South Dakota House pushes sales tax cut, but Noem cautious

PIERRE, S.D. (AP) — The South Dakota House on Wednesday pushed to reduce the state’s sales tax by half a percentage point, passing the proposal despite objections from Republican Gov. Kristi Noem.

The proposal was spearheaded by a group of right-wing Republicans who have sparred with the governor over the state budget this year. It passed the Republican-controlled House on a 39 to 31 vote and will next be considered by the Senate.

Republican Rep. Chris Karr, who chairs the committee ironing out the state budget, cast the proposal as a way to make good on a 2016 law that promised to reduce the 4.5% sales tax if the state won the right to tax sales from online sellers.

The proposal makes South Dakota one of the over two dozen states, both red and blue, looking to give taxpayers and consumers a break amid soaring tax revenue and billions in pandemic aid from the federal government

“Our economy is good, things are good,” Karr said, arguing that between the state’s economic growth and a massive influx of federal funds coming over several years, the time is right to scale back the tax.

“We’re trying to give people in South Dakota their dollars back because we have the opportunity,” he told the House. “We have unearmarked dollars that we don’t necessarily need right now.”

He proposed that the reduction happen over two years, with a quarter percent drop each year. Karr projected it would mean the state’s revenues drop by $74 million in the next fiscal year.

Republicans in the House were split on the proposal, but with Gov. Kristi Noem opposed, it faces a tough test in the Senate. In a news conference held minutes after the House vote, the Republican governor sounded caution on reducing one of the state’s biggest revenue sources.

“We’ve done a fantastic job growing and benefiting the families and businesses here in our state right now. But we also have some challenges ahead,” she said, pointing to drought, inflation and higher energy costs that could dampen the state’s consumer spending.

“It’s very, very conservative to adopt conservative numbers on what you will spend and make sure we’re not spending more than what we have and set ourselves up for tax increases in the future,” she added.

Noem has claimed that the state has the nation’s “strongest economy” and that she wants to cut taxes, but her proposals to cut taxes and fees have been more modest. A proposal to cut the state’s bingo taxes and fees was enacted, but that represented less than $40,000 in annual revenue.

The governor has also proposed removing business filing fees and firearm carry permit fees, which together total just over $4 million annually. The Senate on Wednesday struck the waiver on business filing fees from Noem’s proposal.