Governor Larry Rhoden’s Senate Bill 96, the optional county sales tax to lower property taxes, got lots of attention this Session. The Governor signed that bill Thursday.
Making fewer headlines was another new local optional tax, House Bill 1245. Sponsored by Representative Greg Jamison (R-12/Sioux Falls, HB 1245 authorizes municipalities to impose a new gross receipts tax of up to 1%. This tax is on top of 1% or 2% sales tax and the 1% gross receipts tourism tax that cities can already collect.
But this new local tax isn’t easy mad money. The HB 1245 tax can only be used for capital improvement projects—buying or leasing “real property, a plant asset, or equipment” or building, repairing, or renovating public property. A city commission seeking to collect this extra penny (or fraction thereof) must specify in the ordinance enacting the tax the project the tax will fund and the amount the city needs to raise from the tax for the project. The city commission has to approve the capital project tax on a simple majority vote, but they then have to put the tax to a public vote, and city voters have to approve the tax by a 60% supermajority.
HB 1245 automatically sunsets every voter-approved local capital project tax. Cities may collect the tax for five years or (roughly) until collections exceed the target amount specified in the ordinance, whichever comes first. Cities may only enact one capital project tax at a time—they don’t get to go hog-wild and ask for a 1% tax to build a new police station, another 1% tax to renovate the public library, and a third 1% to dig a new swimming pool all in the same fiscal year. HB 1245 says that if a city collects a gross receipts tax for one capital improvement project, it has to wait until two years after that tax ends to impose another HB 1245 tax for another capital improvement project.
Sioux Falls Mayor Paul TenHaken thinks this new optional city tax is super-duper because towns can avoid issuing bonds and paying interest:
This bill is the very definition of local control. It empowers taxpayers and local leaders with a choice: pursue projects through traditional borrowing, or adopt a save-and-pay approach that avoids decades of interest costs. For many communities, that choice alone can mean millions of dollars conserved and reinvested.
Here’s how this bill could have helped Sioux Falls if it was in place prior to a couple of major necessary capital investments:
Almost 15 years ago, residents voted to build a new Events Center in the city. If a mechanism like the CAPS program had been available at the time:
- Taxpayers would have avoided roughly $53 million in interest and issuance costs that could have gone towards roads, bridges, police vehicles, and fire stations.
- Based on 2012 revenues, the city could have saved enough to pay for the project outright in just 26 months. The city is still making payments for the Events Center today.
Our recently constructed Public Safety Campus is another example. Several years ago, it became clear our police and fire training facilities were outdated and needed to be replaced so we could ensure continued safety of our personnel. When the city moved forward with a modernized campus:
- A CAPS-style approach would have saved an estimated $18 million in interest and issuance costs that could have been redeployed to other capital needs.
- The city could have saved the full project cost in about nine months—less time than it took to design it.
This tool isn’t just useful for Sioux Falls and other larger cities, it can be transformative for small and medium-sized cities across South Dakota. A community like Murdo, for example, has publicly stated they could pursue long-term priorities such as a combined community center, childcare facility, and EMS building without relying solely on long-term debt. Long-term debt ties the hands of future councils, restricts flexibility, and places a multi-decade burden on property taxpayers in a very small community [Mayor Paul TenHaken, opinion column, Sioux Falls Argus Leader, 2026.03.12].
Mayor TenHaken can thank his Democratic legislators for making this optional tax possible. HB 1245 barely passed the House last month on a 36–30 vote. It squeaked out of the Senate on March 5 on a 19–15 vote. Republicans were almost evenly divided. HB 1245 got only 31 Republican votes in the House and 16 Republican votes in the Senate, not enough in either Chamber to pass. But all five House Democrats (three from Sioux Falls) and all three Senate Democrats (two from Sioux Falls) voted aye, thus delivering for Mayor TenHaken and other city leaders the optional tax Republicans by themselves could not deliver.
Mayor Paul and sponsor Rep. Jamison have to wait for one more Republican to weigh in. HB 1245 is on Governor Larry Rhoden’s desk, awaiting his signature.
But please note that the Republican mayor of Sioux Falls is lauding a new tax made possible by Democrats as “an incredible tool” that “strengthens communities’ ability to plan responsibly and invest wisely.”