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In November, South Dakota voters will decide on a ballot measure that has spawned confusion and debate over eliminating sales tax on groceries in the state.
Initiated Measure 28 was put on the ballot by the nonprofit group known as Dakotans for Health. The official wording of the measure is: “Notwithstanding any other provision of law, the state may not tax the sale of anything sold for human consumption, except alcoholic beverages and prepared food. Municipalities may continue to impose such taxes.”
The last sentence of the measure is where much of the debate is centered. That sentence seems to conflict with South Dakota Codified Law 10-52-2, which allows cities and towns to impose a sales tax of up to 2 percent on the same items taxed by the state. The South Dakota Municipal League, along with city officials in Watertown and other communities, believe that means that if the state cannot tax “anything sold for human consumption,” neither can a city or town.
Rick Weiland of Dakotans for Health, disagrees.
“The official fiscal projection from the Legislative Research Council, required by law for all ballot measures, makes it clear that municipalities will still be able to collect their tax on food.” he recently told the Dakota Scout. “That’s right, local governments won’t lose a dime on this deal.”
The Attorney General’s Office, in its official statement on IM 28, doesn’t address the question of municipal taxes, saying only that “(t)he measure eliminates these sources of revenue for the state.”
The AG’s statement does say “judicial or legislative clarification of the measure will be necessary.”
The South Dakota Department of Revenue isn’t taking sides on the issue. In a statement to the Watertown Current, department spokesperson Kendra Baucom said: “The Department of Revenue is aware there are questions surrounding IM 28. … Currently, we are unable to provide any comments or additional guidance beyond the Attorney General’s Statement on the measure.
Watertown Mayor Ried Holien has said the passage of IM 28 could mean a hit of about $2 million to the city’s budget.
Watertown City Manager Amanda Mack said, “I know there are some in the community who disagree with that, but it’s just the ambiguity (of the measure). It’s too scary for communities not to be prepared.”
Estimates by the Watertown Chief Financial Officer Kristen Bobzien found that if IM 28 was passed last year, the measure would have removed $2.19 million (or 10.4%) of sales tax from the city budget affecting everything from drainage projects, to street improvements, to library services.
An analysis by the South Dakota Municipal League estimates that if IM-28 passes, cities and towns could lose at least $51.5 million in sales tax revenue each year. The Legislative Research Council says the state could lose out on $123.9 million in revenue if IM 28 passes, but it doesn’t address any effects on cities and towns.
Holien, Mack and others also point to the ambiguity of the wording of IM 28, saying anything for “human consumption” could include unintended items. The Attorney General’s explanation says: “human consumption is not defined by state law.”
Knowing this, the city council met Sept. 5 to approve Resolution No. 24-25 which opposes passage of the measure.
Weiland was expected to be at Monday night’s Watertown City Council meeting to discuss the issue further.
