PIERRE South Dakota Republican Gov. Larry Rhoden unveiled aproposalMonday that would give counties the option to implement a half-percent sales tax to fund property tax reductions for homeowners.
Rhoden said the plan could save hundreds of dollars annually for typical homeowners in some areas. Counties that opt-in to the plan would shift some of their residential property tax burden to consumers, he said, including tourists from elsewhere making purchases while they pass through.
Realistically, its a tax decrease for the citizens of the state, Rhoden said.
The plan would alter longstanding taxation policy that reserves sales tax revenue for the state and cities. The state imposes a 4.2% sales tax thats scheduled to increase to 4.5% in 2027, and cities mayimposeup to an additional 2% local rate, plus another 1% on hospitality-related items such as alcoholic beverages, restaurant meals, lodging accommodations and various types of events.
The governor said hell send his proposal to a summer legislative committee studying property taxes, and he doesnt anticipate action on the plan until next winters annual legislative session.
Its the second property tax relief idea Rhoden has proposed since becoming governor in January, after the departure of Kristi Noem to serve in President Donald Trumps Cabinet.
The first idea, alreadysignedinto law, is a multifaceted effort that includes a five-year, countywide 3% cap on growth in owner-occupied home assessments, plus other provisions such as an eligibilityexpansionfor an assessment freeze program for elderly and disabled people.
As described by the governor, the new plan would allow county commissions to impose the sales tax. County citizens could refer the commission decision to local ballots, or petition the tax increase onto the ballot themselves.
Revenue from the sales tax would have to be used to offset the countys portion of property taxes on owner-occupied homes. Once thats fully achieved, any remaining revenue would have to be used to offset taxes for commercial and agricultural property. The sales tax would be limited to a five-year term, with the possibility of renewal.
The plan would not affect school districts, which also receive property tax revenue.
The governor said that in Minnehaha and Pennington counties, the proposal would reduce annual property taxes by $967 and $917, respectively, on a home valued at $325,000. Those are the two most-populated counties in the state, home to Sioux Falls and Rapid City.
Rhoden said counties that attract lots of tourists are also some of the counties most affected by property tax increases, in part due to growth from incoming residents willing to pay higher prices for the limited number of houses on the market. Thus, Rhoden said, those counties are particularly well-suited for his plan.
He said the lack of county-specific targeting was a problem with many of the property tax relief proposals that failed during the legislative session.
They were proposing a statewide solution to a five-county problem, Rhoden said.
Asked whether the plan might place a greater burden on low-income residents who pay sales taxes but rent their homes and do not directly benefit from property tax reductions, Rhoden acknowledged the concern. But he said the ultimate decision would rest with local officials and voters.
Every county has different circumstances, he said.
Rep. Mike Derby, R-Rapid City, who co-chairs the Legislatures main budget committee, said lawmakers are excited to see the governor put a proposal on the table.
Around here in the Legislature, you have to start with an idea, Derby said. And its a lot easier to poke holes in an idea or try and fix it or make it better when you have a starting point. Governor Rhoden has done that.
The plan would result in the following estimated annual property tax savings on a $325,000 home in cities within selected counties, according to the Governors Office:
- Minnehaha (Sioux Falls): $967
- Pennington (Rapid City): $917
- Custer (Custer): $431
- Hughes (Pierre): $873
- Lawrence (Spearfish): $845
- Lincoln (Tea): $613
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