When Ron Schreiner, South Dakota's secretary of revenue, met with a group of his peers recently, a stunned easterner asked him how his state could finance its expenses without the benefit of a state personal income tax. The solution: South Dakota doesn't create programs unless there's money in the bank to pay for them.
"This was a revelation to that individual," Schreiner says. The easterner was genuinely surprised.
But the lack of a personal income tax and its fiscal austerity don't belie South Dakota's need for funds. Indeed, at the state level, the Legislature will consider a $44 million tax hike during its upcoming session. And at the local level, an increasing number of cities are enacting sales taxes marked for specific purposes.
At a time when fiscal budgets are being tightened at higher levels of government, state officials believe that cities are taking matters into their own hands. "Most communities of any size have a citywide sales tax," says Schreiner. Of South Dakota's 310 communities, 136 have imposed a local tax on top of the state sales tax of 4 percent.
Nationally, Schreiner says there is a growing revulsion for increases in property taxes, and he believes South Dakota's cities have anticipated that trend in past years; thereby paving the way for greater acceptance of sales taxes.
"The number that are choosing to enact or expand a sales tax has been increasing of late," Schreiner says.
Not that citizens like taxes of any kind, but, as Schreiner notes, at least local sales taxes give the impression of control, of cause-and- effect. One community recently imposed an additional sales tax to improve fire protection, another to build a medical complex and another to make street repairs.
Local taxpayers can more easily weigh the pros and cons of proposed expenditures when the net effects are realized in their communities, according to Schreiner. "We've always believed in local control here."
Even though South Dakota has no personal income tax and relies in large part on sales taxes for its state budget, it benefits from one of the most extensive sales taxes in the country. The state is one of only three (including Hawaii and New Mexico) that apply sales taxes to services like attorney and accounting fees, home repairs, haircuts, dry cleaning and engineering. This tax on services does not include financial services.
While South Dakota cities have enacted sales taxes in increasing numbers in recent years, that growing acceptance may be tempered following the upcoming legislative session. Gov. George Mickelson's proposed budget calls for increases in sales taxes; bed, board and alcohol excise taxes; Deadwood gaming revenue and vehicle registration fees.
—David Fettig
