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Lawmakers spar over potential reduction in state sales tax rate

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    South Dakota lawmakers are debating whether to reduce the state's sales tax rate as collections from online retailers come in. Last year, the state won a U.S. Supreme Court case requiring online retailers to remit sales tax.

A battle over how or even whether to lower the state sales tax is raging in Pierre this year. The Legislature in 2016 increased the state sales tax by a half penny to raise teacher salaries. But legislators then also promised to reduce the tax rate if South Dakota collected millions in new taxes from online retailers, which it is now receiving.

A bill to reduce the tax passed the Senate on Monday, but still faces opposition from fiscally conservative lawmakers and lobbyists.

In 2016, Sen. Jeff Partridge, who sits on the powerful Joint Appropriations Committee, offered a measure now known as “The Partridge Amendment.” The amendment stated that the state sales tax would slowly be reduced if South Dakota won its U.S. Supreme Court case that sought to collect sales taxes from online retailers located outside the state who refused to pay up. For each $20 million in new tax revenues collected from online retailers, the state sales tax – the main funding source of state operations – would be lowered by one-tenth of one percent a year a maximum of five times.

The amendment was put forth as a balm to fiscally conservative Republican lawmakers who at the time were on the fence about whether to raise the sales tax from 4.0 to 4.5 to get money to help boost the pay of teachers, whose average wage was lowest in the nation.

Now, efforts to change the wording have concerned some Republicans who fear the state will go back on its commitment. Others say lawmakers should make the decision on what to do with new sales tax money when it is received and not be tied to a rate reduction requirement.

In this week's South Dakota News Watch report, Bart Pfankuch examines the issue from all sides and looks ahead to potential legislative action.

Click here to read the story.