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Interim Committee Proposes Exempting First $100K of Property from Tax

Uh oh—Republicans are proposing competition for the food-tax repeal.

Before the election, Governor Kristi Noem reversed her long-standing opposition to repealing South Dakota’s regressive and unusual sales tax on food and said she would make that tax cut a priority if reëlected.

But now, while Noem junkets in Florida with her closest advisor Corey Lewandowski, Rep. Trish Ladner (R-30/Hot Springs) has chaired the interim committee on property tax toward proposing a big property tax cut for all South Dakota home owners:

She calls the bill a ‘bottom-up tax cut.’

“Because it would exempt the first $100,000 in valuation from taxing,” Ladner said. “Rather than a proportional cut, South Dakotans with smaller home value will get a bigger percentage tax cut from this mechanism.”

That means a home valued at $200,000 would see the tax valuation cut in half.

It’s unclear how much the property tax cut will be. Ladner says a cost estimate for the proposal is still getting created [Lee Strubinger, “Property Tax Cut Bill Proposed for Upcoming Session,” SDPB, 2022.11.15].

Ladner uses “bottom-up” because she can’t bring herself to utter to the word “progressive”, but in terms of tax policy, her committee’s Draft Bill 110 is a progressive tax reform. Folks with lower-value property tend to have less income and less ability to bear taxes. While every property owner would see a tax cut under Ladner’s proposal, folks with cheaper houses will see a larger percentage cut that will make a bigger difference for lower-income owners than for folks in Jeff Broin‘s fancy gated neighborhood.

Ladner’s exemption of the first $100K of property value from tax would make property tax less regressive, but it would not be a universal tax cut. The 30% of South Dakotans who rent their abodes—and folks who rent are often lower-income folks who haven’t been able to save up to buy a house—would get nothing from this tax cut: they don’t pay property tax directly, and this bill doesn’t give landlords any cash back on their rental properties. The draft bill applies only to owner-occupied single-family dwellings. Exempting food from sales tax leaves more money in the pockets of every South Dakotan who eats. Given that South Dakota rents increased 21.4% from October 2021 to October 2022 (the second-highest rent increase in the nation, behind only Florida), any major tax relief proposal should include renters.

So if our goal is progressive tax reform, with tax relief for the folks most burdened by taxes, the food-tax repeal offers more relief to more South Dakotans in real need.

Ladner may not have gotten the spreadsheet yet on how much this property tax cut would knock out of the budget, but it will surely compete with the $119.1 million Governor Noem will need to account for when she comes asking for the food-tax repeal. Surely with this proposal brewing, the committee and the Governor both will crunch some numbers so we can fairly compare these competing tax cuts in the Governor’s budget address on December 6.

25 Comments

  1. Nick Nemec 2022-11-18 07:07

    This “bottom up” tax cut is already paid for. Under the current property tax system all owner occupied homes get a reduced tax rate compared to non-owner occupied homes. This would just refocus that tax break so that every homeowner would have a zero tax bill on the first $100,000 of value.
    Is it perfect? No.
    Is it a step toward a more progressive system? Yes.
    It doesn’t take the food tax repeal off the table or affect the ability of the State to pay for the food tax repeal.
    Don’t make the hypothetical perfect tax system the enemy of a better tax system.

  2. Jake 2022-11-18 09:14

    Also, never forget that taxes are figured by the “needs” governments feel they need. The MILL levy is what gives the final tax bill to the owner-not the valuation…. Currently, local government assess their needs first, then set the “mill levy” so this proposal does no more than the usual “song and dance” of SD GOP smoke and mirrors; “We just gave the state $100,00/home tax relief, didn’t we?” While the need goes up, mill levy goes up and the wealthy proportional payment toward a society’s needs that gave them their wealth goes downward!

    Does anyone see any real “change” here? Real progress is when the income above a base figure of living costs is made to reflet added ability to pay. The “greed” factor needs to be eliminated as much as possible.

  3. RS 2022-11-18 09:20

    Property taxes go to schools, counties, townships, cities, fire and ambulance districts, not to the State of South Dakota. Unless the State was going to pick up the lost revenue and reimburse those entities, the mill levy or rate of taxing on the rest of real property would have to increase to fill the budgets. No overall tax cut here, just a tax shift?

  4. grudznick 2022-11-18 10:27

    Mr. Jake is probably righter-than-right. Wouldn’t this proposal of Ms. Ladner just collect the same dollar amounts but distribute it over the property values over $100K? Fellows with a trailer home or a shack, if valued under $100K get by for free. Fellows with a double-wide or a fancy shack just pay for the whole boat on the amount of their property over $100K.

    grudznick could be all wet on this, as I have a fellow who handles this sort of thing for me because I struggle with math, but Mr. Jake makes some sense.

