The Republican members of the South Dakota Senate State Affairs Committee have rejected a bill passed by the House that would have cut the sales tax by half a percentage point. The only vote for the plan came from the panel’s lone Democrat.
The state increased the sales tax by that half-percent in 2016 to increase teacher pay and provide property tax relief. Cutting the tax back to an even 4% over the next 2 years would have reduced state revenue about $150-million dollars a year.
The bill had passed the House with a 7-vote margin despite Gov. Kristi Noem urging a more cautious budgeting approach that wouldn’t siphon off one of the state’s largest revenue sources.
Noem also expressed concern about the state’s ab sector getting hit hard by drought in the future, which would negatively affect South Dakota’s sales tax collections.
Representative Chris Karr of SIoux Falls told the Senate Committee the state can afford the half-percent cut because there are several federal relief and infrastructure packages providing a safety net.
Karr said leaving the $150-million in the hands of individuals and businesses would be a long-term infusion of dollars that would stimulate the economy for years, bringing in even more tax revenue to more than offset the reduction.
Critics argued the time isn’t right for the plan, worrying it could make it difficult to fund future projects such as prison and jail infrastructure.
Senator Lee Schoenbeck of Watertown said that while the federal programs cited by Karr may prevent “a cliff” for a few years, South Dakota lawmakers need to take a longer view to make sure the state can always pay its bills.