South Dakota Legislature starts work on repealing groceries tax

Published: Jan. 26, 2023 at 10:44 AM MST
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RAPID CITY, S.D. (KOTA) - The House Taxation committee favors and recommends sending a bill eliminating the state sales tax on most grocery items to the House Appropriations Committee Thursday.

House Bill 1075 passed on a 12 to 1 vote after about an hour and a half of testimony and debate.

The measure was a significant plank in Gov. Kristi Noem’s 2022 reelection platform. Commissioner Jim Terwilliger of the state Bureau of Finance and Administration was the point person on the bill for the Noem Administration.

He says ending the tax on most non-prepared food items would save South Dakotans about $102 million. He added the state would still have about $200 million in new revenue. Terwilliger also said it is essential for South Dakota to stay competitive.

“Other states are looking at additional tax cuts,” Terwilliger said. “We are one of only three states with a full sales tax rate on food.”

Terwilliger says the state has a booming economy, the population is growing, and other revenues are coming in ahead of estimates.

Erik Nelson with S.D. AARP also supported the bill.

“This is a burdensome tax on older South Dakotans,” he said. Because it will free up more money for food, he added, “Nutrition is more important to aging than previously thought.”

Other proponents said it was a tax savings all South Dakotans could enjoy, just not a special interest.

Opponents warned that the federal government has infused the state with high amounts of one-time funds because of COVID-19 and federal infrastructure initiatives.

They reminded legislators about lean years in 2012 and 2013 when Governor Mike Rounds and Dennis Daugaard asked for a 10% across-the-board program cut. Gov. Daugaard eventually reduced the overall amount to eight percent.

Others said state education funding would be adversely impacted. Nathan Sanderson with the S.D. Retailers Association said ending the state sales tax on food is “not sustainable.”

“Federal government funding and high inflation are the not signs of a healthy economy,” Nathanson said.

Also, an unexpected issue arose. Democratic Rep. Peri Pourier from Rapid City, who represents the Pine Ridge Indian Reservation, said tribal nations were not consulted about the proposed tax cut. She said the state has sales tax compacts with all seven tribal nations. Pourier said that while the cut would be good for her constituents, it would significantly reduce tax revenue to the tribes.

Alli Moran with the Cheyenne River Sioux Tribe said it would “deeply impact our ability to provide social services.”

Commissioner Terwilliger said the state would be willing to work with the tribes to come to an accommodation. However, he wasn’t sure everything could be in place before the possible passage of the tax cut.

The measure now moves to the House Appropriations Committee.