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South Dakota senators reject sales tax cut proposal

February 25, 2022 GMT

PIERRE, S.D. (AP) — South Dakota Senate Republicans on Friday rejected a proposal from the House to cut the sales tax by half a percentage point.

The House passed the proposal this week on a narrow vote, despite Gov. Kristi Noem urging lawmakers to take a more cautious budgeting approach and not siphon off one of the state’s largest revenue sources. It would have cut the 4.5% sales tax to 4% over the next two years, representing an estimated $150 million in annual revenue for the state.

Republicans on the Senate State Affairs committee agreed with the governor’s caution and dismissed the proposal. Every Republican on the nine-member committee voted against it, while the lone Democrat cast a dissenting vote.

South Dakota was one of more than two dozen states, both red and blue, looking to give taxpayers and consumers a break amid soaring tax revenue and billions in pandemic aid from the federal government. But Senate Republicans argued that the state already runs on a lean tax structure and cutting it more would endanger funding for salaries for teachers, state employees and government-funded medical providers.

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“We’re going to have a predictable fiscal cliff when this federal fire hose of cash turns off,” said Republican Sen. Lee Schoenbeck.

Republican Rep. Chris Karr, who chairs the committee ironing out the state budget, brought the proposal as a way to make good on a 2016 law that promised to reduce the sales tax if the state won the right to tax sales from online sellers.

He argued that between the state’s economic growth and a massive influx of federal funds coming over several years, the time is right to scale back the tax.

“You’re going to have that ongoing stimulation to the economy for several years,” Karr said of federal funding packages making their way into the state budget. “That allows us to pull those dollars out because, at the same time, our economy in South Dakota has organic growth through that whole period.”

The proposal was opposed by organizations representing schools and educators, who argued it would jeopardize funding meant to boost teacher pay.

“I just don’t know where you’re going to fill the hole of $150 million,” Rob Monson, executive director of the School Administrators of South Dakota, told the committee.

Meanwhile, the Senate Taxation committee advanced a separate proposal that would allow counties to levy a temporary tax on business’ revenue to pay for bonds used for courthouses, police stations, jails or substance treatment centers. It has already passed the House and will next be considered in the Senate.