One jar of peanut butter. A Sioux Falls woman brought one jar of peanut butter to Senate Taxation this morning. Her furnace broke down this winter, wiping out her emergency fund and forcing her to turn to The Banquet for food assistance. The sales tax she would pay on one load of groceries would pay for that one jar of peanut butter. When you’re hungry, when you’re feeding kids, one jar of peanut butter can go a long way.
Senator Reynold Nesiba (D-15/Sioux Falls) brought Senate Bill 159 to help that woman buy some peanut butter and to help make other South Dakotans’ straits a little less dire. His plan would refocus sales tax relief already written into statute in 2016 from a general reduction of the state sales tax rate to a deeper cut of the sales tax rate on food.
The arguments Senator Nesiba and his allies offered were familiar: South Dakota has a uniquely regressive tax structure (we tax the poor at a rate higher than the national average while taxing the rich less than the national average), sales tax eats up three weeks worth of grocery money, and dang it, people gotta eat! We also received the reminder that as the only state in the region taxing food, we lose all sorts of business and tax revenue on non-food item from residents who hop the border to buy cheaper groceries in Iowa, Minnesota, and other eater-friendlier states.
And then Senator Nesiba gave these important numbers. According to the Legislative Research Council, about 7% of our sales tax revenue comes from food sales. Out of $950 million total revenue, that’s about $66.5 million from taxing food. Per a conservative amendment Senator Nesiba offered this morning, SB 159 would knock one percentage point off the food tax for every $20 million brought in by online sales tax. Thus, to completely zero out the $66.5 million we make taxing food, SB 159 would require $90 million in online sales tax to jingle-jangle into the state’s collection plate. SB 159 thus broadens the tax base and leaves a net increase in revenue.
Whether you’re counting beans or jars of peanut butter, SB 159 works out.
But Republicans and the business lobby aren’t going have it work out in South Dakota. State economist Jim Terwilliger said South Dakota follows a safe, stable philosophy of taxing everyone a little to avoid taxing anyone a lot. That statement is fallacious, of course, because taxing the price of a jar of peanut butter taxes a poor woman with a broken furnace a lot.
The Chamber of Commerce and the Retailers Association both testified against easing the food tax, competitive disadvantage with Iowa and Minnesota be darned.
Senator Ernie Otten and Senate Taxation Chairman Jeff Monroe both signaled that the poor already get enough help from food stamps and other welfare programs and thus don’t need a break from the food tax. Senator Monroe said that chart of South Dakota’s regressivity rates probably doesn’t take into account low-income folks’ lavish public benefits…. but he made no mention of the fact that we can apply the impact of public benefits in all states and still see that South Dakota is taxing the poor more and taxing the rich less than other states do.
Senator Jack Kolbeck said South Dakota may be an island of food tax, but we are also an island of no income tax. Kolbeck’s logical conclusion, of course, is that if we exempt food from sales tax, we’ll end up with an income tax, and then everything will go to heck.
David Owen of the Chamber credited Senator Nesiba with coming up with a better plan than past attempts to cut the food tax. Senator Gary Cammack said SB 159 is well-intended and well-crafted. Senator Otten called SB 159 “one of the best proposals I’ve ever seen” in six Sessions and said the bill really got him thinking.
But Senate Taxation still voted 4–1, on party lines, to kill this umpteenth effort to repeal South Dakota’s tax on food. The online sales tax offset thus remains general relief, promising to cut the state sales tax by one tenth of a percentage point for every $20 million in online sales tax. So that woman in Sioux Falls may still benefit… but instead of a jar of peanut butter, our Internet shopping will spot her a handful of peanuts.