  5. O 2022-11-18 11:04

    I think I like this. It is not an overall reduction in tax collections, but a step toward a more progressive way of collecting those regressive taxes. If the poorer pay less, then the shift has to be onto the wealthier to pay more to make up for the shortfall; I like that. This also assumes no jiggering with the balance between ag, commercial and residential balances in property taxation or the overall balance between property taxes and state funding formula that drives the “local need.”

  6. Richard Schriever 2022-11-18 11:15

    RS – a “tax shift” is in fact the basis of all progressive taxation policy. It “shifts” the burden from those most encumbered by it to those more capable of bearing it.

  7. Richard Schriever 2022-11-18 11:19

    BTW – this proposal would either a.) reduce my mortgage payment by25% or b.) allow me to pay off my mortgage a few years earlier.

  8. RS 2022-11-18 12:41

    Richard Schriever-If the shift of tax burden is to among others, residential rental property owners, that pass the increase to renters of possibly the lowest economic capabilities, is it still progressive taxation policy? It would seem that exempting some or all food tax would not have as many inequities, but that’s just my opinion.

  9. Jake 2022-11-18 13:18

    Again folks; stop and cipher this out before getting on a GOP ‘gravy train for the less wealthy’!! Nowhere does her proposal show any guarantee that tax bills will lower, does it? No, just VALUATION-which is what the MILL LEVY is multiplied by to get $$$ figure of taxes owed on a piece of property.

    When a county or municipality sets the “VALUATION” it is just a reflection of the current market-price of
    comparable units of property. Then as government officials determine the costs of the government (yes, all things gov’t pays for) and comes up with a figure of “NEED” to fund government operation it sets the “MILL LEVY”.

    Then, per state laws imposed of course by decades of GOP governance, all CLASSES of property valuation
    (residential, commercial and agricultural) are added together and government funds come from that total of valuations multiplied by said MILL LEVY.

    So, for simplicity sake (someone let me know if I’m wrong here, please) :
    10 $200,000 residences valued @ $2 million >>> under her plan = $1 million
    Leaves a shortfall in the taxable value of residential property , which would have to be made up by increasing valuations of other types of property to cover the shortfall.

    Naturally, she being a ‘champion’ of SD GOP obfuscation and smoke/mirrors, she makes NO mention of where cutting $100,000 of each residential valuation leaves countys and cities/towns. Agriculture taxes are too high also, and have their own proposals coming.

  10. Jake 2022-11-18 13:24

    Not too many years ago, they “reduced our taxes” by giving senior citizens in their own homes a “break” on taxes.
    The ‘kicker’ was income oriented, so if you made over a certain amount you were screwed in Pennington Co. Thus, living on SS and a modest state pension I made too much for this “tax relief”. In less than 2 decades, my tax burden has about tripled here from when I bought!

  11. P. Aitch 2022-11-18 15:14

    “Whereas if they go to the administration of public affairs, poor and hungering after their own private advantage, thinking
    that hence they are to snatch the chief good, order there can never be; for they will be fighting
    about office, and the civil and domestic broils which thus arise will be the ruin of the rulers
    themselves and of the whole State.” – Plato from The Allegory of the Cave

  12. grudznick 2022-11-18 15:42

    Mr. Jake continues to be wiser than most of you fellows. If you think Ms. Ladner is the sort who should be cooking up these sort of things you probably are the sort who would want Mr. Ravnsborg arguing as your attorney in an important trial. Ms. Ladner is lacking.

    Mr. O just wants to stick it to the double-wide guys who worked harder and have nicer trailer houses.

  13. All Mammal 2022-11-18 15:48

    Tax the churches. They own enough property to fill in the holes. Oh! And the key to budgeting is: spend less than you tax.

  14. Jake 2022-11-18 16:19

    Yep, churches demand service as much as we do, and want the fire dept. and police immediately too. But don’t pay a penny tax on their glamour-should they be so ostentacious.

  15. Mark Anderson 2022-11-18 18:26

    Sooo grudz, your double wide and you worked harder at it. All this will led to is trump evaluations of propery.

  16. O 2022-11-18 19:32

    Double-wide? $75,200 will put you in a three-bedroom Governor’s house. Any house good enough for the governor must be good enough for you, Grudz. That is still $24,800 under the proposed $100,000 exemption.

    I do want to “stick it to the double-wide” folks — SOME of whom have worked harder (more of whom were born to families who did a little better). SD must stop the narrative of universal poverty; discussions, and hopefully actions stemming from initiates like these, are a step in that better direction. Unfortunately, as Jake points out, the wealthy didn’t get wealthy without knowing how to exploit the system, so constant vigilance is required to ensure that those we seek to lighten of some of the tax burden do not get it pushed back on them in the end.

