By: Makenzie Huber and Meghan O’Brien
PIERRE, S.D. (South Dakota Searchlight) – Two bills that would allow local governments to impose new sales taxes for specific purposes cleared their last legislative hurdles on Thursday at the South Dakota Capitol in Pierre and are headed to the governor for his consideration.
One bill is the governor’s own proposal to allow counties to levy up to a half-percent sales tax to offset county property taxes on owner-occupied homes, which is one of several pending proposals to reduce or slow the growth of homeowner property taxes. The other bill would allow cities to implement a temporary sales tax up to 1% — in addition to existing city sales taxes — to pay for major projects.
Counties are not currently allowed to have sales taxes. South Dakota’s state sales tax rate is 4.2%, but is scheduled to increase to 4.5% in 2027. Cities can charge up to another 2%, plus an additional 1% on lodging, prepared food, alcohol and event ticket sales.
If the governor signs both bills, some South Dakotans could pay sales taxes up to 9% if they live in a city and county where all the optional, local sales taxes are enacted.
County sales tax designed for property tax relief
The House of Representatives voted 48-19 to approve Republican Gov. Larry Rhoden’s plan, Senate Bill 96, allowing counties to charge up to a half-percent of sales tax for homeowner property tax credits.
Supporters said the bill allows for more local control and targeted relief for counties that may be feeling more of a strain from increased property taxes.
“The counties with the biggest crisis are also the ones with the most growth, and the most visitors, and the most tourist traffic, all of which can be better captured by a sales tax,” said Rep. John Hughes, R-Sioux Falls, “versus continuing to pressure owner-occupied property owners or to pursue a statewide tax increase.”
But the bill could also shift burdens, according to Rep. Will Mortenson, R-Fort Pierre. He said it imposes a higher burden on people from smaller communities, who might not see that return on property tax relief.
“When we hear about these visitors, they don’t just come from out of state, they come from rural communities,” he said. “Because this bill is structured so that the property tax cut goes where the economic activity goes, you know who’s getting the biggest tax cut? The people in the biggest houses, in the biggest towns.”
The governor recently published a website that estimates how much homeowners would save on property taxes, if counties decide to enact a half-percent sales tax.
Bureau of Finance and Management Commissioner Jim Terwilliger estimated last week that he would spend an additional $160 in sales taxes each year for his four-person family. He said the average property tax savings statewide would be about $660, netting approximately $500 in savings.
Temporary sales tax allows cities to ‘invest in their future,’ avoid bonds
A proposal that lays out provisions for an optional, temporary city sales tax passed the Senate 19-15.
The bill, if signed by the governor, will allow a municipality to impose a temporary sales tax of up to 1% to pay for specific projects — if cleared with at least a 60% vote of the public.
The tax would automatically sunset once the identified amount for the project is raised or after five years, whichever is earlier, and municipalities would have to wait two years before they propose implementing the tax again.
The bill’s sponsor in the Senate is Tim Reed, R-Brookings. He framed it as a cost saving tool for communities, because the tax would allow them to fund projects without debt.
“If that community believes in the project and its citizens are willing to approve and collect the temporary tax to make it happen, they should have the ability to invest in their future,” Reed said.
A mayor-appointed committee would have to unanimously approve projects proposed by the city council before they go to a public vote. All revenue raised from the tax would be placed into a dedicated fund for the project.
The state Department of Revenue opposed the proposal throughout the legislative session. In a handout given to lawmakers on Thursday, the department highlighted the increase in municipal sales taxes in the last few decades and raised concerns about the “undue burden for retailers” in the state to track and implement the tax.
Senate opponents on Thursday criticized the proposal as another sales tax layered onto the existing framework. Opponents also suggested communities fundraise to meet their needs.
Reed referenced a proposed community center project in Murdo, a town of about 600 people, as an example. Fundraising for such a major project — which would house child care, emergency medical services and general community space — would be difficult in small communities that lack a major business or philanthropist to fund the project, he said.
“We’re not talking about pie sales to do a community center,” Reed said. “We’re talking about some large funds.”
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