Tribal Governments Oppose Cutting Food Tax Despite Net Benefit for Indian Country

House Bill 1075, the Governor’s proposal to stop charging state sales tax on food, survived its first committee hearing on Thursday, with House Taxation voting 12–1 to recommend its passage. However, instead of advancing the bill for floor debate, House Taxation referred HB 1075 to House Appropriations for another hearing.

Showing up to testify in favor of what Governor Kristi Noem has called “the largest tax cut in South Dakota history” was Bread for the World member Cathy Brechtelsbauer, whose group has been working to end the food tax since 1992. Joining Brechtelsbauer in support of HB 1075 were Dakota Rural Action, AARP, SDGOP chairman and Senator John Wiik, Noem’s Bureau of Finance and Management chief Jim Terwilliger, right-wing radical Rep. Aaron Aylward, and the plutocrats from Americans for Prosperity.

Speaking against the food-tax repeal were the retailers, all of the main school lobbying groups, the Chamber of Commerce, Big Oil, the dentists (they want to keep taxing pop and candy), the Municipal League, the local plutocrats of Coalition for Responsible Taxation (who usually fight for lower taxes), and the Rosebud and Cheyenne River Sioux Tribes.

Wait a minute—South Dakota’s tribal counties have some of the highest child poverty rates in the nation. Not taxing food has the most meaningful impact on low-income families. Why would the tribes oppose this tax cut?

Because tribal governments would lose about $2 million a year:

An official with the Bureau of Finance and Management estimated that the tribes would lose about $2 million in funding for tribal government operations if the food tax is eliminated, but admitted to lawmakers that “the issue has just arisen in the last couple days” [Makenzie Huber, “SD Tribes Would Lose Millions for Tribal Government If State Eliminates Food Sales Tax,” South Dakota Searchlight, 2023.01.26].

(Um, no, Jim, this issue didn’t just arise in the last couple days. Way back in 2009, one of the numerous Democratic proposals to repeal the food tax, Senate Bill 199 from then-Senator Pamela Merchant (D-7/Brookings) called for replacing revenue that tribes and municipalities would lose by redistributing other revenues. But why would we expect the Noem Administration to have done its homework before making a campaign promise?)

But back to the tribes: they say they can’t get by without getting a chunk of the state’s food tax, and Rosebud Tribe finance director Whitney Meek says imposing their own tax on local food sales is too complicated and easily avoided by driving off-reservation:

But the tribe is only able to tax non-tribal members when it’s consensual or when a non-tribal member is on Indian lands, which would apply to non-tribal members in Todd County, Meek said.

“It kind of gets into a sticky wicket with jurisdictional issues,” Meek said. “They have every right to dispute.”

Having the tax agreement with the state eliminates jurisdictional issues.

“It is a complicated issue. That’s why they have attorneys,” Meek said.

There are other issues complicating food tax collections on reservations, as well. About one-third of residents in counties located mostly within a reservation — such as Todd, Oglala Lakota, Dewey and Charles Mix counties — receive benefits through the federal Supplemental Nutritional Access Program (SNAP), commonly known as food stamps. People receiving SNAP benefits do not pay sales tax.

If the Rosebud Sioux Tribe enforced its own food sales taxes, Meek said she could easily see someone driving 13 miles off the reservation to White River to buy groceries.

Hiring people to collect the reservations’ taxes and developing an infrastructure for online sales would also be difficult, she said. The state has infrastructure for online tax remittances, having won the right to collect such taxes through a Supreme Court victory in 2018.

“There are only, say, 50 businesses located on the whole reservation, and over 1,000 for remote sales and internet sales,” Meek estimated. “How would we even begin to go about collecting that? I’d say that’s impossible. Send a tax return to Amazon and they’d laugh us off. We don’t have the teeth to enforce our laws on someone outside the reservation” [Huber, 2023.01.26].

Those are all valid practical policy points. But taxing food doesn’t become a moral policy just because we give the money to Indians.

The tribes are also missing the bigger picture. The $2-million decrease in revenues flowing from the state to the tribes represents just under 2% of the total $102 million that the Governor says this tax cut will leave in South Dakotans’ pockets in its first year. According to the 2020 Census, Native Americans make up 8.4% of South Dakota’s population. As usual, the Census undercounted Indians, this time by 5.6%, so the actual Indian percentage of South Dakota’s population is probably more like 8.8%. If tax savings are proportionate to population, South Dakota’s Indian grocery buyers would get about $9 million of the $102 million in tax savings. For every dollar tribal governments might lose, Indian people would get $4.50 back.

Yes, tribal governments need money, and yes, the state of South Dakota should help tribal governments provide services, just as the state keeps all the white folks’ towns alive with big state and federal subsidies.

But that money shouldn’t come from taxing kids’ peanut-butter sandwiches. 37 other states get by without taxing food; so can South Dakota. Taxing food is bad policy for the state. It’s bad policy for cities. It’s bad policy for tribes.