Rep. Jim Mehlhaff (R-24/Pierre) knows that the Muellers’ flat retail transaction tax won’t provide the property tax relief the Muellers promise. So he went to Pierre yesterday to give the Legislature’s property tax reform committee a real proposal: raise the state sales tax from 4.2% to 6.2% to fund K-12 education and cut property taxes:
He said changing the rate from the current 4.2% to 6.2% would generate an estimated additional $702 million.
School districts received from property taxes $470,013,049 for general use and $168,754,326 for special education during the past year, according to the Legislative Research Council.
Mehlhaff’s plan would eliminate the general and special-education levies for K-12 districts.
…Under Mehlhaff’s plan, school districts could still levy property taxes for other purposes such as opt-outs, capital outlay certificates and bond issues.
His proposal wouldn’t change property taxes levied by municipal and county governments or other local government entities. Mehlhaff said he wouldn’t change any of the current exemptions to the state sales and use tax [Bob Mercer, “Could a Higher Sales Tax Offset K-12 Property Taxes?” KELO-TV, 2025.09.22].
Mehlhaff’s figures might include a little happy juice. State taxable sales in FY2025 reached $33.8 billion. The extra two percentage points Mehlhaff proposes to add to the state sales tax would equal $676 million. Mehlhaff is apparently figuring a 3.8% increase in taxable sales by FY2027. That growth over two years is certainly possible: in FY2023 alone, taxable sales grew 9.85% over the preceding fiscal year. South Dakota’s retail activity has slowed significantly since: 2.45% in FY2024 and 1.02% in FY2025, And with Trump once again squandering the economic momentum built by a competent Democratic predecessor, banking on bigger economic gains is unwise.
But hey! what’s a 3.8% difference among policy-focused, fact-based friends? At least Mehlhaff’s figures for replacement revenue are in the ballpark, unlike the airy-fairy claims made by the Muellers for their retail transaction tax, which would generate less than one third of the revenue they told the property tax study group they could get from charging people $1.50 to ring out at Hy-Vee.
The bigger debate, if Mehlhaff brings a bill to raise the sales tax to 6.2%, will be, who pays? The sales tax allows us to soak visitors, so supposedly local folks will enjoy some net savings. But as is always the case with South Dakota’s regressive taxes, low-income folks in cheaper housing may end up paying more in taxes on their groceries. Savings will likely accumulate at the upper end of the income scale, among folks who spend more on fancy houses than on fancy food and clothes.
I also want to ask if we really want to shift more and more of our taxes to the relatively stealthier cash register and away from the big written tax notices from the courthouse. Property tax feels more transparent: you can set your notice from the county auditor next to last year’s and see right away how much the county/school/road districts how much you are paying for the privilege of civil society. Likewise the income tax that South Dakota so stubbornly resists: you pull out your 1040s and you can easily compare the price you’re paying to keep America great. Sales tax is a subtle nickel-and-diming that few if any South Dakotans track. Leaning on sales tax helps the government hide the total levy it’s laying on every resident (and non-resident!) each year. That’s why we get property tax revolts but not sales tax revolts.