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House Approves Sales Tax Cut to 4.25% This Year, 4.0% Next Year

Maybe we could seize those Russian trust assets to cover a sales tax cut.

The House passed Representative Chris Karr’s House Bill 1327 yesterday, offering to reduce the state sales tax rate from 4.5% to 4%, erasing the tax hike imposed in 2016 to fund teacher pay increases. The House is a little nervous about dropping $143 million in revenue from the budget in one fell swoop: Karr offered and the House approved an amendment to two-step the rate cut, dropping the state sales tax to 4.25% this July 1, then dropping another quarter-point next July, yet even that incremental reduction scored only 39 ayes versus 31 nays.

House Democrats lined up behind their leader and gubernatorial candidate, Representative Jamie Smith, in voting against this tax cut. But his objection to a tax cut shouldn’t hurt his electoral chances, as his opponent, Governor Kristi Noem, also opposes HB 1327:

“Typically conservatives want to save for costs that they know they have in the future, make sure that they’re not spending more than they have and that they’re not setting themselves up for future tax increases,” Noem told reporters moments after HB 1327 cleared the House [Joe Sneve, “South Dakota Sales Tax Rollback Inches Ahead Despite Gov. Kristi Noem’s Opposition,” Sioux Falls Argus Leader, 2022.02.23].

One candidate who can make hay with HB 1327 is Republican Representative Steven Haugaard. He voted for this tax cut. He should be shouting all over Twitter that while jet-set Kristi keeps taking your hard-earned money, he’s back in Pierre doing the real conservative work of cutting taxes. But Haugaard hasn’t shouted anything new on social media since last week, and his campaign is wasting time recruiting out-of-state lobbyists to stump for his abortion-pill ban, which won’t win him traction with nearly as many primary voters as saying, “I’ll cut your taxes, Kristi won’t!”

Republican opponents are adopting Noem’s newfound economic pessimism to justify keeping this regressive tax at 4.5%:

Representative Hugh Bartels, R-Watertown, said the economic good times that South Dakota has experienced during the COVID-19 pandemic aren’t going to continue. The retired banker recalled “stagflation” when people reacted to skyrocketing prices by buying cheaper goods and less of them.

“I’ve lived through it,” he said [Bob Mercer, “S.D. House Votes to Reduce State Sales Tax,” KELO-TV, 2022.02.23].

Noem, Bartels, and other opponents do have a point: HB 1327 includes no mechanism for replacing these funds. Yet Karr insists (and my math suggests he could be right) that we can relieve the tax burden and sustain our government revenues:

“I think we need to think about those hardworking people of South Dakota — make sure they’re keeping more of their dollars when prices are high, when there are economic hard times,” Karr says. “We can still—I’ve shown you on paper, more than one year out, more than two years out—with a reasonable growth that we can do this. That government spending, that’s going to be here for several years and it’s going to keep providing stimulus for several years while we continue to grow organically” [Lee Strubinger, “House Passes Sales Tax Cut,” SDPB, 2022.02.23].

Karr will now take his fiscal argument to Senate State Affairs.


  1. Cathy B 2022-02-24 13:22

    A cut in sales tax should include a cut in the tax on food. Think about the ongoing revenue that Rep.Karr says is available for a sales tax cut. A lot of it comes from taxing online sales. But note that we’ve been paying more tax on our food over these past 18 years (1% or 2% more, depending on your city), in order that our state can tax online sales and get this revenue. Back in 2003, some of us saw that a food tax hike would be this collateral damage. We asked legislators for a rate cut on food in order to compensate. (Rep.McCoy from RC had a bill, and we did a big display in the rotunda of 3 weeks worth of food for a family of four.) But legislators told us, Wait for a food tax cut until the state gets the new revenue.
    Now we see that the cost of taking each tenth % off the general rate is enough (and slightly more than needed) to take a whole percent off food. I am convinced that the public would prefer a food tax cut first, and it would be the fair thing to do.

  2. O 2022-02-24 13:47

    Part of the 1/2 penny increase went to property tax relief — not all that money went to education. Does 1327 re-up property taxes back to the levels they were relieved? Otherwise, this becomes a double tax cut.

    I am frankly amazed that House members who went to the mat to get a supermajority to pass the original sales tax increase now turn around and vote for it to go away. That increase was a dual reality check: 1) SD needs a new revenue source to pay for its obligations, and 2) those obligations have value. Moving back to the bad-old-days means that SD is back to the “starve the best” model where EVERY year is a bad year and Constitutional obligations are allowed to go unanswered.

