This story has been updated with additional comments from several lawmakers.
PIERRE, S.D. (KELO) — Some South Dakota lawmakers want to raise the state sales tax rate and use the revenue to reduce property taxes on owner-occupied homes.
Republican Rep. Tony Venhuizen announced the plan via social media on Thursday. Republican Sen. Randy Deibert will be the proposal’s other lead sponsor.
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Venhuizen said in a KELOLAND News interview the proposed plan would cut property tax by an average of 35% for homeowners in the state.
“Thirty five percent in property tax relief is significant,” Venhuizen said. “That would work out to about $416 or $417 for every $1000,000 of property tax value. A $300,000 house would be more than $1,200. It’s a large tax cut.”
Venhuizen’s approach would raise the state sales tax rate to 5%, which generate an estimated $280 million. The rate currently is 4.2%.
The proposed property tax plan comes as the state is experiencing a slowdown in sales tax revenue.
“I do think that’s a very reliable estimate,” Venhuizen said in his interview about the $280 million generated from the 5% sales tax. “We see some volatility in the growth in sales tax from year to year, but I’d be confident in that $280 (million) is the number we carry forward.”
Their plans calls for the revenue to be funneled into the state aid formula for public K-12 schools and reduce the local general-education levy and special education levy on owner-occupied property to zero. The levies currently total $4.167 per $1,000 of property value.
“I hear more about property taxes from my constituents than any other issue, by far,” Venhuizen wrote in the social media post. “This is the year for major property tax relief for South Dakotans.”
Lawmakers have been discussing possible property tax reform for several years as well as sales tax changes. In November, voters rejected a cut in what had been called the grocery tax.
Supporters of grocery sales and sales tax cuts have said the taxes are regressive and those of lower or low moderate income are more negatively impacted by them than those of higher incomes.
Venhuizen was asked by KELOLAND if his property tax plan could face criticism of not helping those of lower income or those that don’t own a home.
“First of all my hope is that by lowering property taxes we make houses a little more affordable,” Venhuizen said. A potential homeowner can benefit when taxes on a $300,000 house are reduced by $1,200, he said.
Also, a 0.8% increase is less than 3 cents on a $4 loaf of bread or less than $3 on $300 of groceries, Venhuizen said.
While the property tax relief is for homes owned and occupied by South Dakota residents, not for second homes, or lake homes, or out of state homeowners, sales tax is paid by state residents and out-of-state residents, he said.
Current Governor Kristi Noem on Tuesday called for making permanent the 4.2% sales tax rate. It is scheduled to return to 4.5% on July 1, 2027.
Republican Rep. Trish Ladner is among other lawmakers supporting the shift. She sponsored property-tax reduction legislation for owner-occupied single-family homes in 2023 and to limit annual valuation increases on owner-occupied single family homes in 2024.
Venhuizen has experience in using the sales tax to offset property taxes.
He was chief of staff for Governor Dennis Daugaard when the Legislature at the governor’s request increased the sales tax rate to 4.5% in 2016 from 4%. The additional revenue was spread between property tax relief for all classes of property owners and for teacher salaries.
Governor Bill Janklow had cut property taxes by 30% for agriculture and owner-occupied owners over several years during the 1990s, using a variety of budget cuts and increased fees and taxes and sending the money through the state aid formula. It came after voters nearly approved a property-tax cut measure in the 1994 general election.
Venhuizen said other lawmakers supporting the new plan are Republican Rep.-elect Tim Goodwin and Republican Sen.-elect Amber Hulse.
“Property taxes are overburdening Black Hills citizens, taxing families out of their homes. This is a top priority,” Hulse wrote in a post. “We must explore all possible solutions to ensure maximum relief for our communities as we begin recovery from the Biden economy.”
Republican Rep. Taylor Rehfeldt likewise expressed support for it. She posted, “I am excited to join my friends and help achieve tax relief for SD citizens. Going door to door this election season, property taxes was the #1 topic.”
So did Republican Rep. Will Mortenson. He posted, “Not since Janklow has someone proposed a property tax cut of this scale. This plan will make housing more affordable and provide massive property tax relief for South Dakotans WITHOUT forcing cuts on counties and schools that rely on property taxes. Attaboy, @Tony_Venhuizen.”
