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A pair of bills that lean on sales tax revenue have emerged as the leading candidates to provide homeowners with property tax relief.
The two bills were championed Wednesday by Gov. Larry Rhoden and House Speaker Jon Hansen – both of whom are competing against each other and two others for this year’s Republican nomination for governor.
Hansen said they’ve put politics aside in order to find solutions to problems, of which rising property taxes have been a perennial issue for lawmakers.
“This is what our constituents want us to do, and that is what we are doing with these bills today,” Hansen said.
Rhoden, speaking after Hansen, told lawmakers on the House State Affairs Committee that the bills offered “meaningful relief from the squeeze of rising property taxes.”
“This deal is a result of good process – people getting together, setting aside their differences, setting aside their politics, and looking out for the people of South Dakota,” he said. “And I was proud to be part of those conversations.”
The first bill, Senate Bill 245, establishes a property relief fund that would be financed by the state sales tax. That tax is currently 4.2 percent after the Legislature in 2023 dropped it by .3 percent. That temporary drop ends next year, and the tax reverts back to 4.5 percent. Rhoden made it clear that it was Hansen’s bill.
While efforts have been made each year to make 4.2 percent permanent, they’ve failed. Since the rate is going up next year, Hansen said the .3 percent should be used to offset property taxes, generating about $110 million a year.
“I cannot think of a better use for that revenue,” he said.
Congressman Dusty Johnson, who is also running for the GOP nomination for governor, has made a similar proposal.
The proposal has the support of the South Dakota Retailers Association and the South Dakota Association of Realtors. It passed 11-2.
The second bill is Rhoden’s proposal that he unveiled to give county governments an option to raise their own sales tax, up to half a percent, which would also be used to offset property taxes. Putting both together, an average homeowner would save about $1,200 a year, Rhoden estimated.
Counties have not had a sales tax. If county governments moved forward with a sales tax, residents would have the option of referring it to a vote.
Jim Terwilliger, Rhoden’s commissioner for the Bureau of Finance and Management, said the property tax burden has grown by $250 million over the past five years. Of that, 60 percent has been in three counties, with Lincoln seeing the steepest increases.
But even homeowners in smaller counties would see sizable savings if their counties implemented the sales tax, Terwilliger said
It’s very clear as we looked at that data that a targeted option really made a lot of sense,” he told lawmakers. “When you layer this proposal together with what you just passed, I think you have a really, really powerful option.”
He added that Texas has had a similar system since the 1980s and about half of its counties use the sales tax to offset property taxes. Georgia enacted a similar provision in its relief package last year.
The proposal had the support of county commissioners.
This time, however, the South Dakota Retailers Association opposed.
“We think this is a half-step too far,” said Executive Director Nathan Sanderson.
Sioux Falls resident John Cunningham, who has a background in public finance, also opposed the county tax option. He argued that it helps only one set of taxpayers, those who own their homes, and that it does nothing for renters, who tend to have smaller incomes.
Cunningham also said it disproportionately favors wealthy people who own more expensive homes. They would receive more tax relief whether they needed it or not.
“So this proportionality thing means that people who need it most get the least, and the people who don’t need it at all get the most,” he said. “It’s just not good economic policy. It makes no economic sense.”
That argument had sway with Rep. Erin Healy. The Sioux Falls Democrat was the only member of the committee to vote against the proposal.
“I want to solve this problem but for me, it’s really difficult to vote yes on a bill that shifts the burden onto other folks who don’t own homes and so for that reason, I won’t be supporting this today,” she said.
Sioux Falls Republican Rep. Greg Jamison participated in a summer study that analyzed various ways to reduce property taxes. At the end of the day, it meant more revenues or cuts.
“There wasn’t an appetite for that,” he said.
