The FY2017 budget proposed yesterday by Governor Dennis Daugaard includes $989,613,013 (you could round that to one billion) in “tax expenditures,” also known as tax breaks. Tax expenditures are taxes on various goods and services which South Dakota could collect but which we (in many cases with the helpful advice of various lobbyists and other special interests) have decided we are better off leaving in the buyers’ or providers’ pockets.
$166 million of those tax breaks go to public sector buyers—federal, state, local, and tribal governments—not having to pay sales or use tax. That $166 million includes savings for schools; SDCL 10-45-14 extends that tax break to religious and private educational institutions.
But five sixths of those tax expenditures go to the private sector. Following is a list of the biggest cashers-in, those getting at least an eight-figure slice of the tax-expenditure pie, along with the statute authorizing each tax break:
| Statute: Recipient | Amount FY2017 |
| 10‐45‐18, 10‐45‐18.2, 10‐46‐16, 10‐46‐16.2: Livestock, live poultry, ostriches, emus, or rheas, if such sales are part of a series of transactions incident to producing a finished product intended to be offered for an ultimate retail sale. Also includes live cattle, buffalo, sheep, goats, swine, poultry, and horses. | $160,075,000 |
| 10‐45‐12.1: Health Services; 10‐45‐14, 10‐45‐15: Purchases by nonprofit hospitals; 10‐45‐14.10: Drugs to the extent used by humans that are prescribed, dispensed, or administered by a physician, chiropractor, optometrist, dentist, podiatrist, or audiologist; 10‐45‐14.9: Insulin that is not sold by prescription; 10‐45‐14.11: Durable medical equipment, mobility enhancing equipment, and prosthetic devices used by humans when prescribed by prescription, dispensed, or administered for a specific patient by a physician, chiropractor, optometrist, dentist or podiatrist; 10‐45‐14.12: Medical devices used by humans when prescribed by prescription, dispensed, or administered for a specific patient by a physician, chiropractor, optometrist, dentist or podiatrist; 10‐45‐14.6: Hospital meals paid for by a public entity. | $124,034,960 |
| 10‐44‐8: Insurance companies are exempt from all other taxes, except sales or use tax on tangible personal property and taxes on real property. Insurance companies do not owe use tax on the purchase of services, if the service provider does not collect the applicable sales tax. | $104,144,001 |
| 10‐45‐12.1: Financial services of institutions subject to the tax under Chapter 10‐43 (Bank Franchise) including loan origination fees, late payment charges, nonsufficient fund check charges, stop payment charges, safe deposit box rent, exchange charges, commission on travelers checks, charges for administration of trusts, interest charges, and “points” charged on loans. | $68,867,497 |
| 10‐45‐18.3: Feed for cattle, buffalo, sheep, goats, swine, poultry, ostriches, emus, rheas, and domesticated fur‐bearing animals defined in chapter 40‐35, if such feed is used by farmers or ranchers who are regularly engaged in the business of raising and feeding such animals, or producing milk for sale for human consumption, and horses and other animals with the family equidae. Poultry does not include any fowl other than domestic fowl kept and raised for the market or the production of eggs for human consumption. | $51,285,320 |
| 10‐45‐16: Commercial fertilizer, either liquid or solid, when sold in quantities of five hundred pounds or more in a single sale to be used exclusively for agricultural purposes. | $39,566,160 |
| 10‐45‐15: Seed legumes, seed grasses, and seed grains sold in quantities of 25 pounds or more in a single sale to be used exclusively for agricultural purposes. | $31,602,520 |
| 10‐45‐7: Lodging or campsites provided to any person for 28 or more consecutive days. Occasional rental of sleeping accommodations or camp sites, which is 10 or less days/year. | $31,326,167 |
| 10‐45‐9.1: Personal Property sold for lease. | $20,956,160 |
