I could have told Rep. Jim Stalzer (R-11/Sioux Falls) that he didn’t need the long weekend to read Rep. Jeff Partridge’s (R-34/Rapid City) proposed Internet sales tax amendment to House Bill 1182. The Partridge amendment is pretty simple:
Partridge… wants state government to reduce the tax increase if the treasury starts receiving tax collections on sales made over the Internet.
His proposal calls for repealing one-tenth of 1 percent of the sales tax for every $20 million of Internet tax collections.
Partridge said afterward his amendment is serious [Bob Mercer, “Governor’s Teacher-Pay Plan Stalled by Procedural Maneuver,” Rapid City Journal, 2016.02.11].
…but the Partridge amendment is cast in doubt by the Internet Tax Freedom Forever Act, legislation U.S. Senator John Thune has been pushing since last year and which was tucked into Section 922 of the Trade Facilitation and Trade Enforcement Act that passed the Senate yesterday with a comfortable bipartisan majority (but with a nay from Senator Mike Rounds; Rep. Kristi Noem voted aye in the House last month). ITFFA will force South Dakota to repeal its tax on Internet access by 2020, leaving a $9.5-million hole in the state budget that Governor Herseth Sandlin and her Democratic Legislature will have to fill. ITFFA does not outright ban taxing sales on the Internet, but it leaves out the provision some members of Congress wanted to empower states to extract sales tax from online retailers, which Majority Leader Mitch McConnell has agreed to bring to a separate vote later this year.
State Rep. Partridge and U.S. Senator Thune appear to be moving in opposite directions. Rep. Partridge should withdraw his motion and focus on funding competitive teacher pay with revenue sources that exist right now, not taxes that don’t exist yet and that Congress is in no hurry to permit.
The Partridge amendment calls for the 0.5 percent tax to gradually be rolled back to 0.4 percent if — if — sales tax collections on remote sales reach $20 million. For each $20 million of additional revenue, another 0.1 percent of the tax would be rolled back.
Also, please understand the Thune-backed “Internet tax freedom” act deals with charging the sales tax on Internet service, not on sales of goods via the Internet. I agree that Congress seems unlikely to pass the Mainstreet fairness act that South Dakota businesses want so sales taxes can be charged on the purchases made over the Internet (and by catalog, etc.). Congress is dominated by states that have state income taxes rather than state sales taxes.
And, please check the legislation introduced this year that positions South Dakota to be a challenger in federal court on the issue of taxing goods sold via the Internet. The prime sponsor of SB 106 is Sen. Deb Peters, R-Hartford. The legislation has much of the Senate and House leadership from both parties on the sponsors list.
Partridge’s amendment (and he can defend himself on this point) is intended to provide tax relief for all South Dakotans by exporting more of the tax burden to people outside South Dakota. Combined with SB 106, this seems like a potentially popular strategy in the Legislature.
Partridge is dreaming if he thinks South Dakota can syphon sales tax revenue off of other states via the Internet. If there ever is such a tax each state will want their own slice of pie.
Partridge insists that his is a serious amendment, intended to bring more votes. If he can offer an amendment to bind the state to commit some as-yet non-existent tax to raise teacher pay, why can he not offer an amendment to HB 1182 to bind these new dollars to K-12 education for the next five years?
By the way, the vaunted $40 million of property tax relief is mentioned as the “intent” of the Legislature, but the language of HB 1182 does not commit that money to that purpose.