Where to go on property taxes?

When COVID hit in 2020 it caused an ongoing problem with many people fleeing from urban areas to rural states like South Dakota. This has ultimately resulted in astronomical increases in property demand resulting in increased valuations.

Last year I compiled a spreadsheet from the Department of Revenue reports and found that, since fiscal years 2019-24, 63 of 66 counties have experienced double digit increases in valuations and two counties had triple digit increases. Only one district had a single digit increase. This is documentation that proves this is definitely a statewide issue that needs to be addressed! We’ve all felt the impact of raising valuations over the past five years and like it or not, we are all in the same boat! 

After fighting this battle for five years, proposing a 3 percent cap on annual increase of valuations, I have found that a long-term solution will not be an easy matter, no matter how logical or practical the proposals. The reality is that the current tax model is a tangled mess, which is even more concerning since this is the most critical issue we must address in the upcoming session for both the state and the people we serve.

First of all, let’s admit there isn’t an easy fix and “blowing up” the property tax system, in my opinion, would be irresponsible. So, where do we go from here? Keep in mind, the South Dakota Constitution states that, K-12 education must  be paid with property taxes.

According to the Argus Leader, this year’s summer property tax task force has been tasked with, “turning over each rock’ while trying to cut homeowner property taxes in half (50 percent) and to propose legislation that will provide true tax relief.”

Keep in mind, there are  myriad proposals floating out there for next session. Some examples include:

• Using the eight-year Olympic average model currently used by AG.

• Limiting the portion of property tax revenue allocated to K-12 school funding from property taxes to no more than 40 percent, with the remaining 60 percent to be sourced from state funding (which is actually currently happening). 

• A receipt tax that applies to all gross receipts. Businesses would pay taxes on every transaction, both incoming and outgoing. Even little Johnny who buys a pack of gum would pay a receipt tax and he too would help to pay for our property taxes. 

After five years of working on this convoluted, multifaceted, dysfunctional issue, I am not sure that any of the above proposals are viable. However, there is one that could make sense. 

Sen. Jim Mehlhaff, a member of the interim task force, has submitted a proposal that I think could work. He is proposing separating school funding from property taxes by creating a new state sales tax of 1 percent that would be placed into a locked, dedicated fund for education funding. The 1 percent tax would apply to most products and services that are currently exempt from sales taxes, and would stack on top of the existing state sales tax rate of 4.2 percent for other transactions. In order for me to support this proposal, it would need to truly be a locked account that could not be swept into the General Fund. 

Obstacles are not just the dollar and cents aspect of tax reform but we are also dealing with the political side.  In the last legislation session, there were over 20 bills on property tax reform submitted to be heard in committee. However, instead of directing these bills to the Tax Committee, leadership decided to send them to the State Affairs Committee, known as the “killing fields,” where all good bills go to die!

The only one to make it through committee was the governor’s bill that capped property valuation increases at an average of 3 percent county-wide. Which is basically what we are doing now. 

Bottom line? Legislators in Pierre must stop the political games around tax reform, identify alternate funding sources and find a permanent solution that equalizes the tax burden between agriculture, commercial and single-family homeowners all-the-while supporting counties, local services and school funding without disrupting the system.

Is it possible? I believe it is. Will budget cuts be necessary? Probably. However, with the right legislation centered on South Dakota citizens and not politics or political campaigns, we can all finally feel secure in our homes, the very objective and focus I have had for the past five years. Until we can all unite around one model and move forward, nothing is going to get done for the people of our great state! More to come.