| 10‐45‐3.4: (1)Parts or repairs on machinery or equipment which are clearly identifiable as used primarily for agricultural purposes, including irrigation equipment, if the part replaces a farm machinery or irrigation equipment part assigned a specific or generic part number by the manufacturer of the farm machinery or irrigation equipment; and (2) Maintenance items and maintenance services used on machinery or equipment which are clearly identifiable as used primarily for agricultural purposes, including irrigation equipment. | $19,877,440 |
| 10‐45‐16.1, 10‐46‐17.5: Pesticides (including insecticides, herbicides, pesticides, rodenticides, and fumigants) and products or substances used in conjunction with application of the pesticides used exclusively for agricultural purposes. (Sales tax applies to endoparasiticides and ectoparasiticides) | $19,405,800 |
| 10‐45‐12.1: Exempts advertising services, which is the preparing and placement of ads. Exempts charges by media for placement of an ad in that media. | $19,236,816 |
| 10‐45‐19, 10‐46‐17: Motor fuel, including kerosene, tractor fuel, liquefied petroleum gas, natural and artificial gas, diesel fuels, and distillate, when used for agricultural purposes. Agricultural purposes includes hay grinding but does not include the lighting or heating of any farm residence. | $17,918,240 |
| 10‐44‐4: Tax credit for principal office or regional home office for insurance companies. | $13,556,094 |
| 10‐45‐12.1: Arrangement of Passenger Transportation; Arrangement of Transportation of Freight & Cargo; Local and Suburban Passenger Transportation, except Limousine Services; Trucking and Courier services, except air, except collection and disposal of solid waste; Pipelines, except Natural Gas; Transportation on rivers and canals; and school buses. 10‐45‐67, 10‐46‐55: Natural gas transportation by pipeline. | $12,609,440 |
We can make sensible arguments for and against any of these exemptions. Consider the $68.9 million we forgo in taxes on financial services: that seems a fair trade for imposing on financial institutions the bank franchise tax, a state income tax that the banks seem perfectly happy to bear. An expert friend suggests that most businesses prefer a well-designed income tax to sales tax.
But notice that in exchange for exemption from $68.9 million in sales and use tax, banks are paying just $5.4 million in bank franchise tax this fiscal year and are projected to pay $11.4 million in bank franchise tax in FY2017. If I were a banker, I’d take that deal, too!
The $57.5-million gap between bank franchise tax receipts and bank tax breaks would cover the full $57 million Governor Daugaard says it will cost us by FY2021 to cover the state’s expected 10% of expanding Medicaid. Alternatively, claw back that portion of the bank exemption, then take out the tax break for either pesticides or advertising, and we have the funds for the Blue Ribbon plan while leaving over $910 million in tax breaks on the table.
13% of our state tax breaks could fully fund the two biggest funding priorities that Governor Daugaard says he wants the state to tackle in FY2017. South Dakota has the money; does the Legislature have the will to collect it?
Within the past five years the legislature did a summer study on exemptions to the sales tax. They identified about two or three exemptions that could maybe be removed. Nothing was done at the next legislative session.
To many greedy hands in the pot to remove exemptions to the sales tax. In addition to Cory’s great post, here is what Daily Kos put up. http://www.dailykos.com/stories/2015/12/9/1458516/-South-Dakota-s-Republican-governor-wants-it-to-become-the-next-Medicaid-expansion-state
Who is this numbnutz, like a mirror to Hickey
“In this initial foray, it doesn’t seem like he’s convinced his legislature. “Rep. Don Haggar, R-Sioux Falls, said there isn’t support in the predominately-GOP state House of Representatives for expansion.” Said Haggar, “it’s definitely not there […] I don’t think we saw anything that would change anyone’s mind today.” Daugaard clearly has his work cut out for him in this one, but needs to keep pushing.
I just wonder what a 1% tax on medical services provided to people would raise. Most of that would be paid by a third party and have minimal impact on health insurance premiums. If it could be implemented we could probably pave the Interstates in gold and pay for teachers, Medicaid Expansion (who could pay this tax to offset its cost).
