Group says repeal of state sales tax for groceries could lead to income tax

(The Center Square) – A group of business organizations and politicians say the passage of an initiated referendum removing South Dakota’s sales tax on consumable goods could lead to a state income tax.

Secretary of State Monae Johnson certified the ballot question in May, which would allow voters to decide in November whether to remove the tax.

South Dakotans Against A State Income Tax includes Sioux Falls Mayor Paul TenHaken, South Dakota Retailers Association Executive Director Nathan Sanderson and Rapid City businesswoman Erin Krueger. They said Tuesday that removing the tax would remove $176 million from state coffers and more from local governments.

“In Sioux Falls, we would see major cuts to funding for law enforcement, road repairs, pools and parks,” Tenhaken said in a news release. “Unlike the state, cities don’t have the ability to impose a local income tax, meaning property taxes on seniors and working families would have to increase or city services would drastically be reduced. A sales tax based on consumption levels and also paid for by non-South Dakotans is fairer to the pocketbooks of South Dakotans.”

The group said the ballot question’s wording would also remove the sales tax on items such as toothpaste, tobacco and marijuana.

“The language in IM-28 was chosen for one of two possible reasons; to eliminate sales taxes on many items to set up South Dakota for a state income tax, or it was drafted improperly,” Sanderson said.

The group did not respond to an email from The Center Square asking for clarification as to who has discussed creating an income tax.

Besides South Dakota, six other states do not have an income tax; Alaska, Florida, Nevada, Tennessee, Texas and Wyoming, according to the Tax Foundation.

Gov. Kristi Noem advocated for eliminating the sales tax on food in 2023, saying the state had the money to grant the more than $100 million tax cut without raising taxes. The South Dakota Legislature did not agree to Noem’s proposal but instead agreed to roll back the state sales tax from 4.5% to 4.2% for four years.