SIOUX FALLS, S.D. (AP) - A South Dakota conservative group plans to push lawmakers to fulfill a law calling for tax cuts after the state’s U.S. Supreme Court victory this year clearing the way for major new online sales tax revenues.
But Americans for Prosperity-South Dakota has a backup plan if officials don’t deliver: let voters decide in the 2020 election.
The organization backed by billionaire brothers David and Charles Koch is proposing a ballot question to simply phase in a half-cent sales tax cut over five years. The group wants the Republican-controlled Legislature to pass the rate cuts, but the ballot question is a “fallback,” State Director Don Haggar said Wednesday.
“I’m confident the Legislature will honor their word,” Haggar said. “If the Legislature isn’t able to come up with a solution … this session, or if they decide, ’Oh we’ve changed our minds and we want to spend this money,’ well we won’t hesitate to put this on the ballot.”
The ballot question proposal comes amid ambiguity in a law requiring a 2016 half-cent sales tax hike for teacher pay to be scaled back if the state gained the ability to collect the tax on online purchases. Under the law, the state’s 4.5 percent rate is to be rolled back by one-tenth of a percent for every additional $20 million the state reaps, with a floor of 4 percent.
It was ultimately South Dakota’s case that led to the U.S. Supreme Court’s decision in June to overturn two decades-old high court decisions that made it tougher for states to collect sales taxes for certain purchases online. The state began collections Nov. 1, but officials believe new legislation is required for the envisioned tax reductions to occur.
Haggar called the group’s plan a “simple” solution, saying it would unhitch the rate cut from online sales taxes and simply phase it in over five years. The measure calls for a rate reduction of one-tenth of a percent each July from 2021-25.
Haggar said he’s confident online sales tax collections will exceed the loss in revenues from the proposed tax cut. He said it would help the Legislature honor its word and potentially improve economic growth.
Americans for Prosperity-South Dakota said in a statement that the group is marshaling activists across the state and urging lawmakers to keep their pledge. Placing the proposal on the 2020 ballot would require supporters to gather thousands of signatures.
A spokeswoman for Gov.-elect Kristi Noem said in a statement that Noem is committed to preserving the state’s “low-tax legacy.” The incoming governor is looking forward to releasing her budget proposal in January and “working with the Legislature on these issues,” spokeswoman Kristin Wileman said.
Incoming Senate Minority Leader Troy Heinert, who opposes the plan, said the intent of the sales tax hike was to increase teacher salaries. The Democratic lawmaker said it’s still unclear how much revenue will be generated on purchases from out-of-state retailers.
He said rolling back the tax hike would lead to lower educator pay and losing teachers, which would affect programming and class sizes.
“The reduction … that they’re talking about hurts nobody but the students in South Dakota,” Heinert said.
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