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Committee approves temporary local sales-tax option for voter-approved capital projects

South Dakota House Ag & Natural Resources Committee; House Local Government Committee (same session) · February 5, 2026

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Summary

The House Local Government committee approved HB1245, which would let municipalities create a temporary up-to-1¢ local funding mechanism (subject to capital improvement board review and a 60% voter approval) for project-specific capital needs; the committee adopted amendments addressing Streamlined Sales Tax compliance and sent the bill to the House floor (8–4).

House Bill 12-45 would allow a municipality, after establishing a five-member capital improvement board (one elected official plus four at-large members) and public review, to place a project-specific temporary local sales-tax increase—up to one cent—before voters at a regularly scheduled municipal election. The revenue must be dedicated to the approved capital projects, go into a special capital fund, and sunset when the predetermined revenue goal or term is reached; municipalities must wait two years before proposing a new package.

Supporters from municipal leagues, development authorities, chambers of commerce and Sioux Falls and Harrisburg staff described the measure as an enabling, voter-driven financing tool that lets communities pay-as-they-go for capital projects without bonding and interest costs. Sioux Falls’ finance director presented hypothetical savings (tens of millions) compared with bond issuance for large projects, while Harrisburg’s city engineer described how similar measures in other states (for example, the third-penny model in Wyoming) have been used to fund routine capital improvements and regional amenities.

Opponents included the Department of Revenue, which warned the bill in its original form could jeopardize South Dakota’s participation in the Streamlined Sales and Use Tax Project and recommended placing the new municipal gross-receipts mechanism in a separate code chapter; a property-rights group raised drafting and scope concerns about permitted acquisitions and possible long-term leases.

Committee members asked detailed technical questions about project sequencing, the required sunset and surplus funds. Sponsors and proponent witnesses said the amendment addresses Streamline compliance, that funds cannot be used for unrelated projects and that projects generally should wait until funds are raised before contracting work. Representative Cole moved a do-pass recommendation; after substitute motions and debate the committee approved HB1245 and sent it to the House floor on a roll-call vote (8 yays, 4 nays, 1 excused). The bill now proceeds to the full House for consideration.