A new report raises questions about the financial impact of a proposed initiated measure eliminating tax products sold for human consumption.
The analysis found the fallout of IM-28 on the state’s checkbook could vary by hundreds of millions of dollars, depending on how its language is interpreted.
The South Dakota Legislative Research Council staff said IM-28 could impact state revenues by $133 million if it only impacts food. That number can grow to over $600 million depending on how the measure is defined.
The reason the fiscal impact gap is so wide is due to the phrasing used in the measure. Terms like, “anything sold for human consumption” and “prepared food” were topics of conversation at a Wednesday's interim legislative appropriation committee meeting.
Jeff Mehlhaff is the Deputy Director and Fiscal Chief for the Legislative Research Council. He offered an example of how defining phrases impacts fiscal possibilities.
“A soft drink that you order at a restaurant would likely be taxed. And this is because those are generally fountain drinks, and a fountain drink you are combining the syrup and then the carbon dioxide, the water, to combine them into one product which is your fountain drink that your selling. Now, if I went to a retail store where I bought a bottle of Mountain Dew out of the refrigerator, if I bought that, that would now not be taxed because it is not prepared food,” said Mehlhaff.
Proponents of the measure said the current tax rate disproportionately affects lower-income South Dakotans. They said they worked with the LRC on the language.
Tony Venhuizen is a state representative who serves on the appropriations committee. He said IM-28 is too drastic of a measure for South Dakota.
“$176 million would require a seven percent cut across the board, to K-12 schools, tech schools, Medicare rates, state employee salaries. Seven percent, that’s what’s on the ballot here. If the people vote for this, they need to know when we come here in January, we are not going to be doing increase for anything," said Venhuizen. "We’re going to be making significant budget cuts. Seven percent budget cuts, the worst since the 2011 session. It’s just incredible to me that a person could be so irresponsible to put something like this on the ballot with absolutely no plan to pay for it.”
If the initiated measure passes a statewide vote, the legislature has the power to change the language before it takes effect.
