Education lobbyists, tribal reps worry SD food tax cut may be more harmful than good

PIERRE — In a packed committee room on the fourth floor of the Capitol, with spectators crowded around the door when seats ran out, the 13 House members who make up the House Taxation Committee heard minutes of pleas and dissenting voices on fully cutting the state sales tax on groceries.

While the bill passed out of committee Thursday, with a recommendation to be referred to the House Appropriations Committee for further examination with 12 members voting yes and one member voting no, lawmakers listened to 50 minutes of testimony from each side.

Those who favored the tax cut, which could return more than $100 million to taxpayer pockets if passed based on the South Dakota Bureau of Finance and Management, said because of the historically high revenues the state is bringing in, the time was now for the cut.

Jim Terwilliger, the bureau's commissioner, explained the state sales tax on groceries would be reduced to 0%, effectively cutting the tax. But, if a time came when the state needed more revenue, the Legislature would have the option to raise the rate.

Municipalities would also not be impacted by the tax cut and could continue to apply their local sales tax to food, Terwilliger said.

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Dissenters worry about education cuts in the future

However, a majority of dissenting voices came from lobbyists representing educators across the state. They worried if the sales tax on food was reduced to zero and revenue dried up in the coming years, first on the chopping block would be education.

"I happened to remember when things didn't look good, and at the end of former Gov. Rounds' administration, he had to propose a 10% cut," said Diana Miller, a lobbyist for the Large School Group. "And then Gov. Daugaard came in and reduced it to 8% and we had to make significant cuts in education."

Indeed, the one hold-out on the motion to pass the bill, Rep. Roger DeGroot, R-Brookings, said in his history as an educator, he worried about what funding increases for education would look like down the line, referencing those cuts from 2008 and 2009.

While memories of the Great Recession in 2008 permeated some of the discussion, Nathan Sanderson with the South Dakota Retailers Association looked to current economic trends and the amount of federal funds dispersed during the past few years.

"It's not sound tax policy to cut $100 million in ongoing general funds just because we found a couple of good years of sales tax collections, again, driven by inflation and a huge influx of federal funds." he said.

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South Dakota's Native American nations were not initially consulted

In a surprise twist during the committee hearing, it appeared that South Dakota's Native American nations had not been consulted at first about the potential tax cut, which could impact the tax collection agreement between the state and five tribes.

Representatives from the Cheyenne River Sioux Tribe and the Rosebud Sioux Tribe said the cut could negatively impact their economies.

Terwilliger estimated the tribes could lose $2 million in revenue when questioned if the state had factored in the cost.

House appropriators will now get their chance to examine the bill's language.