    Again and again, SD reasoning is that at the point something is demonstrated to work and have a positive effect, STOP!

  3. Porter Lansing 2022-02-24 14:18

    O – Good point about property taxes.

    An Anecdote: One of my Republican friends (gasp) came by last Saturday with the news that he’s selling his townhouse and moving out of CO because of all the traffic here and that he’s about to turn 65. I said, “Don’t tell me you’re moving to effin’ Texas!” He replied happily, “No. South Dakota. They’ve got a kick ass Governor, the lowest taxes in the nation and you should see what a house I can get with the $350,000 cash I’ll get when I sell my place.” He had no idea of my youth, in SD. He proceeded to pick my brain about pros and cons but he mostly wanted to know about the cons. He said he discovered SD runs the state on sales and property taxes instead of income tax. He’s already done an exploratory trip to Milbank, Watertown, Brookings, Sioux Falls and it’s suburbs, Rapid City, Spearfish, and Belle Fourche. Long story short, I told him honestly, “John, my friend, South Dakota will be perfect for you. I know a Republican realtor/blogger in Brookings. Just don’t mention my name. He’s already made contact with a realtor in SF.” (He did mention he ran out of gas because the 45 mph headwind took his truck down 8 miles per gallon. lol)

  4. O 2022-02-24 14:35

    If I remember correctly, the half-penny paid for a $40 million property tax cut. This would also set our sales tax at the level it had been since 1969.

  5. Cory Allen Heidelberger Post author | 2022-02-24 14:53

    O, thanks for that reminder. No, this bill includes no mechanism for replacing any of the sales tax dollars, including no mechanism for restoring any of those reduced property taxes.

  6. grudznick 2022-02-24 18:17

    This young Mr. Karr fellow, who I admit is a fellow big breakfaster and an even bigger supperer, clearly is far over his knowledge level. It is known to the legislatures he is but a puppet of others who are pulling the strings.

  7. Arlo Blundt 2022-02-24 20:44

    Mr. Grudznick is correct….we suffer from a multitude of puppets flailing about in both houses of the legislature.

  8. grudznick 2022-02-24 20:48

    I suspect Mr. Blundt and I could both take a marker and color underling a list of the 10 biggest puppets and I bet you a gravy laden breakfast we’d match up on at least 6, maybe 7 or 8 of the 10 selections. Lockstep indeed. I’d bet Mr. H could pick 5 of them, he’d miss the back stories on a couple of the (D)s, for indeed there are (D) puppets too.

  9. Roger Elgersma 2022-02-25 11:14

    In the last years the republicans passed both a tax increase for fixing roads and teacher pay with basically no complaints. But they have not noticed that the public cares about more than just money. When they think of themselves as the party of values, they now have a governor help her daughter cheat to get a job, Jackley covered up and harassed a female employee that got sexually harrassed, another attorney general who runs over and kills a person and tries to cover it up, and can not get a heartbeat bill through a committee, and so they want to do something to reassure the base that they are still republican. So they resort to the ‘we will buy your vote with a tax cut.’ As they lose their values, one begins to wonder how far down the hill Jill will roll before she drowns in the creek. The republicans may do themselves well if they start to look at good basic values to start rebuilding the party into something that resembles a good thing.

  10. O 2022-02-25 12:01

    Roger, I would argue that the VAST majority of GOP tax cuts have gone to the 1% (.1%, .01%) and the corporations. That is the support they are looking to buy. If the 1/2 penny repeal should make it through the entire approval process (and gods prevent that from happening) it would be one of the VERY few examples of any tax relief not targeted at those top oligarchs. The decline of the GOP into anti-EVERY government program gained most steam in the ’80’s with Reagan. That sentiment got dialed up to 11 in a Republican legislator’s floor speech in SD during the 1/2 penny tax debate that spoke to ALL taxation being tyranny.

    On the topic of economics and prosperity, the only, ONLY, “good basic value” the GOP holds dear is greed — unfettered, individual greed.

  11. mike from iowa 2022-03-02 12:22

    iowa’s poor excuse for a magat guv announced iowa’s income tax will be a 3.9% flat tax which will greatly benefit those that don’t need gubmint handouts. magats claim now is the time for their third taxcut because iowa is flush with one time stimulus and covid funds.

    Nothing like planning for the future of the state as long as the wealthy profit from it.

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