February 5, 2014

Following a very predictable pattern, the legislative session is seeing more bills introduced and the pace of activity begin to accelerate.  With bill introduction deadlines looming, the list of bills will grow very fast and committee hearings will begin taking on a more serious tone.  This is like the “end-of-semester test” week on any university campus, including some late night cramming by sponsors about to face a committee of fellow legislators, an experience that could make defending a master’s thesis look like a family dinner.

Unemployment Insurance – The last edition of Capitol-ism reported that HB 1045 which would lower UI rates and was supported by the Chamber was on its way.  It passed the House on a vote of 70-0 (a margin similar to Sunday’s Super Bowl).  It will be heard in Senate Commerce and Energy Committee Thursday, February 6.  Two other bills on Unemployment Insurance have caught the Chamber’s eye.

SB 69 Peters (R-Hartford) – Addresses business owners/officers as they relate to Unemployment Insurance.  UI law is interesting (albeit to a rather small group of people, most of whom never get invited anywhere and all of whom were picked last for sports as kids) in the fact that it is both a federal system and a system run by states.  This is to say the federal government tells states “You run the UI system using your rules . . . as long as they fit our rules.”   This form of duplicity is understood by anyone that has tried to parent teenage children.

Senator Peters has become aware that certain officers and owners of businesses are being charged for UI premiums (aka a tax) and are NOT eligible for benefits.  Her bill is simple, if someone is not eligible for benefits, they shouldn’t pay the tax.  The Chamber agrees . . . wholeheartedly.  Uncle Sam does not.

Under federal law, all officers (regardless of ownership status) are defined as employees.  As employees they must pay a federal UI tax if they do not pay a state UI tax.  The federal wage base is lower than the state’s at $7,000 (the state base wage will be $14,000 this year).  Any business with a rate of 3% or higher would be better off having officers pay the federal tax, those with rates lower than 3% would want to stay within the South Dakota system. 

Senator Peters is working to make sense of this and the South Dakota Chamber of Commerce and Industry is trying to help.  While that research is being completed, Capitol-ism asks readers to contemplate the real life application of these policies.  Officers of a business are defined as employees by the federal government and as their employers (i.e., themselves) must pay into the UI trust fund.  State law says that they may be employees but they are not eligible for UI benefits, regardless of how much has been paid on their behalf.  If you want to think about this application in the private sector, answer this riddle . . . what happens to your business if you charge people for something you never actually give to them?  You might make parole with time off for good behavior.   

Property Taxes – Again? 

HB 1006 Peterson (D-Brookings) This bill is designed to make it possible for agricultural land owners to adjust their assessed valuation by requiring the county assessor to consider the “actual use” of the land.  Under current law, the land is assessed according to a principle known as “highest and best use” which involves soil types, physical features of the land (such as how much of it is vertical, or in the case of east river farms, really, really slanted) along with the productivity system of using crop prices averaged over the past eight years.

HB 1006 would allow land owners to deduct land that might be used for a shelter belt or is being used to graze lamas instead of grow corn.  Since lamas are known to spit on people they don’t like and since very few people like county assessors in their official capacity, everyone knows the assessor will just lower the value of the land to avoid being yelled at and spit on.  This policy could result in a lowering of assessed values of agricultural land and cause a shift from grazing uses to crop uses or from rural land to urban land.

Aside from many concerns about how the policy would actually be applied, the Chamber has been skeptical because it is hard to think of a similar “actual use” provision for urban land owners. 

Update – HB 1006 was tabled in House Commerce and Energy at the request of the sponsor.

Manufacturers Alert – SB 136 Novstrup (Al) (R-Aberdeen) An Act to ensure available replacement parts and services for consumers of manufactured goods.

The South Dakota Chamber of Commerce and Industry is the state’s manufacturing association and in that role is always looking out for laws that would be harmful to manufacturing businesses.  SB 136 is a doozy.  It would have the state controlling the availability of replacement parts, who can have access to those parts, and how long they must be available.

