Elimination of food tax called threat to programs


Elizabeth “Sam” Grosz

PIERRE (CNS) – Gov. Mike Rounds told a gathering of newspaper publishers and editors Jan. 29 that repealing the sales tax on food would take a bite out of the state’s budget.

Rounds met with South Dakota Newspaper Association members during an annual legislative newspaper day conference.

The governor said about $61 million is involved in the food tax repeal, divided between the state at $42 million, the cities at $18 million and $1 million for tribal governments.

Elimination of the sales tax on food would be “a real threat to the ongoing programs in the state,” said Rounds, adding, “you can’t simply eliminate taxes without recognizing the impact.”

Only two program areas–education and Medicaid–account for 75 percent of the total increases in the state’s budget.

Elimination of the inheritance tax has resulted in a shortfall yet this year of $19 million, he said. Add to that the state’s possible $42 million loss from the food tax repeal.

Rounds said state would have to make up the $60 million shortfall before any other improvements could be made.

Sales tax revenues are up, he said, so part of the $60 million could come from that, but ongoing expenses continue to rise.

In state aid to education alone, the Governor said, $10 million to $15 million is added each year. Medicaid increases with inflation, he added, as well as increases for government employees.

As for trust funds, Rounds said, some people think they should be spent. The interest from these funds is spent, but not the principal, so about $150 million is available.

Possible scenarios would be to eliminate the cap on property taxes, or to spend some of the principal on the reserves, Rounds said.

Another funding source, which may be in the future, would be the tax on Internet sales. This could capture and bring back in the revenue being lost from the current non-taxation of sales over the Internet.

It was the state Legislature’s attempt during the last legislative session to streamline the state’s sales tax structure, thus paving the way for taxing Internet sales, which has highlighted the sales tax on food.

Instead of cities being able to charge, for example, a one-penny additional tax for all taxable items and not on the second penny, a percentage was figured by the state to be charged on all sales.

A referendum is in the works to bring to a statewide vote to eliminate the sales tax on food.

However, the Legislature may take some wind out of that effort by implementing a food tax rebate for those least able to pay.

To rebate that tax for families who are at or below 150 percent of the poverty level, would result in a loss of $2.2 million to cities and $7.3 million to the state. Rounds said that 150 percent would be a $27,000 annual income for a family of four.

If a debit card were issued to those families, he said, they could use it at the check out counter and the tax would come back to them in the form of change.

Currently food stamp recipients have a debit card and no sales tax is charged on those eligible food items. The tax rebate card would be for other food purchases, whether at the grocery or convenience store.