A House panel has advanced a proposal to cut the state sales tax on food, though the measure may faces challenges ahead in the legislature.
The bill is backed by Gov. Kristi Noem, who promised she would cut the tax during her reelection campaign.
The governor’s office estimates cutting the food tax costs about $102 million in ongoing revenue. With the tax cut, they estimate the state will still see $208 million in ongoing revenue.
To date, they say the state has already collected $146 million over last year’s adopted estimates and point to three years of record growth.
Republican Sen. Jon Wiik has historically opposed removing the food tax. The new chair of the state Republican party said now is the time to cut it.
“I think it’s beyond stimulus," Wiik said. "I think it is genuine growth in the economy of the state of South Dakota. I think it’s time to send some of that home where it belongs.”
But critics of the bill say the state’s revenue growth does follow an increase in federal stimulus dollars and inflation. Nathan Sanderson is the president of South Dakota Retailers. The group has historically opposed the tax cut. He said two years of unexpected revenue are not stable metrics for determining whether to cut this particular tax.
“The record revenues you’re seeing are largely the result of 8 percent inflation this year, 4.7 percent inflation last year and a whole slough of federal funds that we’ve gotten in the last several years,” Sanderson said. “It’s not sound tax policy to but $100 million in ongoing general funds just because we’ve had a couple good years of sales tax collections.”
Sanderson says the Retailers prefer another House tax cut proposal—one aimed at property taxes.
Property and food tax cuts are now sitting in the House appropriations committee. House lawmakers are also considering an overall sales tax reduction.
Legislative leaders say the tax cut bills will get worked out over the next few weeks of session. Lawmakers likely won’t cut any tax until the end of February after the joint appropriations committee sets revenue estimates.
