Aberdeen May Expand Sales Tax Refunds to Big Industry

The Aberdeen City Council last night narrowly approved first reading of an expansion of the sales tax refunds the city offers to big industrial projects.

City ordinance presently allows a 50 percent sales tax rebate for qualifying projects that add at least $5 million in taxable value; represent an investment of $10 million in non-realty assets like equipment; or encompass a combination of new construction and non-realty assets that exceeds $10 million. This ordinance has been in effect since 2016.

Michael Bockorny, CEO for Aberdeen Development Corp., came to the Aberdeen City Council in July seeking a tax rebate of up to 100 percent and authority to review applications for sales tax refunds.

A revised ordinance presented Monday was in response to Bockorny’s request. Those amendments allowed a 50 percent rebate on smaller economic development projects (at least $1 million in new taxable value; $2 million in non-realty assets or a combination of the two that’s at least $2 million.) The ordinance also lists additional qualifying criteria [Elisa Sand, “Council Amends Sales Tax Rebate Ordinance,” Aberdeen American News, 2018.08.14].

The draft ordinance placed on last night’s agenda would have kept the refunds at 50%; Sand reports that councilman Rob Ronayne moved to amend the refunds up to 100% and received the support of Mayor Mike Levsen and fellow councilmen Mark Remily, Mike Olson, and Dave Lunzman. Councillors David Bunsness, Jennifer Slaight-Hansen, Clint Rux, and Alan Johnson opposed the 100% handback.

I understand the logic of offering tax incentives to recruit more business. However, I maintain that we could juice the economy more with refunds to many more homeowners and small businesses than top-down handouts to a wealthy few. Take Red Rooster, for instance: Aberdeen’s local coffee shop is moving to a new location down Main Street. This economic and cultural anchor of Main Street has set up a GoFundMe page to help with moving costs. A little kickback from the city would go a long way in making Red Rooster’s move affordable and keeping this renowned hub of downtown activity alive and thriving.

The same would be true for refunds of sales tax to other small businesses or homeowners… who, alas, are excluded from the city’s refund ordinance, along with any retail, residential, or lodging endeavors. A small tax break could be make-or-break for a small project. But the big developers whom this ordinance targets aren’t asking whether or not to do their project. Those big wheels are going to roll; their decision is simply which community to roll into (or roll over?) so they can maximize their profits.

As written, the ordinance expands refund eligibility to smaller projects, from $10 million in total value to $2 million. That’s arguably a step in the right direction. But in general, these still exclusive, top-end refunds still make sales more regressive. Regular folks drinking coffee and selling coffee still pay full sales tax, and they pay a higher percentage of their income in sales tax. Rich developers get refunds and pay a lower percentage of their income in sales tax. The poor bear a greater burden than the rich—that’s the definition of regressive tax.

I understand the city’s logic: our economic developers think that if we don’t offer more and more tax incentives, big businesses won’t come here and provide ongoing tax revenues and jobs to our fair city. But isn’t it enough that Aberdeen already offers developers zero state income tax, supposedly lower cost of labor and living, and, for Pete’s sake, Wylie Park and go-karts?

At some point, South Dakota must snap out of its tax-incentivitis and the inferiority complex from which that illness springs. Aberdeen is a great community. South Dakota is a great state. And part of being a great place to live is expecting everyone to chip in fairly to maintaining public goods and services.

The expanded sales tax refund ordinance gets second reading next Monday at City Hall.