S.D. Governor proposes county sales tax option to reduce residential property taxes | The Mighty 790 KFGO

Gov. Larry Rhoden speaks to the media after taking the oath of office on Jan. 27, 2025, at the South Dakota Capitol in Pierre. (David Bordewyk/South Dakota NewsMedia Association)

By: Joshua Haiar

PIERRE, S.D. (South Dakota Searchlight) — South Dakota Republican Gov. Larry Rhoden unveiled a proposal Monday that would give counties the option to implement a half-percent sales tax to fund property tax reductions for homeowners.

Rhoden said the plan could save hundreds of dollars annually for typical homeowners in some areas. Counties that opt-in to the plan would shift some of their residential property tax burden to consumers, he said, including tourists from elsewhere making purchases while they pass through.

“Realistically, it’s a tax decrease for the citizens of the state,” Rhoden said.

The plan would alter longstanding taxation policy that reserves sales tax revenue for the state and cities. The state imposes a 4.2% sales tax that’s scheduled to increase to 4.5% in 2027, and cities may impose up to an additional 2% local rate, plus another 1% on hospitality-related items such as alcoholic beverages, restaurant meals, lodging accommodations and various types of events.

The governor said he’ll send his proposal to a summer legislative committee studying property taxes, and he doesn’t anticipate action on the plan until next winter’s annual legislative session.

It’s the second property tax relief idea Rhoden has proposed since becoming governor in January, after the departure of Kristi Noem to serve in President Donald Trump’s Cabinet.

The first idea, already signed into law, is a multifaceted effort that includes a five-year, countywide 3% cap on growth in owner-occupied home assessments, plus other provisions such as an eligibility expansion for an assessment freeze program for elderly and disabled people. 

As described by the governor, the new plan would allow county commissions to impose the sales tax. County citizens could refer the commission decision to local ballots, or petition the tax increase onto the ballot themselves.

Revenue from the sales tax would have to be used to offset the county’s portion of property taxes on owner-occupied homes. Once that’s fully achieved, any remaining revenue would have to be used to offset taxes for commercial and agricultural property. The sales tax would be limited to a five-year term, with the possibility of renewal.

The plan would not affect school districts, which also receive property tax revenue.

The governor said that in Minnehaha and Pennington counties, the proposal would reduce annual property taxes by $967 and $917, respectively, on a home valued at $325,000. Those are the two most-populated counties in the state, home to Sioux Falls and Rapid City.

Rhoden said counties that attract lots of tourists are also some of the counties most affected by property tax increases, in part due to growth from incoming residents willing to pay higher prices for the limited number of houses on the market. Thus, Rhoden said, those counties are particularly well-suited for his plan.

He said the lack of county-specific targeting was a problem with many of the property tax relief proposals that failed during the legislative session.

“They were proposing a statewide solution to a five-county problem,” Rhoden said.

Asked whether the plan might place a greater burden on low-income residents who pay sales taxes but rent their homes and do not directly benefit from property tax reductions, Rhoden acknowledged the concern. But he said the ultimate decision would rest with local officials and voters.

“Every county has different circumstances,” he said.

Rep. Mike Derby, R-Rapid City, who co-chairs the Legislature’s main budget committee, said lawmakers are excited to see the governor put a proposal on the table. 

“Around here in the Legislature, you have to start with an idea,” Derby said. “And it’s a lot easier to poke holes in an idea or try and fix it or make it better when you have a starting point. Governor Rhoden has done that.”

The plan would result in the following estimated annual property tax savings on a $325,000 home in cities within selected counties, according to the Governor’s Office: 

• Minnehaha (Sioux Falls): $967
• Pennington (Rapid City): $917
• Custer (Custer): $431
• Hughes (Pierre): $873
• Lawrence (Spearfish): $845
• Lincoln (Tea): $613