By STU WHITNEY
SIOUX FALLS, S.D. (South Dakota News Watch) – Sophie Stoffers carried groceries to her car in a Sioux Falls Hy-Vee parking lot and pondered a question from a reporter.
Would Initiated Measure 28, an effort on the Nov. 5 ballot to eliminate South Dakota’s sales tax on food, make life better for her?
“I’m always a fan of saving money,” said Stoffers, 24, who recently moved to Sioux Falls and works as an assistant athletic trainer at Augustana University. “But I don’t know much about (the measure). I need to hear the pros and cons before voting.”
According to U.S. Department of Agriculture data, an average family of four in South Dakota spends about $1,200 a month on food purchased at a store and prepared at home. Eliminating the 4.2% tax on food would save that household $50.40 a month, or about $600 a year.
Stoffers and her boyfriend have noticed grocery bills ticking upward. She’ll glance at the receipt on the way out of the store and try to cut back on nonessential items.
But that’s a long way from breaking down the ramifications of a sales tax cut on consumables, especially with differing viewpoints of what IM 28 will do.
Opponents pounced on the wording of the measure as broader than just groceries. They said it could cause a budget crunch by preventing the state from collecting sales tax on “consumable” items such as tobacco, toothpaste and toilet paper.
Estimates for the loss of state revenue range from $124 million to $646 million annually.
Here are the most pressing questions surrounding IM 28 as the November vote approaches:
What’s the argument for grocery tax repeal?
Supporters call the measure a long-overdue effort to take the tax burden off low-income families and individuals. South Dakota and Mississippi are the only states that fully tax food without offering credits or rebates.
The basic premise for eliminating the grocery tax is to make it easier for people to put food on the table within the constraints of their household budget.
“The tax is quite regressive,” Anna Phillips, an analyst at the Center on Budget and Policy Priorities in Washington, told News Watch. “If you look at the percentage of household income spent on groceries, low-income earners spend roughly double the percentage of their income that high-income earners do on groceries. So this is going to make more of a meaningful difference to families who are currently struggling to get by.”
Feeding South Dakota, the state’s largest hunger relief organization, estimates that about 106,000 people in South Dakota, more than 11%, are food insecure, which means they lack reliable access to enough affordable, nutritious food. Of that number, 1 out of 6 are children.
Weeks before being re-elected in November 2022, Republican Gov. Kristi Noem made a public pledge to preside over “the largest tax cut in state history,” a full repeal of the grocery tax. She vouched for its affordability and noted that voters might pass the repeal if lawmakers didn’t.
But legislators rejected Noem’s proposal during the 2023 session, opting instead to temporarily reduce the overall sales tax rate from 4.5% to 4.2%, with a sunset (or expiration) of 2027.
What’s the main argument against it?
There are fiscal consequences to eliminating the tax. Sales taxes are the largest source of state government revenue in South Dakota, one of seven states without a state income tax.
Phillips stressed that, while eliminating the grocery tax is a good way to advance racial and economic equity, states should pursue full repeals with caution due to budgetary impacts.
It’s important to remember that state revenue lost from eliminating the grocery tax would be on top of the $104 million estimated annual revenue loss from the overall sales tax cut passed by legislators in 2023.
So the question becomes: Can South Dakota afford to do this without having to cut important programs elsewhere or adding another tax?
Opponents of the measure answer that with a resounding no, citing what they said are ambiguous and problematic wording in the ballot measure.
The specific language of IM 28 prohibits the state from collecting sales tax on “anything sold for human consumption, except alcoholic beverages and prepared food.”
Nathan Sanderson, executive director of the South Dakota Retailers Association, said that wording is so vague that it could prevent the state from collecting sales tax on “consumable” items such as tobacco, toothpaste and toilet paper.
The Legislative Research Council took that a step further in a report to state legislators in July, extrapolating the “human consumption” definition to include propane and motor fuel and services rendered by a plumber or landscaper.
Weiland countered that it was the LRC and attorney general’s office that questioned earlier language in IM 28, which led to the current framework. He called for common sense, saying interpretations of the measure should be shaped by the stated intent of petitioners to target taxes on food and drink.
“You don’t drink gasoline,” Weiland said. “You don’t eat services.”
What kind of budget crunch are we talking about?
Well, it’s complicated.
Not even the LRC, which provides statutory and legal guidance for proposed ballot initiatives, has been consistent on what the impact will be.
Reed Hollweger, who resigned as LRC director during a meeting of the Legislature’s executive board in October 2023, addressed the potential for differing interpretations of “anything sold for human consumption” in a fiscal note sent to the secretary of state as required by law in January 2023.
“For purposes of this fiscal note,” he wrote, “the LRC assumes the phrase only includes food items because of the modifying language ‘except alcoholic beverages and prepared food’ and does not include personal tangible property and services, both of which can also be sold for human consumption. Other assumptions as to the meaning of this phrase may be just as reasonable, if not more so.”
With that qualification, the fiscal note said that the state could see a reduction in sales tax revenue of $123.9 million annually.
Sanderson estimated to News Watch in June that IM 28 would result in a budget downturn of at least $176 million annually because it would include tobacco products, defined in state law as “any item made of tobacco intended for human consumption.”
Then came the kitchen-sink estimate the LRC presented to legislators as an update in July – a worst-case scenario analysis that said the budget impact could soar as high as $646 million annually.
This story was produced by South Dakota News Watch, an independent, nonprofit news organization. Read more in-depth stories at sdnewswatch.org and sign up for an email every few days to get stories as soon as they’re published. Contact investigative reporter Stu Whitney at stu.whitney@sdnewswatch.org.
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Publish date : 2024-09-23 04:15:00
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