Communities face $51M budget shortfall with IM-28

A new analysis from the South Dakota Municipal League estimates that if IM-28 passes, cities and towns would lose at least $51.5 million in sales tax revenue each year. The fiscal analysis includes IM-28’s impact on each municipality in the state.
IM-28 would reduce municipal sales tax collections in larger communities like Sioux Falls and Rapid City by more than 8 percent, according to the analysis. Smaller towns like Roslyn, Tulare, White River, and Wolsey would see losses above 40 percent. The highest estimated loss would occur in Bonesteel with a 59 percent reduction. The full analysis with city information is available at nosdincometax.com/impact.
“Local governments directly impact the daily lives of South Dakotans,” said Sara Rankin, Executive Director of the Municipal League. “IM-28 would create massive holes in local budgets used for police, roads, parks, and everything residents expect their community to provide. Simply put, IM-28 would be devastating for our daily lives.”
The language in IM-28 conflicts with South Dakota Codified Law 10-52-2, which allows cities and towns to impose a sales tax of up to 2 percent on the same items taxed by the state. This means that if the state cannot tax “anything sold for human consumption,” neither can a city or town.
An annual loss of $51.5 million would reduce funding to fix potholes, update infrastructure, staff libraries, operate pools, and maintain parks.
"This (IM-28) would be a huge burden to all municipalities in South Dakota,” said Brit Miller, Mayor, City of Philip. "The lost revenue will need to come from another source, and where is that going to be? Each tax payer pays their fair share of grocery tax, so to replace that lost tax revenue will be very tough." Mayor Britt Miller noted the projected lost revenue to Philip alone would be $114,000, which is 18.5% of the annual budget.
The estimated loss for each municipality was calculated by first aggregating all of the monthly sales tax reports for communities by SIC code from the Department of Revenue for 2023. Then a percentage was assigned to each SIC code to represent how much of the sales tax revenue generated by businesses under that code comes from consumables. Lastly, those percentages were applied to the 2023 tax data for each community in the state to develop the estimate.
“IM-28 would be a disaster for cities and towns,” said Harry Weller, Mayor of Kadoka and Municipal League President. “In my town of Kadoka, we’ll lose at least 24 percent of our sales tax revenue. Local governments run on lean budgets as it is. If IM-28 passes and we’re barred from collecting sales tax, we’ll have no choice but to increase property taxes.”
Brittney Smith, Philip City Administrator added, "the petition and ballot say that 'Municipalities may continue to impose such taxes.'  However, this would be in direct conflict with SDCL 10-52-2 which says that cities and towns can charge a sales tax only if it 'conforms in all respects to the state tax on such items with the exception of the rate.’ This would require legislative action to address this discrepancy," concluded Smith.
IM-28 is on the ballot as an initiated measure in the General Election on Tuesday, November 5, 2024.