I know…this is probably illegal…but is probably the largest untaxed item of them all.
This is the kind of stuff where you shine, Cory. Where would you get the money to repeal video lootery, too?
I am thinking that agriculture could stand to pay in some of their funding as we have given them the tax break and the guarantees with the Farm Bill. The insurance companies rake us over the coals and then get a pat on the back from the state, maybe we should all declare ourselves members of the insurance industry as we all have to have it.
This legislature has not shown itself to have any backbone unless it comes to shoving women’s rights around! They’d much rather take a hundred dollars from the feds than tax themselves $10.
Here’s a list of sales tax exemptions from 2013–total is close to $600 million. http://dor.sd.gov/Publications/2013_Session_Presentations/PDFs/SummaryofStateSalesTaxExemptions0113.pdf
Thanks for the link John Tsitrian. As a farmer/rancher it looks like all the exemptions in the Agriculture Group are legitimate exemptions. However, I see no reason that all other exemptions couldn’t be thrown out. Hope that helps.
Repeal video lottery, Larry? That’s just another ninth of this list. Keep on carving!
John, does it seem remarkable that tax expenditures increased from $582 million to $990 million (70%!) from FY2013 to FY2017?
Tax expenditures are a farce. Nobody knows the real numbers, they just guess.
Very funny, Mr. Seamans. Very funny. :-)
Can anyone tell me what the total assessed value of South dakota? How is that value broken down into ag? Owner occupied? Comercial/utilities? Also what total dollars does each class pay in school prop tax? MOST people don’t understand when they pay their taxes what they are paying for ( schools, cities, counties, townships, even special districts) they all assume the other guy is not paying enough. I have Googled my question above and have not found an adequate answer. My point is to show what sectors pay the most tax. In the school district I live ag pays 70 plus % of the property taxes that go to schools with less than 100 farm families. The other less than 30% is paid by the business community plus the 700 plus families (owner occupied) in town. Ask someone living in a city how much of their property tax goes to the school vs the municipality they live in and generally they can’t tell you. Then ask them how many owner occupied pay property tax to the schools of 5,10, 25 , or 50, thousand per year. Plus the farm families also pay OO tax. My point and question is to help understand where the dollars come from.
Paul may be thinking of the 2011 interim study on sales tax exemptions:
http://madvilletimes.com/2011/08/interim-committee-protecting-most-state-sales-tax-exemptions/
As Paul said, it resulted in few recommendations and no action.
JSR, I’m going to look for an answer to your question. While I’m looking, consider this: the Governor’s FY2017 budget projects $905 million in sales and use tax revenue. The state exempts more sales tax than it collects.
Answering JSR’s question may take us away from the sales tax topic, but JSR, check this link to see total assessed valuation for 2012 for taxes payable 2013:
http://dor.sd.gov/Taxes/Property_Taxes/Publications/PDFs/CERTIF2012.pdf
$61.4 billion dollars in total assessed value. 38.65% of that was owner-occupied, 37.46% ag real valuation, 23.06% other non-ag real (that would be non-farm commercial, right?), and the last 0.83% manufactured homes.
Mr. H, you should call the state treasurer’s office and ask about that tax base because they probably have it right handy. Why wouldn’t they?
Said Haggar, “it’s definitely not there […] I don’t think we saw anything that would change anyone’s mind today.
From where I sit it is hard to see anything but brown when your wingnut head is shoved so far up koch bros butt.
wapo, 12.13.15-Tom Israel, executive director of the Montgomery County Education Association, surveyed members of the teachers union in the spring and found that half of the 800 who responded had more than $40,000 in student debt. A third said their monthly payments were $400 or more.
“It’s a huge burden on teachers,” Israel said. “They can’t afford to even live in the county where they teach because they’re laying out so much money to pay off their loans.”
He got the attention of Maryland House Majority Leader Anne R. Kaiser (D-Montgomery), who is proposing legislation to let the county establish a loan authority.
note, ND and rhode island are doing it too.