20 million dollars plus inflation in a fiscal year, the tax rate is reduced by point one percent effective the next fiscal year. Karr says that gives the legislature time to consider the rate and act if they have to.
Karr says other legislation doesn’t consider how to tax remote online sellers that build a distribution warehouse in the state. He says that would lead to companies like Amazon no longer considered as a remote online seller.
“In my opinion, that leads us down a road where we don’t live up to the intent of the original amendment,” Karr says. “the intent was, if we collect and we forceably collect from out of state, then we’re going to start reducing.”
Karr says the legislature still can introduce a bill to keep the sales tax rate in place.
The conservative think tank American’s For Prosperity - South Dakota, says it supports Karr’s bill. The organization already has petition language ready for the 2020 ballot to automatically reduce the state’s sales tax over the next five years, down to 4 percent.
Republican Governor Kristi Noem says she’s not comfortable with either of those proposals.
“I’ve encouraged the legislature to take our time, collecting the data and then have a mechanism in place to make sure we’re following through on what the original intention of the Partridge Amendment was,” Noem says.
All of this hinges on the state bringing in a windfall of cash from online sales taxes over the next year.
Noem says after one month’s worth of data, there’s been no significant increase in revenue.
Lawmakers agree there will likely be a number of revisions to the existing versions of these two bills as the legislative session draws to a close.