10-02-2025
State seeks to capture $7 million by repealing credit for online sales tax filers
South Dakota Bureau of Finance and Management Commissioner Jim Terwilliger speaks to the state Senate Committee on Appropriations on Jan. 18, 2024. (Makenzie Huber/South Dakota Searchlight)
PIERRE — South Dakota could do $6.8 million worth of good for its bottom line by repealing a $70 monthly credit for businesses that remit sales tax returns online, lawmakers learned Monday at the Capitol.
The state's Bureau of Finance and Management delivered the message to the House Appropriations Committee, which acts as a screening panel for budgetary proposals as they move toward a place in the state's financial plan for the coming fiscal year.
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The money would come from undoing what's known as the 'sales tax collection allowance' by way of House Bill 1037. The allowance lets businesses who file their taxes online keep up to $70 of the sales taxes they've collected on the state's behalf.
The cut is one of many under consideration this session as legislators deal with declining sales tax revenues.
The time to repeal the allowance has come, contended Bureau of Finance and Management Commissioner Jim Terwilliger, and not just for the incidental purpose of attending to a tighter-than-average budget.
It's tax money left on the table, he said.
'At the end of the day, this is significantly different than repealing an exemption on the sales tax, because this tax is already being paid,' he said.
In its current form, the allowance is designed to push businesses to remit electronically. In 2013, lawmakers restricted the credit's availability to businesses that ditched paper for digital.
That year, Terwilliger said, about 51% of businesses were sending sales tax returns electronically; today the figure is closer to 80%.
At this point, the budget manager said, the $70 monthly credits to local businesses would be worth more as a source of funding for essential government services.
'It's a really, really small amount to businesses, but it's a meaningful amount for us,' Terwilliger said.
South Dakota Retailers Association Executive Director Nathan Sanderson took issue with that characterization of the fee's origin and impact.
'This is a $7 million tax increase on businesses,' Sanderson said.
The allowance first appeared in 1990, he said, long before the practice of online remittance became possible, let alone incentivized as a means to streamline the flow of sales tax dollars.
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In truth, Sanderson argued, the money helps cover fees charged to businesses by credit card companies on each transaction. It's a recognition that businesses do the state a favor by collecting money and sending it to Pierre month after month.
Businesses are 'not getting rich' on the allowance, Sanderson said, but it does defray some of their costs.
Sanderson was the first of nine opponents to testify. The others included business owners, as well as lobbyists for hoteliers, convenience store owners and economic development associations.
When Terwilliger returned to rebut their arguments, he said 'this is absolutely not a new tax,' that South Dakota is 'a pretty darn business friendly state,' and that the taxes that go unremitted under the allowance now are being paid by consumers at the checkout counter.
'I also want to point out that it is my job, and ultimately your job as the Appropriations Committee, to ensure that at the end of the day we have a balanced budget,' he said.
The committee voted to defer action until lawmakers set the state's official revenue forecasts later this week.
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