South Dakota Republican Gov. Larry Rhoden, surrounded by lawmakers on March 12, 2026, at the Capitol in Pierre, signs bills to apply sales tax revenue to the reduction of homeowner property taxes. (Photo by Meghan O’Brien/South Dakota Searchlight)
By: Meghan O’Brien
PIERRE, S.D. (South Dakota Searchlight) — Republican Gov. Larry Rhoden signed two bills into law Thursday that he said will work in tandem to provide “the largest property tax cut in South Dakota history,” although a past tax cut may have been bigger when adjusted for inflation, and the new laws rely on increased sales taxes to fund property tax relief for homeowners.
The last time the state approved a historic reduction in property taxes was in 1995 under then-Gov. Bill Janklow, which current Lt. Gov. Tony Venhuizen said was worth about $100 million, or $120 million when incorporating further relief measures passed in successive years.
That relief would be worth more than $250 million today, after adjusting for inflation.
One of the bills signed by Rhoden will collect an estimated $114 million in additional sales taxes annually by allowing the state sales tax rate to go from 4.2% to 4.5% next year, as lawmakers scheduled it to do when they temporarily lowered the rate three years ago. That revenue will be inserted into the state education funding formula to lower school district property taxes by an equivalent amount. Schools fund whatever portion of their budget they can with local property taxes, and the rest of their funding comes mostly from state government.
Before the sales tax increase takes effect, the state will use $56 million from its reserve funds to kickstart the relief effort.
An untold additional amount of new sales tax revenue could be raised by counties, which will be given the option to impose a half-percent sales tax with proceeds offsetting the county portion of homeowner property taxes. That will show up as a credit on homeowners’ tax bills.
“We have estimates, county by county, of what it would raise. It really depends on which counties implement it,” Venhuizen said. “That’s hard to predict.”
The bill capturing revenue from the scheduled statewide sales tax increase was proposed by Speaker of the House Jon Hansen, R-Dell Rapids, who’s running against Rhoden for the Republican nomination for governor in the June 2 primary election. The other Republican candidates are U.S. Rep. Dusty Johnson and businessman Toby Doeden.
Rhoden’s office has estimated that the money from the statewide sales tax increase will reduce homeowner property taxes 14-22%, equating to a savings of $548 on a home valued at $325,000.
Rhoden proposed the other bill, which will give counties their first opportunity to impose sales taxes. They currently rely on property taxes.
Rhoden’s office estimates another 10-25% property tax reduction, or an average savings of $660 per homeowner, in counties that adopt a half-percent sales tax.
His office did not officially estimate how much the average South Dakotan would spend on higher sales taxes. Under questioning by South Dakota Searchlight last month, state Bureau of Finance and Management Commissioner Jim Terwilliger estimated that the optional county sales tax alone would cause him to spend an additional $160 in sales taxes each year for his four-person family.
Lawmakers and Rhoden also passed a major property tax bill last year to slow property tax increases. That law temporarily capped the countywide growth of taxable home values, temporarily limited the value from new construction and growth that can be used to increase property tax collections, prevented some home improvements from causing higher home valuations, and expanded income eligibility for property tax relief programs for elderly and disabled people.
Lawmakers have been hearing complaints about homeowner property taxes since the COVID-19 pandemic, when a surge of in-migration and other factors drove up taxes along with home prices.
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