Governor Daugaard’s Weekly Column: Striving To Achieve A Broad, Stable Tax Base

  Striving To Achieve A Broad, Stable Tax Base
  A column by Gov. Dennis Daugaard:

On June 30, South Dakota state government closed the books on the 2015 budget year. For the fourth year in a row, the state general fund budget ended with a surplus, with both higher revenues and lower expenditures than budgeted. I have made it a priority to balance our budget each year with emphasis on conservative revenue projections. Other states often use rosy revenue numbers, debt or budget gimmicks to appear balanced, but South Dakota balances its budget honestly.

Our largest revenue source is our sales and use tax. Unfortunately, some sales made to South Dakota residents are able escape the sales tax. This creates inequity, and is unfair to retailers in our state who must compete at a disadvantage.

Currently, only businesses with a “substantial nexus” or physical presence in South Dakota must collect sales tax on goods purchased online. Out-of-state retailers, who are not physically located in South Dakota, have no such obligation. The current system doesn’t make sense, and it even discriminates among online purchases. If you buy a new iPod at your local retailer, you pay the sales tax. If you buy it online at BestBuy.com or WalMart.com, you pay the sales tax, because those businesses have retail operations in South Dakota. But if you buy your iPod from Amazon.com, you don’t pay sales tax – simply because Amazon has no warehouse or other physical location in South Dakota.

If South Dakota retailers have to pay sales taxes, their competitors online should as well. This is not imposing a new tax. It is asking online retailers to pay the tax that is already legally due on these sales. Several pieces of legislation awaiting action or planned for introduction in Congress attempt to address this disparity. Consumers already owe sales and use tax on the goods they purchase. The legislation simply provides states the authority to enforce existing state and local sales and use tax laws and eliminates the competitive advantage enjoyed by remote retailers at the expense of local businesses.

I am thankful for the South Dakota congressional delegation’s attention to this issue. Senator Thune, Senator Rounds and Congresswoman Noem understand that a good tax system does not give an unfair advantage to some. Whether by adding online retailers to the tax rolls, encouraging business growth or getting the unemployed back to work, we should strive to achieve a broad, stable tax base.

Online shopping has given every South Dakotan access to more goods and services than ever before, if they are willing to pay for shipping. There is nothing wrong with this. We should not, however, disadvantage our local retailers or our state budget by allowing out-of-state online businesses to avoid paying sales tax. Streamlined legislation is crucial, if we want to allow South Dakota’s main street businesses to remain viable and competitive.

-30-