The bill is not lengthy (keep in mind that cyanide tablets are rather small as well) so here is the text of the bill:

 Section 1. That § 37-24-1 be amended by adding thereto NEW SUBDIVISIONS to read as follows:

    "Electronic goods," any device or piece of equipment that includes or relies upon embedded software;

    "Appliance" or "major home appliance," any equipment or apparatus that includes or relies upon embedded software, used in a home, commercial, industrial, agricultural, or business setting;

    "Farm equipment," includes tractors, combines, self-propelled sprayers, semi-tractors, and any other equipment primarily used for farming purposes and containing embedded software;
    Section 2. That chapter 37-24 be amended by adding thereto a NEW SECTION to read as follows:

    Every manufacturer making an express warranty with respect to electronics or appliances as described in section 1 of this Act with a wholesale price of one hundred dollars or more, shall make available to independent service and repair facilities and consumers sufficient service literature and functional parts to effect the repair of a product or device for at least seven years after the date of manufacture, regardless if the seven years exceeds the warranty period for the product or device.
    Section 3. Each manufacturer shall make clear to any consumer any post-purchase obligations regarding any related licenses, license maintenance, or service agreements, or limitations on equipment resale, repair, reconfiguration, or reuse for any purpose. If a manufacturer fails to disclose any post-purchase obligation, the consumer is entitled to return the product or device, as described in section 1 of this Act, for a full refund up to the end of the initial warranty period, or one year, whichever is longer. Any license agreement shall be clearly set forth in a separate agreement provided to the consumer upon purchase.

Your voice is needed – Manufacturers, please send us an email outlining how this bill would impact your business.  The Chamber knows this is a disaster but having real examples of the impact of proposed laws is a very powerful tool in being an advocate for good business environment.  Please send any questions or comments to davido@sdchamber.biz – please save any voodoo dolls for private use in home or business. 

HB 1189 Hunhoff (Bernie) (D-Yankton) – Prohibit certain business entities and affiliated persons from making political campaign contributions.

If your business does business with the state, does that make you a second class citizen?  HB 1189 would seem to suggest that having the state government as a customer means your rights to make political contributions may have come to an end.  At issue is your right to make political contributions to officeholders that will ultimately decide whether your contract will continue.

This is not a new issue in South Dakota politics and is not without merit.  There can be a downside to being allowed to make contributions to those who decide on your contracts . . . most of the downside focuses on whether or not these donations are truly “voluntary”.

Besides the issue of expectations, the proposals of the past have had a tendency to place such an enormous burden on businesses with state contracts that it might appear the goal of the legislation is to punish businesses for either being successful or for daring to take public dollars.  HB 1189 would apply to any business that does $25,000 of business with the state. 

Here is the language prohibiting such businesses from making contributions:

 No business entity whose aggregate pending bids and proposals on state contracts total more than twenty-five thousand dollars, or whose aggregate pending bids and proposals on state contracts combined with the business entity's aggregate annual total value of state contracts exceed twenty-five thousand dollars, nor any affiliated entities or affiliated persons of such business entity, may make any contribution to any political committee established to promote the candidacy of the officeholder responsible for awarding the contract on which the business entity has submitted a bid or proposal during the period beginning on the date the invitation for bids or request for proposals is issued and ending on the day after the date the contract is awarded.

Readers should also be aware that the definition of “affiliated entities” is as follows:

(2)    "Affiliated person,":

            (a)    Any person with any ownership interest or distributive share of the bidding or contracting business entity in excess of ten percent;

            (b)    Executive employees of the bidding or contracting business entity; and

            (c)    The spouse and minor children of any affiliated persons;

The bill also contains special registration requirements for businesses holding contracts and other rules.  Understanding that there is potential for shenanigans when elected officials award contracts, HB 1189 may be a case of the cure being more harmful than the disease.  The Chamber will continue to evaluate this proposal and will inform readers of a final position.

Register today for Business Day at the Legislature

The South Dakota Chamber has set up bill tracking page where members may review bills of interest to the South Dakota Chamber.  Click here to reach the page.    Click on E-Subscribe (My LRC), then 2014 and Session Bills.  The log in is SDChamber and the password is member.

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