Communities Face $51M Budget Shortfall with IM-28

Communities Face $51M Budget Shortfall with IM-28
Proposed Initiated Measure A “Disaster” for Cities and Towns

PIERRE, S.D. – A new analysis from the South Dakota Municipal League estimates that if IM-28 passes, cities and towns would lose at least $51.5 million in sales tax revenue each year. The fiscal analysis includes IM-28’s impact on each municipality in the state.

IM-28 would reduce municipal sales tax collections in larger communities like Sioux Falls and Rapid City by more than 8 percent, according to the analysis. Smaller towns like Roslyn, Tulare, White River, and Wolsey would see losses above 40 percent. The highest estimated loss would occur in Bonesteel with a 59 percent reduction. The full analysis with city information is available at nosdincometax.com/impact.

“Local governments directly impact the daily lives of South Dakotans,” said Sara Rankin, Executive Director of the Municipal League. “IM-28 would create massive holes in local budgets used for police, roads, parks, and everything residents expect their community to provide. Simply put, IM-28 would be devastating for our daily lives.”

The language in IM-28 conflicts with South Dakota Codified Law 10-52-2, which allows cities and towns to impose a sales tax of up to 2 percent on the same items taxed by the state. This means that if the state cannot tax “anything sold for human consumption,” neither can a city or town.

The poor drafting of IM-28 is referenced in the Attorney General’s explanation of IM-28, which notes that “Judicial or legislative clarification of the measure will be necessary.”

An annual loss of $51.5 million would reduce funding to fix potholes, update infrastructure, staff libraries, operate pools, and maintain parks.

The estimated loss for each municipality was calculated by first aggregating all of the monthly sales tax reports for communities by SIC code from the Department of Revenue for 2023. Then a percentage was assigned to each SIC code to represent how much of the sales tax revenue generated by businesses under that code comes from consumables. Lastly, those percentages were applied to the 2023 tax data for each community in the state to develop the estimate.

“IM-28 would be a disaster for cities and towns,” said Harry Weller, Mayor of Kadoka and Municipal League President. “In my town of Kadoka, we’ll lose at least 24 percent of our sales tax revenue. Local governments run on lean budgets as it is. If IM-28 passes and we’re barred from collecting sales tax, we’ll have no choice but to increase property taxes.”

IM-28 is on the ballot as an initiated measure in the General Election on Tuesday, November 5, 2024.

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ABOUT SDML: The South Dakota Municipal League was organized in 1934 as a nonpartisan, nonprofit association of incorporated municipalities in South Dakota. The League’s mission is the cooperative improvement of municipal government in South Dakota. A vote of the members at the annual conference determines the League’s major policies.

Resources:

  1. IM-28 Municipal Sales Tax Impact
  2. Legislative Research Council Report, July 30, 2024
  3. Photo: Sara Rankin
  4. Photo: Harry Weller
  5. Sara Rankin Audio
  6. Harry Weller Audio

23 thoughts on “Communities Face $51M Budget Shortfall with IM-28”

  1. Yeah, I always trust the numbers coming from an entity that’s against the thing they’re talking about.

    I’m voting yes to end this unfair, regressive tax.

  2. If the legislators would have passed a grocery tax last year instead of the one they did pass, this would not have been a topic this year.

    The grocery tax was proposed and supposedly back by a Governor who used the grocery tax as campiagn tool. The grocery tax was proposed for one purpose, to quit taxing a necessity of life products, food. It would have helped the poor, the middle class, and even the weathly. The poor and most of the middle class are not buying the lobster tails and Filet Mignon, that is the weathly. The poor are buying hambuerger helper and day old bread, the middle class are buying hamburger with an occasional steak for a treat.

    Instead a Wiik led party and a bill by Karr pushed the can down the road and cut taxes on pick-ups, boats, amd 70″ TV’s. I am not sure it was to help their donors or the faction that was against Noem, which I can understand or both. But it went against the people who needed it and brought a guarantee that it was going to be on the ballot in a year.

    This ballot measure will have a good chance of passing and that will be on the 2023 legislative session. The party that is so against a income tax might have just created a income tax.

    1. Instead, they opted for a small sales tax decrease that amounts to about $50 a year in savings to most households while their rich donors save thousands. Republicans only work for the wealthy.

    2. Exactly! The 2023 legislative session can blame themselves for a good chunk of the ballot measures this year. Their failure to act has resulted in the voters taking matters into their own hands.

  3. Blame the party in charge. For 50 years they have let South Dakota citizens down. They have failed to bring in good wage paying industry. As recently as this year the state has not hustled on battery plant. They failed to bring in wind turbine manufacturing for at least 15 years. They have led the nation in BRAIN DRAIN. The leaders simply watched the young leave the state for better jobs else where. I am NOT A DEMOCRAT but GOP has failed the state and its people. Let them worry about how to cover the short fall. They created it.

