Cattlemen’s Corner: South Dakota sales tax exemptions | TSLN.com

Cattlemen’s Corner: South Dakota sales tax exemptions

Sale tax exemptions are proving to be a hot topic this summer. Efforts by the legislature to balance the budget without raising taxes this past session prompted a lot of discussion about removing some sales tax exemptions in order to increase revenue for the state. The 4 percent sales and use tax, applied to goods and services, is the main source of revenue for state government. In the 2011 fiscal year, the sales and use tax generated over $700 million for the state coffers, or about 18 percent of the total state budget.

Since South Dakota began collecting a sales tax in 1935, the tax rate has varied from 2-5 percent, including a couple of temporary increases designed to fund specific projects. Every one-cent increase in the sales tax generates approximately $160 million for the state’s General Fund. Historically, South Dakota’s philosophy regarding sales tax has been to collect a relatively low, broad-based sales tax to fund state government. In 1979, the legislature passed a law mandating all goods and services be taxed “unless specifically exempted” by the legislature.

Two years ago, at the request of legislators, the Department of Revenue developed a list of items that are currently exempt, and estimated how much revenue might be generated if the state were to start taxing those items. While the estimates are guesses by Department of Revenue staff, based on incomplete data, the total figure was more than $527 million. Topping the list were agricultural inputs and services, estimated at about $166 million, including an estimated $15 million for livestock feed and $83 million for livestock sales.

The South Dakota Cattlemen’s Association (SDCA) and many other ag groups have raised objections to the list, which was widely circulated among legislators again this year. Key concerns regarding removing sales tax exemptions on ag products include:

• Ag inputs such as seed, feed and fertilizer are included on the list but other manufacturing inputs are omitted. According to the Department of Revenue, this is because the finished products are taxed when sold to the final consumer. We contend ag products are also taxed when sold to the final consumer and, therefore, inputs should be treated the same across industries. Not taxing inputs is a matter of fairness to the consumer to prevent double taxation.

• While some agricultural inputs may have been taxed at one time, many have not. For example, there’s no indication that livestock sales have ever been subject to sales tax.

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• Legislators must understand that “removing a sales tax exemption” is the same as a tax increase. If lawmakers determine a tax increase is necessary to maintain state government, it should be shared by all citizens and not targeted at agriculture. As consumers, farmers and ranchers pay all the sales taxes on consumer goods and services that everyone else pays. In addition, we pay a large share of the property taxes that support local counties and schools.

The legislature appointed an interim Sales Tax Review committee that held their first meeting July 12 in Pierre. While SDCA continues to monitor the committee’s progress, we encourage you to discuss this important issue with your own legislators.

For more information about the interim committee, including meeting agendas, minutes and committee documents, visit the Legislative Research Council Web site at http://legis.state.sd.us.

Sale tax exemptions are proving to be a hot topic this summer. Efforts by the legislature to balance the budget without raising taxes this past session prompted a lot of discussion about removing some sales tax exemptions in order to increase revenue for the state. The 4 percent sales and use tax, applied to goods and services, is the main source of revenue for state government. In the 2011 fiscal year, the sales and use tax generated over $700 million for the state coffers, or about 18 percent of the total state budget.

Since South Dakota began collecting a sales tax in 1935, the tax rate has varied from 2-5 percent, including a couple of temporary increases designed to fund specific projects. Every one-cent increase in the sales tax generates approximately $160 million for the state’s General Fund. Historically, South Dakota’s philosophy regarding sales tax has been to collect a relatively low, broad-based sales tax to fund state government. In 1979, the legislature passed a law mandating all goods and services be taxed “unless specifically exempted” by the legislature.

Two years ago, at the request of legislators, the Department of Revenue developed a list of items that are currently exempt, and estimated how much revenue might be generated if the state were to start taxing those items. While the estimates are guesses by Department of Revenue staff, based on incomplete data, the total figure was more than $527 million. Topping the list were agricultural inputs and services, estimated at about $166 million, including an estimated $15 million for livestock feed and $83 million for livestock sales.

The South Dakota Cattlemen’s Association (SDCA) and many other ag groups have raised objections to the list, which was widely circulated among legislators again this year. Key concerns regarding removing sales tax exemptions on ag products include:

• Ag inputs such as seed, feed and fertilizer are included on the list but other manufacturing inputs are omitted. According to the Department of Revenue, this is because the finished products are taxed when sold to the final consumer. We contend ag products are also taxed when sold to the final consumer and, therefore, inputs should be treated the same across industries. Not taxing inputs is a matter of fairness to the consumer to prevent double taxation.

• While some agricultural inputs may have been taxed at one time, many have not. For example, there’s no indication that livestock sales have ever been subject to sales tax.

• Legislators must understand that “removing a sales tax exemption” is the same as a tax increase. If lawmakers determine a tax increase is necessary to maintain state government, it should be shared by all citizens and not targeted at agriculture. As consumers, farmers and ranchers pay all the sales taxes on consumer goods and services that everyone else pays. In addition, we pay a large share of the property taxes that support local counties and schools.

The legislature appointed an interim Sales Tax Review committee that held their first meeting July 12 in Pierre. While SDCA continues to monitor the committee’s progress, we encourage you to discuss this important issue with your own legislators.

For more information about the interim committee, including meeting agendas, minutes and committee documents, visit the Legislative Research Council Web site at http://legis.state.sd.us.

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