House Republicans want to reduce the overall sales tax hit for state residents from 4.5 percent to 4.2 percent.
That would cut about $104 million dollars in revenue from taxes. It’s roughly the same amount Gov. Kristi Noem’s proposed food tax cut amounts to.
However, they aren’t willing to support two high-profile tax cut proposals for the state’s food and property taxes.
House Republicans say a broader tax cut will be more stable going forward.
Republican Rep. Chris Karr, from Sioux Falls, is the prime sponsor of the bill reducing the overall sales tax rate.
“So, we’re taxing everything, but it’s very broad. It impacts all goods and services,” Karr said. “So, removing that a little bit doesn’t have as much market disruption as just eliminating one tax altogether.”
Critics say cutting taxes that way is less meaningful than doing away with the food tax because residents won’t see the same kind of impact.
Cathy Brechtelsbauer has worked for decades to repeal the state sales tax on food. She dismissed those calling for a broad-based sales tax cut.
“Couldn’t the same argument be made for taxing the tax off the groceries?” Brechtelsbauer said.
“People are noticing that food tax. After so much talk about it during the campaign people are expecting something to happen to get that tax down," she added. "People will be really disappointed if this legislature doesn’t come through.”
Among those is Gov. Noem, who said the House committee made the wrong decision. She made those comments after House Appropriators killed the food tax proposal Tuesday morning.
She said eliminating the food tax is very popular and would affect everyone equally.
“It’s unfortunate this appropriations committee killed our chances to repeal the sales tax on groceries, but we’ll keep working," Noem said. "I know that this policy is what will provide certainty and help those folks who get up every day and go to work put food on the table and continue to meet their budgets in these rising inflationary costs.”
Attempts to revive the food tax cut failed. House Democrats, who have historically supported the idea, did not join in those efforts. They said the governor failed to work with legislators, stakeholders and tribal nations to get the bill right.
Noem worries about a move to place a food tax repeal on the 2024 ballot. That could add yet another tax cut on top of whatever state lawmakers might cut this session.
“We’ll cross that bridge when we get there," said House Majority Leader Will Mortenson, a Republican from Pierre. He said lawmakers must focus on the job in front of them.
“Which is managing this year’s budget. It means meeting our obligations for education, Medicaid providers. We’d like to freeze or cut tuition at the tech schools. These are all competing ideas to these tax cut," Mortenson said. "We still think we can do all of them while cutting this tax.”
The full House will vote on the overall sales tax cut on Wednesday. Then, the tax debate heads to the Senate, where the outcome is still unclear.
Some want to avoid a similar situation to 2010, when then-Governor Dennis Daugaard called for a ten percent funding cut across state government.
Others, like Sen. Helene Duhamel, said the state has a chance to make some big investments with money the state now has. The Rapid City Republican said it’s unclear what the state budget will look like once inflation goes down and federal stimulus dollars are spent.
“I think there’s a lot of people in a very conservative position that say, ‘Hey, let’s take care of our house’” Duhamel said. “And then, if we’re still in this position in a couple of years we then we do look at that. I feel that sentiment growing.”
Another proposal aimed at reducing the tax bite focuses on property taxes. It would have exempted the first $100,000 dollars in valuation on owner-occupied dwellings. However, the House Appropriations committee killed that bill as well.
That’s one Senate Majority Leader Casey Crabtree said he’s hearing a lot of support for. The Republican from Madison said there are still options on the table.
“In the Capitol building these things are never over until the last day. There will be many more discussions about what the Senate thinks is best as well," Crabtree said. "I’m sure those discussions will continue with our colleagues in the House.”
Regardless, Crabtree said because the state is still flush with federal stimulus money now, lawmakers might walk away from the session delivering the largest tax cut in the history of the state.
But nothing is certain – yet.
