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Sioux Falls advances changes to sales tax refund program, narrows incentives to manufacturing
Summary
City staff proposed tightening eligibility and procedures for the municipal sales tax refund program, tying thresholds to building-permit valuations, limiting qualifying uses to manufacturing, and increasing a final withholding to 15%; council set a second reading for Oct. 15, 2025.
Sioux Falls officials moved a proposed overhaul of the city's sales tax refund program to a second reading Wednesday, advancing changes staff said will better target incentives to capital-intensive manufacturers and clarify administration of refunds. Dustin Powers of Planning and Development Services presented the first-reading ordinance and described several key changes.
Powers said the amendments would tie eligibility to building-permit valuation rather than post-construction taxable value, setting a $10 million permit threshold for new facilities and $5 million for expansions. "Tying it to building permit valuation ... allows us to approve applications on the front end," Powers said, adding that the change avoids waiting for assessed taxable value after project completion.
The proposal would narrow qualifying uses to NAICS codes for manufacturing only, removing research and development and data processing from eligibility. Powers said the program historically attracted capital-heavy manufacturing users and the change will focus the tool on projects that create significant local equipment investment. He also proposed a clearer definition of qualifying equipment (equipment purchased and installed for use in the manufacturing process) and a formal inspection requirement to confirm installations.
City staff would require invoice submissions no more than monthly and no less than quarterly to allow timely payments as taxed sales revenue is collected. The ordinance would also increase the program's withholding from 5% per pay application to 15% at closeout "to provide a bigger incentive on the back end" and ensure final financials are reconciled, Powers said.
Councilor Spellberg, who participated in the staff working group, was thanked by Powers for providing feedback alongside the Sioux Falls Development Foundation. Councilor Sighetty reminded residents that the changes were previewed in an informational meeting and encouraged the public to view that session for more background.
The council voted to send the ordinance to a second reading on Oct. 15, 2025. Because the measure is at first reading, no final approvals or refunds were granted at Wednesday's meeting; the proposed thresholds, eligible uses, inspection and withholding provisions will be considered again at the next hearing.
