What you need to know about South Dakota's 3 food sales tax cut bills

Lawmakers, Republican and Democratic alike, have tried to cut the state sales tax on food for nearly two decades. At this point, it's nearly a legislative tradition to bring bills that either completely slash the 4.5% sales tax on food or cut it back a percent. These efforts have ultimately failed, with the most recent being in 2022.

Except this year, Gov. Kristi Noem is throwing her support behind completely eliminating the sales tax on food. It's a campaign promise she made in September, and earlier this week, Rep. Mary Fitzgerald, R-Saint Onge, introduced a bill that would do just that.

Noem has touted the cut would give back more than $100 million to the people of South Dakota, whose pocketbooks are squeezed at the grocery store. If passed, it would also be the largest tax cut in state history.

And there are contingency bills in place as well just in case the full tax cut fails. Democrats, led by Rep. Oren Lesmeister, D-Parade, introduced two bills that would bring the sales tax on food down to 3.5% and 2.5% respectfully.

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Here's a closer look at what you need to know about all three:

The full sales tax cut on food

First, it's important to understand the food that would be exempt from the sales tax if passed would include fruits, vegetables and pantry and fridge staples. Prepared food, such as rotisserie chicken from the deli, would still be taxed at the full 4.5% rate.

South Dakota is one of three states in the nation to fully tax food.

Fitzgerald's bill would fully eliminate the state sales tax rate on food items. But, sales taxes collected by municipalities and cities would not be impacted.

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“Eliminating this tax will make it easier for South Dakota families to make ends meet, including my own kids and grandkids,” Fitzgerald said. “As a former appropriator, I am confident that our state budget can afford this while still planning conservatively and responsibly for the future.”

In December, during Noem's 2022 budget address, she said the state has $310 million in permanent revenue growth and if the tax cut is passed, $208 million would remain in revenue.

"The people of South Dakota overwhelmingly want this tax cut, and they know we can afford it," Noem said at the time.

Cutting the sales tax on food down a penny or two

Lesmeister's bills are similar in the way that it looks to cut the overall state sales tax to either 3.5% or 2.5%. Families with a grocery bill of $100 would see either $2 or $1 taken off their sales tax respectfully if either bill passes.

There would also be a draw down on the reserves of either $150 million or $25 million.

"There's already some talk that this might be a hard push for the governor's 4.5% to get to her desk, which there again, we as Democrats hope hopefully we do pass the 4.5% and help maximize everybody with some return dollars in their pocket," he said. "But if that should happen to fail, this is kind of a contingency plan."

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Sen. Reynold Nesiba, D-Sioux Falls, said Democrats were looking forward to working with Noem and Republicans on getting the full tax cut passed.

"We understand we think we can afford the entire 4.5 cents, but we're willing to compromise. We need to do something on on reducing the sales tax this year," Nesiba said.

What are the discussions around the bills?

Cutting the state sales tax on food has been a thorny topic with fiscally conservative members asking to see how the revenue will be made up.

During a press conference with reporters Thursday, House Majority Leader Will Mortenson, R-Pierre, said with the amount of proposed tax cuts up for debate this session, conversations are happening around what lawmakers can afford to do, given state programs and state employees need to be budgeted for.

"I will tell you that we intend to have good, robust scrutiny and debate on all of these tax bills that come through," Mortenson said.

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He added among House Republicans there is a sense for wanting to cut some taxes, but, "We're going to make sure we do our homework on all these proposals, so that we know the up down and sideways of each one of them."

There's still some hesitancy on the Senate side though.

Sen. Helene Duhamel, R-Rapid City, said it's important to view the bigger picture and what the reduction in the state sales tax on food might mean in a few years, especially when considering the state's obligation to support state-funded programs and services.

"People are nervous about when you want to remove a broad based sales tax that keeps keeps us in a good financial position," she said.

Duhamel pointed to a Legislative Research Council presentation from July that showed inflation and stimulus dollars had driven the growth of the sales tax revenue during the 2022 fiscal year. But, when accounting for organic consumer spending, revenue had fallen.

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"To us, I mean, that's significant because when you work here, you try to keep your long distance classes on, and when you're proposing permanent tax cuts, that's scary," she said.

The three bills have been referred to the House Taxation committee and will have hearings in the coming weeks.

This article originally appeared on Sioux Falls Argus Leader: A look at South Dakota's 3 bills tied to food tax cuts this year