SIOUX FALLS – Uncertainty was winning the day early Wednesday in the debate over removing the sales tax on groceries in South Dakota.
Initiated Measure 28, which would eliminate the state’s portion of sales tax on “consumables” was losing by a 71% to 29% with 548 of 691 precincts reporting as of 3:45 a.m.
The proposal backed by Dakotans for Health was an attempt to reduce the tax burden for families on the lower end of the economic spectrum, who pay a larger proportion of their income on food.
But the opponents, led primarily by Nathan Sanderson, executive director of the South Dakota Retailers Association, were successful in convincing voters that removing the tax would leave a hole in the state budget that would sow financial chaos and lead to an income tax.
From the beginning the debate hinged on the amount of money that would be removed from the budget, with estimates ranging from about $124 million to $646 million.
“Either way, we’re still talking about over $100 million to the state of South Dakota, with no plan for making it up,” Sanderson said during a town hall debate in Mitchell last month.
At the same time, local officials, including Sioux Falls Mayor Paul TenHaken, launched warning flares, suggesting the language of the measure did not make it clear whether cities would be able to continue collecting sales tax on groceries, a major source of revenue for local governments.
Rick Weiland, co-founder of Dakotans for Health, deflected those criticisms saying the language of the IM 28 was very clear that it applied to state, not local, taxes.
As to the charge that the measure was a thinly veiled imposition of an income tax, Weiland said the Legislature has many options when it comes to raising money, including a bevy of sales tax exemptions for various special interest groups.
“I have a list here of over $1.4 billion in sales tax exemptions in the 2025 budget representing agriculture, representing healthcare, representing tourism, you can just go down the list. There’s even pipeline sales tax exemptions in here,” Weiland said during the town, which was sponsored by South Dakota Public Radio. “There’s sales tax exemptions for bull semen and rodeo clowns. We’re talking about families in South Dakota that are struggling.”
In the end though, voters appeared uncomfortable with the uncertainty, despite the fact that Gov. Kristi Noem and other Republican leaders have backed the idea in the past.
The state collects a 4.2 percent sales tax on purchases, including non-prepared foods such as groceries. Cities can take an additional 2 percent.
Only South Dakota and Mississippi apply the full sales tax to groceries. Eleven states apply a lower rate.
Of the 45 states that have a sales tax, 32 do not apply it to groceries.
The Trust Project
