Director's Report

January 12, 2007

New measure extends
grocery tax exemption

Revenue Committee takes chairman’s bill over McOmie-Barrasso measure

The effort to extend and ultimately make permanent the sales tax exemption on groceries started Friday when the House Revenue Committee approved House Bill 93.

Chairman Rodney Anderson, long an opponent of the exemption, sponsored the bill, which was amended to extend the exemption to 2013. Prior to the 8 a.m. meeting, Anderson said he did not expect anyone to have “the guts” to speak against extending the food tax exemption.

A second bill, HB154, sponsored by Rep. Del McOmie, Sen. John Barrasso, and others was killed by the committee. The McOmie bill ensured that counties that have approved the optional One Cent Sales Tax would be fully reimbursed for revenues lost to the exemption.

Under Anderson’s bill, some of those counties will not be fully reimbursed, according to McOmie.

The committee backed the 2013 sunset provision saying the intervening years will provide have better data on revenues lost by local governments due to the exemption. Local governments get a significant share of sales tax revenues generated by the state and rely heavily on them.

Dan Noble of the Revenue Department described the department’s current estimates of food sales taxes generated by various sectors of the economy as simply a scientific guess. Collections over the next few years will give the department much better information to establish how much money the state must send from the General Fund to local governments in order to make up revenues lost to the exemption on food.

New freshman Rep. Mike Madden, R-Buffalo, HD 40, suggested the Legislature should not compensate local governments for optional sales tax revenues lost to the exemption. Instead, he said they should have the authority to impose the optional sales tax on food, thus giving greater authority to local governments.

Noble said South Dakota allows local governments to collect a sales tax on food. “It does muddy the water,” he said, because anyone who sells food would have to file two separate tax forms to report their collections to the state.

The idea obviously intrigued both Anderson and Rep. David Miller, R-Riverton, HD 55. Anderson said legislators will consider drafting an amendment to offer that authority for consideration on the House floor.

Anderson’s amended bill was passed 7-2. Reps. Anderson, Tom Lubnau, Madden, Miller, Mark Semlek, Tom Walsh, and Dave Zwonitzer voted yes. Reps. Ken Esquibel and Mary Gilmore voted no.

A motion to postpone the McOmie-Barrasso bill, a tactic that effectively kills it, was passed on a 7-2 vote. Reps. Anderson, Lubnau, Madden, Miller, Semlek, Walsh, and Zwonitzer voted yes. Reps. Esquibel and Gilmore voted no.