  17. Richard Schriever 2022-11-19 07:26

    RS – if lower income renters could expect to pay less for a mortgage payment when buying lower cost housing, they could more easily qualify for a loan to make such purchases – no?

    BTW – stereotyping all renters as being of the lower economic capabilities is simply wrong. Some – including some with wealth simply prefer to rent. May even be more to “some”. In fact, most apartment rental households have incomes above $35k and the largest segment of apartment renters have median household incomes above $75k.

    https://www.nmhc.org/research-insight/quick-facts-figures/quick-facts-resident-demographics/household-incomes/

  18. Cory Allen Heidelberger Post author | 2022-11-19 08:03

    Richard, I’m not stereotyping; I’m just citing plain economic facts. Sure, there are some higher-income folks who choose to rent, for various reasons. But statistically speaking, renters are more likely to face economic hardship than homeowners. Renters “tend to have lower incomes than homeowners” and “are more likely to have been impacted negatively by the economic shocks of the pandemic.” If we are cutting taxes to provide financial relief to groups of people in need, we’ll hit more of our target groups if we aim tax breaks at renters.

  19. Cory Allen Heidelberger Post author | 2022-11-19 08:21

    Two big points from the comments:

    1. Property tax doesn’t go into the state budget, only into local budgets. Ladner’s proposal only competes with the Democrats’ and Noem’s food-tax repeal if the state has to backfill revenue shortfalls for the schools, counties, municipalities, etc. (and I would contend that’s highly likely).

    2. Exempting the first $100K of valuation from taxation does not guarantee an actual tax cut for every homeowner. The school boards, county commissions, etc., could crank up their mill levies to make up revenue lost on that base value. Jeff Broin and other McMansioneers could find themselves paying a little more property tax on the seventh figures of their property value to make up for shackowners’ total exemption from property tax (a truly progressive outcome, with which I am fine!)

    But Ladner is portraying it as a tax cut, and there’s nothing in the bill text that says only some people get a break. The cost estimate will be important, as it will show us the assumptions Ladner and her committee may be making about how, if at all, locals may change their mill levies.

    And the state still caps tax levies for all those local governments (see SDCL Chapter 10-12). We’ll need to see Ladner’s spreadsheet, but it could be that exempting the first $100K of value of every single-family home from property tax will create a bigger hole than the maximum tax levy can backfill, and more school districts and counties will have to pass opt-outs to fill that gap.

  20. paladn 2022-11-19 08:41

    “Me thinks we are missing the true issue before us.”

    As stated in Cory’s 1st two paragraphs of this article, the Gov has blatantly asserted that she lied to the people of SD. It will be the duty of the 2023-25 Legislature AND the people of SD to hold her to her word. Republican Candidates for Legislature this year all professed the same tune: repeal of sales tax on food. Will they now agree and kiss the ring of this Rep gov? Support of a Rep falsehood?

    “Man is not what he thinks he is, he is what he hides. Things come apart so easily when they are held together with lies.”

  21. vwguysd77 2022-11-19 09:02

    My first comment didn’t get through moderation for some reason, so I will try it again.

    If you actually read the proposed bill, it only applies to the school general fund levy imposed by SDCL 10-12-29. All of the discussion in these comments about county, city, and other property taxes, while interesting, are irrelevant, as those taxing districts would not be subject to the $100,000 exemption.

    So, how do we pay for it and keep the school district general funds whole? There are two options: either pump more state general fund monies into the state-aid formula OR shift the burden onto agricultural and commercial properties. Somebody has to pay for it. It’s that simple.

    Representative Ladner is drastically overselling what this bill does, because she has no understanding of how property taxes work in SD. It does not exempt the first $100,000 of valuation from property taxes. It does exempt the first $100,000 of valuation from school general fund property taxes. That’s all it does, and either the state general fund or other classes of property will have to pay for it.

  22. Jake 2022-11-19 10:08

    “Tax Cuts” to a Republican have to be slanted to somehow benefit the wealthy first and foremost, as to their basic concept that ‘feeding the needs of the voters’ are like feeding farm-raised fish for consumption; throw the food pellets (tax cuts) on TOP of the water (to wealth) and eventually some of the pellets will reach the lower fish in the pond eventually.

    Reagan’s and trump’s tax cuts alike were said to benefit the “Job Creators” (the wealthy) for the good of the country. To no avail, the proportion of wealth owned by the wealthy just grew greatly-but the bottom and middle incomes shrank accordingly. Many (maybe most?) jobs, new businesses are created by an individual on a “Hope and a Prayer” and borrowed moneys.

    So, after decades of watching GOP “tax cuts” I am ever skeptical-especially here in SD!

  23. Mark Anderson 2022-11-19 17:12

    It’s really just the common conservative switcheroo, they need tax breaks to keep funding those growing socialist golf course funds. Food, let them eat cake.

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