When she adopted as her own campaign promise the longstanding Democratic proposal to repeal South Dakota’s unusual tax on food, Governor Kristi Noem said exempting food from sales tax would reduce South Dakotans’ tax burden by $100 million.
Noem underestimates the value of the Democratic proposal. According to fiscal notes prepared by the Legislative Research Council for a constitutional amendment and an initiated measure proposed by Rick Weiland and Dakotans for Health for the 2024 ballot, exempting anything sold for eating or drinking by humans, except alcoholic beverages and prepared food, would reduce the state’s sales tax revenues by $119.1 million annually.
$119.1 million—that’s 8.8% of the sales tax South Dakota collected in Fiscal Year 2022 and 5.3% of all general fund revenues that year. That’s more than the $115-million surplus, made possible only by the last windfall of federal coronavirus relief, that Noem mentioned when she promised last month to repeal the food tax. It is less than the $147.5 million increase in sales tax revenue that South Dakota enjoyed in FY2022 compared to FY2021. So conceivably, if South Dakota could replicate that 12.2% growth in sales tax revenue in the coming year, the state could repeal the food tax, forgo that $119.1 million in revenue, and still have more sales tax revenue to spend than it did the previous year.
Perhaps worth considering: so far this calendar year, the state has collected $80.5 million in sales tax from remote sellers. With steady remote sales, the state will end this year with over $100 million in sales tax collected from remote sellers. Just five years ago, South Dakota wasn’t receiving any of that money. So between that new revenue stream and strong sales tax growth, we could repeal the food tax and still be in a stronger fiscla position than we were five years ago.
But while fiscal pragmatists may say we need to identify replacement revenue before we can justify repealing the food tax, we can still appeal to the moral point: whether the food tax collects $119.1 million a year or just a $1.19, it’s an immoral tax on the stuff of life, on bare essentials for every South Dakotan. 37 other states manage to fund their state government services without taxing food; surely South Dakota can replicate those other states’ moral sense and find ways to do without taxing baby food and bologna sandwiches.
p.s.: My own February estimate of $80.4 million was way off because I looked strictly at revenue from sales at retail food stores, which are in Standard Industrial Classification Major Group 54. My February estimate did not include revenue from sales at SIC Major Group 53: General Merchandise Stores, which include the Walmarts, Targets, and dollar stores where South Dakotans buy truckloads of groceries.