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Panel backs suspension of retailers' sales-tax collection allowance; business groups call it a tax increase
Summary
The committee recommended a temporary suspension of the 1.5% sales-tax collection allowance through fiscal 2028 to generate approximately $6.8 million in revenue; retailers and small-business groups opposed the measure, saying it effectively increases costs on small businesses that collect and remit sales taxes.
The Senate Appropriations Committee gave House Bill 10 37 a "do pass" recommendation after Bureau of Finance and Management staff proposed suspending the sales-tax collection allowance that retailers receive for electronic remittance.
Derek Johnson of the Bureau of Finance and Management said the allowance was originally put in place to incentivize electronic filing and that it is no longer necessary because the state has reached broad electronic filing adoption. "In fiscal year 2024 there were approximately $6,800,000 in allowances that were paid to businesses," Johnson told the committee. The bill in its current form would suspend the allowance through June 30, 2028.
Opponents including the South Dakota Retailers Association, the National Federation of Independent Business and the Greater Sioux Falls Chamber said suspending the credit is effectively a tax increase on small businesses. Nathan Sanderson, executive director of the South Dakota Retailers Association, said the allowance helps defray costs retailers incur collecting and remitting sales tax — including credit-card processing fees — and described the proposed suspension as an additional business tax.
Sanderson walked the committee through an example showing how the current 1.5% credit (capped at $70 per month) offsets some credit-card fees on the tax portion of a sale. He and other opponents noted that the cap — $70 per month, $840 per year — means the credit is small, and that many small businesses still rely on it to cover costs.
Derek Johnson replied in rebuttal that the allowance acts as an incentive, that the budgeted suspension would generate $6.8 million for state priorities, and that the move is part of ongoing budget tradeoffs. After questions and debate, Senator Howard moved a "do pass" recommendation; the motion passed on the committee roll call with seven yeas and two nays.
The committee-approved version suspends the allowance through FY2028; members discussed an amendment in the House that would have sunset the change after three years. The bill will advance to the floor with a do-pass recommendation.
