South Dakota: Sales Tax on Food Debate Heats Up


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Low-income tax credits and rebates are one of the most effective ways that lawmakers can reduce poverty through the tax code. The proliferation of state Earned Income Tax Credits attests to policymakers' growing awareness of this. But these rebates can be meaningless if lawmakers don't make at least minimal outreach efforts to ensure that eligible taxpayers claim the credits.

Case in point: South Dakota, where last week the House Taxation Committee met to consider HB 1131, a bill that would have eliminated the state’s sales tax on food and replaced the lost revenue by increasing the sales tax rate on other items.

Data generated by ITEP and presented in testimony by the South Dakota Budget and Policy Project showed that this revenue-neutral tax change would actually result in a tax cut for 99 percent of South Dakotans. Yet, the bill was defeated in committee.

Certainly, the debate about whether or not to tax food is worth having. It’s important to note that in states that tax food, most offer some type of low-income tax relief to help offset the regressive nature of sales taxes levied on necessities. South Dakota offers a rebate, but it’s ineffective at best. The current rebate was only claimed by 726 families in all of fiscal year 2010. Qualifying for the program is difficult and there’s little effort by the state to even make sure families know about the refund.

Maddeningly, some of the lawmakers who rejected HB 1121 cited the existence of the rebate as a reason why a grocery tax cut is unnecessary. South Dakota’s tax structure is plenty flawed already (it’s a state that doesn’t levy an income tax) and taxing food without offering an effective refund simply doesn’t help.

Thank you for visiting Tax Justice Blog. CTJ and ITEP staff will soon retire this domain. But ITEP staff are still blogging! You can find the same level of insight and analysis and select Tax Justice Blog archives at our new blog, http://www.justtaxesblog.org/

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