Although the unemployment rate in South Dakota remains low, sales tax revenue has fallen short of projections and the state’s projected budget deficit has increased substantially over the past four months, reports the Capital Journal. The combination of these conditions means that Governor Dennis Daugaard and the legislature will either have to find additional revenue or make cuts to balance revenues and expenses before the end of South Dakota’s 2017 fiscal year in July.
After the Legislature approved a 0.5 percent increase in sales tax to supplement teacher pay, lawmakers anticipated a 16.9 percent increase in sales tax revenue, but so far sales tax revenues are up only 9.4 percent. To ensure that educators’ salary increases are maintained and property tax burdens are relieved, the state needs an additional $19.9 million.
Sales tax revenues have been hit by a slowdown in agriculture, which has resulted in a significant decline in farm equipment purchases. Alongside the decline in the agricultural economy, an increase in online sales may be contributing to the declining retail industry in South Dakota, according to KSFY News. State Economist Jim Terwilliger noted that out-of-state online retailers are not required to charge state sales tax. Although consumers are supposed to pay use tax for these purchases, many do not. Last year the Legislature passed Senate Bill 106 to force large out-of-state online retailers to collect and pay sales tax. The law seeks to challenge a 1992 US Supreme Court case that bars states from imposing tax collection on retailers who do not have a physical presence in the state. The issue is currently being considered in state court.