In The Moment ... January 23, 2019 Show 500 Hour 2
A bill is soon to be released that its sponsors say clarifies the reduction state sales taxes as it relates to online collections. SDPB's Lee Strubinger is in Pierre and joins us to explain.
Before we jump into this bill, remind us why the state sales tax was increased
In the 2016 session, a sales tax increase was passed to bump up state aid to education – increase teacher pay – but to also provide for some property tax relief.
Legislature increased the sales tax rate from 4 to 4.5. As one might imagine, raising taxes in South Dakota with a republican supermajority in the legislature, and a republican governor… isn’t particularly popular. Despite what need might be out there.
So, an amendment was added to the increase by then Representative Jeff Partridge. He’s now in the state senate. That amendment places an automatic trigger on sales tax reductions after a certain amount is collected.
How does that happen?
That’s one of the issues.
Keep in mind another bill from 2016 that requires online vendors to collect and remit sales tax. That was ultimately challenged in court by Wayfair, an online home store for furniture and décor, and ultimately ended up in front of the Supreme Court. The court ruled in South Dakota’s favor, and thus the state started collecting that tax starting November 1 of last year… That’s a key date, remember that.
The legislative intent of the Partridge Amendment was for every $20 million of that remote online seller revenue collected, the sales tax goes down by one tenth of a percent… up to five times. So, it can go back down to 4.0 percent, which was the sales tax rate before the increase was passed in 2016.
At the Partridge Amendment at the time was considered a bit of a long shot, should the US Supreme court rule in favor of the state requiring online vendors to collect and remit sales tax.
Senator Partridge says there are varying opinions as to whether the sales tax reduction is self-triggering... does the department of revenue decide, or the legislature?
Partridge: “It’s very important for us as a state, and us as a legislature right now, to come in now, after that special session, after we’re able to collect, based on the Wayfair case, and clarify the language for this amendment and exactly what’s going to happen. I’m going to be submitting a bill that does just that.”
One supreme court decision and special legislative session later, lawmakers have a bill that seeks to clarify how that reduction will take place.
Up until now, it was up in the air as far as what—if anything—was going to happen with the Partridge Amendment.
Okay, so tell us about this bill, what does it do?
It strikes most of the 2016 Partridge Amendment and adds language the state senator says clarifies the language and eradicates the ambiguity.
Secondly, it removes the trigger that automatically reduces taxes by setting up a process, Partridge says, that allows the appropriations committee to set the sales tax rate every year.
How?
According to the proposed legislation, The Department of Revenue will prepare and submit to the budget committee—Appropriations—its calculations of actual revenue generated during the previous calendar year.
The Department of Revenue will supply that number on a calendar year basis.
So… they’ll look at collections from January 1 through December 31.
Partridge says the Department of Revenue will give that calculation to Appropriations no later than the 21st legislative day.
Partridge: “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. That’s what this clarifying language bill does that I plan to drop this week.”
Calculation of revenue generated may not include any revenue generated prior to November 1, 2018, which is the date set by the legislature last year during special session.
However, what makes up the 20 million dollars that triggers a tenth of a percent reduction, not everyone agrees on… would that include Amazon sales tax collections or not? They voluntarily started remitting sales tax before the start date imposed by the legislature.
If the revenue generated in a calendar year exceeds revenue generated in the previous year by at least twenty million dollars, the appropriations committee may introduce legislation to reduce the sales tax rate.
That could give the appropriations committee a lot of power going forward.
You’re right.
Partridge says it’s unfair that the Department of Revenue gets to guess or interpret how much revenue is generated.
Keep in mind, during Governor Dennis Daugaard’s outgoing budget address last year, he presented two different numbers in terms of how much “new” (using air quotes here) sales tax is collected from e-commerce.
Those two different methods yielded two different numbers… One which would—theoretically—cause a trigger or reduction to the state sales tax, another which wouldn’t.
Partridge says the goal is to keep this decision in the hands of the legislature.
The appropriations committee relies heavily on the governor’s budget to craft their own… and to craft one that is palatable for the governor to sign.
The governor’s staff is crunching numbers year round, where as the legislature is only here for forty days.
This could give more authority to the legislature.
What has Governor Kristi Noem said about the Partridge Amendment?
She says right now her administration is taking a wait and see approach with what to do about the Partridge Amendment.
During a press conference last week, Noem says there will be more direction once revenue numbers come in.. and if there’s any additional dollars being collected from online sales that wasn’t being collected previously.
Noem: “I’m not anticipating extra revenues. So, the ability to solve that problem this fiscal year may be difficult. If we don’t have those extra revenues, how do we make those kinds of adjustments in statute? That’s what we’re examining. We’re looking at what dollars are coming in, if we can idenfity if it really is new money, or if it is money that we’ve already been previously collecting, and what kind of adjustments need to be made to that.”
Noem said that last week, and Partridge expects his bill to drop this week. The state senator told me he showed this legislation to Noem in December, so this is something her office is aware of… Partridge says he’s shown this bill to just about any interested party who wants to see it and have input.
He says he expects the governor to talk about the Partridge Amendment during her budget address here in a few minutes.
Partridge: “I think as this bill gets dropped now, this week, and hopefully the Governor will talk about it or talk about—kindof around it, if you will—related to revenue and estimates and things like that, I think it will be important for us to have this clarifying language in so that the ambiguity nature of this amendment isn’t out there.”
How does this fit in with the work Americans For Prosperity South Dakota is doing with the sales tax reduction?
That group wants to make sure that once conditions are met… i.e. the proper amount raised, that the sales tax rate goes back to 4 percent, and that the current rate is a temporary sales tax increase.
I spoke with Don Haggar, a former state lawmaker, now state director for Americans For Prosperity South Dakota. Hey says that group is not comfortable with this bill.
Haggar: “There are a number of ideas being discussed, or floated, to remedy some of the challenges with the language in the Partridge Amendment. I’m confident that by the end of this session we will have a good resolution that will clarify the language and still honor the spirit of—and intent—which was to reduce the taxes.”
He says the tax cut must be automatic… He says the appropriations committee could still have the temptation not to honor the tax reduction
That group has a proposed Initiated Measure in the hopper that could make its way on the 2020 ballot, which puts in statute that automatic trigger and reduces state sales tax over the next five years.
In just a few minutes, Governor Noem is going to give her first budget address… what are you hearing around the capitol.
As I reported last week, Governor Noem says she informed legislative leadership Thursday morning that her budget was ready and she’ll deliver it today in a few moments.
She says she is using former Governor Dennis Daugaard’s budget as a starting point. She says she will make some changes.
Noem: “It will be where the house and senate start their discussions throughout legislative session as well,” Noem says. “We will continue to work on that until we have a final plan that meets our needs and have agreement to keep our government in check and takes into account an environment where we can grow businesses and help support families as well.”
Noem declined to offer specifics of her budget, but she says her budget will reflect the priorities laid out in her state of the state address.
That includes areas of broadband access, mental health and fighting the meth epidemic.
She says her budget address will reflect some topics not mentioned in her previous address to the legislature, including funding for community support providers, nursing homes and education.
