Financial Impact of Initiated Measure 28

This November, seven ballot measures will appear before South Dakota voters. We will cover most of these measures in a future issue of Chamber News, but this month I want to highlight one of the more intricate ballot measures: Initiated Measure 28 (IM 28).

IM 28, if passed, would repeal sales taxes on all things sold for human consumption, with the only exceptions being alcohol and prepared food (i.e. meals purchased at restaurants). While proponents of the measure state that it is intended to apply to only food, the language “human consumption” used in IM 28 has a much wider reach. The use of the term “human consumables” can be interpreted to apply to all sorts of items beyond just food. Some items it could apply to include toothpaste, toilet paper, entertainment, fuel, tobacco and vaping products, and a host of other things. Due to this extremely broad language, this measure quickly becomes problematic to the financial health of both the State and potentially our city’s budgets.

State budget impact

In late summer, the South Dakota Legislative Research Council (LRC) issued a memo that outlined the potential financial impact to the State’s annual budget if IM 28 were to pass as written. The LRC estimated that a food- only interpretation could see a reduction of $133 million to the State’s annual budget, which is 9.3% of the state sales tax. However, a broader interpretation could see a reduction of up to $646.2 million dollars ongoing, a 46.5% share of the state’s sales tax.

To put these dollars in perspective, if the total amount reached $646.2 million, it would account for over 25% of the State’s total budget. Due to the State’s constitutional obligation to have a balanced budget each year, a loss in revenue on this scale would ultimately end up with three options. Raising existing taxes, implementing a new tax, or cutting funding to education, infrastructure, public safety and countless other programs.

Additionally, IM 28 could impact the streamlined sales tax agreements that the State is a part of, further negatively impacting revenues.

Municipalities impact

Another unintended complication of this ballot measure language is the potential impact on municipalities’ ability to collect sales taxes. South Dakota Codified Law 10-52-2 states that municipalities can charge a sales tax as long as the “tax conforms in all respects to the state tax on such items with the exception of the rate.” This essentially would result in municipalities also not being able to charge sales tax on items that the state cannot tax. Sales tax is one of the few funding mechanisms South Dakota municipalities possess. Losing a significant portion of this would have a significant financial impact for many of the communities in South Dakota.

The Chamber’s position

The Board of Directors for the Greater Sioux Falls Chamber of Commerce adopted a position of opposition to IM 28.

The Chamber does encourage lower taxes overall on businesses and individuals to support a pro-business and economic development climate. A recent example of this was our support of the state sales tax rate reduction during the 2023 legislative session (HB 1137). South Dakota also is currently one of the top five states for lowest tax burden in the U.S. as we do not impose a state income tax on individuals, which most other states do.

However, the negative impact IM 28 would have on critical funding for education, public safety, infrastructure, and other initiatives, at both the State and local level, would set our communities back considerably. The Chamber also acknowledges that if this significant revenue reduction were to occur, the funding would likely be made up by increasing existing taxes such as sales and property taxes, or the creation of a new tax.

In light of all these factors, the Chamber stands opposed to IM 28. We encourage you to Vote No on the issue on the general election ballot.