|South Dakota Poorhouse|
South Dakota really, really needs to look at how much revenue it passes up in the way of sales tax exemptions. Last year the Department of Revenue totted them up and came up with a total of $582 million in potential tax receipts that are lost to the state from a wide variety of businesses that are exempted from paying the 4% state sales tax. That's a huge amount of money in a state where the total state budget approaches $4 billion, about $2 billion of which comes from state revenues, the rest coming from the Feds.
I wonder how many of our elected officials in Pierre have heeded this note in the report I linked? According to State Revenue Director Andy Gerlach, "Tax exemptions are an important component of South Dakota tax policies. However, exemptions always come with a cost. Exemptions reduce revenues otherwise available for programs, education, and other services for our citizens. Therefore it is critical that policymakers understand both the costs of exemptions and their effectiveness at achieving their intended goal." Get that, state officials? Exemptions come with a cost. It really is long past time to take a hard look, line by line, industry by industry, at every one of these exemptions and ask ourselves if the limited amount of money available for state and local programs is a reasonable trade off for giving numerous special-interests in this state a pass on paying sales taxes.
The eye catcher for me is the "agriculture group," which gets about a $220 million break in sales taxes. That sounds like a lot, but when you consider that farm income in this state in 2012 was around $10 billion, that number doesn't seem particularly daunting. It represents about 2% of the ag community's annual take. This break (I'm surmising, correct me if I'm wrong) probably dates back to the days when farming was a family-by-family affair and those small time, incredibly hard-working folks tilled the soil and kept their livestock without much support from the federal government. They deserved this break during an era when survival was a crop-year to crop-year crapshoot. Ag economics are altogether different these days, with all sorts of risk amelioration opportunities abounding throughout the industry. Other businesses that share similar levels of market risk have to pay sales tax on their inputs and maintenance. Why shouldn't farmers?
If you go through some of the other exempted groups, you'll get even more frustrated, especially if your business isn't one of them. Add to the frustration that Governor Daugaard pointedly notes that his budgets can't spend money the state doesn't have, then doesn't lift a finger to see if there might be some untapped potential revenues in this list of exemptions that seem to go on in perpetuity without, as far as I recall, ever being called into question, much less revoked. So we go on crying poor when it comes to funding education and suddenly find ourselves scrambling to come up with half-a-billion bucks to repair our insufficiently tended roads.
I challenge the Governor to appoint a committee that's dedicated to doing a line-by-line analysis of the exemptions list and produce some economic justification for each one of those tax breaks.