    1. Oh don’t forget that faction now wants to completely destroy ethanol and secondary ag products. Surely that will help!

  4. Where does the money go?

    Won’t it go toward more goods and services?

    Paying the light, water, gas bill?

    It doesn’t vanish, it just changes hands.

    Did this municipal league, founded in the fog of a world war, have a calculation for how much this tax decrease increases the velocity of money?

    I’m all for slow conservative transitions .. maybe the tax rate should be reduced slowly, then municipalities should disclose their operations to their voting public, after which communities could decide how to slowly change the avoid needing so much taxation.

    It’s a mess to be sure.

    Over taxation is a problem.

    Inaction by a disinterested public who would not normally reinvest in community infrastructure of also a problem.

    Seems pretty intractable to be honest.

    It’s why so many are content to let it burn down (not me mind you, I keep working to understand and proffer seemingly good suggestions when I see them).

    1. The velocity of money, Mr. Dale, depends on how fast grudznick orders seconds and another round. I’m throwing in with this Mr. Weller fellow, who certainly cuts a striking resemblance to a few of the portraits of the Past-Presidents of the Conservatives with Common Sense. He is right to be concerned with this sloppily written initiative, numbered 28. It is the worst one Mr. Weiland has written, yet.

  5. If you want our state to be like other liberal states then do as they do! Why do you think we have balanced budgets that aren’t boom and bust like so many other states? It’s because we have a mile wide and inch deep tax philosophy. We aren’t full of holes, we don’t soak the rich; it’s just stable. Not to mention we have a refund program where you get the tax back at a certain income level. Poor people get their tax money back effectively eliminating the tax on food. So let’s say this passes, the refund program goes away and the general sales tax goes up in response. What have you done? You have raised taxes on the very people you are trying to help!

    1. The food sales tax refund affects a minuscule amount of people.

      Food is essential to stay alive and disproportionately affects lower incomes (a higher percentage of your income goes toward taxes). A new side-by-side or truck or boat are not required to stay alive so raising taxes on those would not affect those that can’t afford those non-essentials in the first place.

      1. You don’t pay sales tax on cars, side by sides and boats. You pay excise tax at the courthouse.

        If you can’t afford to pay the food tax then you are eligible for the refund. If you’re too lazy to apply, that’s your problem. This is by definition a hand up and not a hand out. If you can’t help yourself then go somewhere that will give you a handout for nothing. Not in South Dakota.

        1. Okay bad examples. How about guns, travel, and expensive restaurants?

          Can you point to where food sales tax is refundable? All I’m finding is that it’s only for those that are older and/or disabled.

          1. The only refund program currently in place is for the very low income elderly and disabled and is funded by an annual special appropriation of $425,000. It’s not a true refund, but a direct cash payment based on need.

            There used to be a food tax refund program for low-income individuals, but the program saw very little use and was repealed by the legislature several years ago.

            1. Thanks. So all of those points are moot. Someone is overly confident in their incorrect knowledge.

    2. SD is a welfare state where our budget is highly subsidized by blue states. That’s why I laugh when the Trump crowd screams to cut federal taxes which will in turn create an even larger burden locally. Removing the food tax is a good idea because it negatively affects the bottom. Raising sales taxes to make up for that will still be the better option. It’s less regressive, and no, it won’t impact those we are trying to help as you make it out to be. Go simp for the wealthy somewhere else. Let’s raise their taxes back to the levels in the 50s. Let’s give citizens the ability to itemize costs we incur to be employed on our taxes. Reverse the Trump tax changes that screwed the middle class.

      1. So I guess the poor only buys food?
        Got it, smart argument!

        Go simp for liberals elsewhere. There is a reason republicans run this state and that’s because we reject your philosophy. Laugh all you want but you are a minority this state.

        1. The poor are affected more. If you spend the same amount on food as a poor person, you pay the same tax, but that tax makes up a larger portion of the poor persons income than yours which means it is a greater burden. Try to keep up champ.

  6. Whenever a sales tax tax cut proposal comes before the legislature, the fog rolls into Pierre, thick as a pea soup, and blankets the Capitol chambers. Our Legislators grope about, shouting at each other, and bringing various counter and alternative proposals to the floor. At the end of the session, nothing has changed. “Minor modifications”, at best.

  7. Heh, what was the surplus in 2023? Something like 80 mil? Gosh, whatever could we do with that? Fix roads? Nah… Fund public libraries. Nah… Upgrade infrastructure? Get outta here…

    I KNOW! Let’s build a prison!!!

    SD politics working for you. LOL

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