July 1st: New Laws Take Effect in South Dakota
The 98th Legislative Session worked for 38 days, considered 451 bills, of which 208 (46%) passed by both the House of Representatives and Senate and then were signed by the Governor. Forty of the bills that passed had emergency clauses which mean they became law when they were signed by Governor Noem, leaving 168 bills that become law on July 1st.
Note – there are a small number of bills that have effective dates other than July 1st. See summary chart in appendix at the end of this report.
TAX BREAK: HB 1137 - reduce certain gross receipts tax rates and a use tax rate, and to repeal a conditional reduction of certain gross receipts tax rates.
After many long discussions about the best way to give the taxpayers of South Dakota a $100 million dollar tax break, HB 1137 emerged as the answer to that question. The Governor had proposed eliminating the state’s 4.5% sales tax on groceries, legislators proposed reducing property taxes, and then a reduction of the state sales tax rate from 4.5% to 4.2% on EVERYTHING had support, as long it had a sunset clause.
Critics complain that the tax break is too scrawny for anyone to notice and point out that on a $100 purchase, the savings is a mere 30 cents. On the other hand, the Chamber has expressed some appreciation that this version of the tax break includes the business community when purchasing taxable goods and materials. As one example, manufacturers that use saw blades and drill bits along with sandpaper, pay the sales tax on all of those products. HB 1137 is a tax break for the business community as well as all citizens.
As of July 1, the state sales tax rate is 4.2%
WORKFORCE: SB 76 - provide for licensure by endorsement for certain licensed professionals and occupations.
Each state has regulations on many occupations and professions that are designed to make sure people engaged in those professions know what they are doing and will not pose a danger to their customers or the public at large.
These licensing protections have a bad side effect of making it very difficult to move to another state because one must face the prospect of starting over to earn a license that they have earned previously. SB 76 will allow the various boards and commissions that issue licenses to professionals to issue a South Dakota license if someone has fulfilled the requirements in their own state.
In like manner - HB 1183 - authorize the state's participation in the interstate compact on occupational therapy licensure - will accomplish the same goal for occupational therapists by having South Dakota join a 22-state compact that makes licenses mutually recognized.
These bills represent the terrible risk of letting identifiably competent, professional and skilled people moving here from a foreign land, like California, or worse yet Wyoming, begin work as soon as they arrive in South Dakota. We need workers and it makes sense to let these people . . . work.
TAXES: SB 30 - revise the criteria for remote sellers who must remit sales tax.
To understand SB 30, it is first necessary to grasp and celebrate the fact that South Dakota and all other states now get to collect sales taxes on remotes sales, which are sales through the internet and through things called catalogs. South Dakota won a pivotal case known as “South Dakota vs. Wayfair” a ruling that now brings $100 million in revenue. A ruling that has also been irksome to many internet shoppers.
SB 30 changes the criteria for businesses that must collect and remit sales tax on remote sales from meeting one of two criteria which were 1) exceeding $100,000 in sales OR 2) having two hundred or more transactions a year. SB 30 dropped the second criteria and just leaves the $100,000 sales threshold.
PROPERTY TAXES: SB 24 – revise property tax levies for school districts and to revise the state aid to general and special education formulas.
In South Dakota, the state legislature sets the tax rate (or mil levy) for local school district general fund budgets. Each year, this tax system takes the growth in local property taxable values and calculates those values into the money needed for the state aid formula. Using this method, when taxable values increase, the mil levies needed to raise the local effort money for the state-aid formula are reduced.
Here is a chart showing the tax levies for 2023 which will be paid in 2024. The levies are being reduced by 3%. The chart shows the decrease in the mil levy for each class of property and then applies that levy to a sample property that has a value of $500,000 to show the difference in actual taxes. It is important to note that if a property has been reevaluated by the county, then the taxes to be paid will be different than this example.
Agriculture Land
– Levy from $1.362 to 1.320 per $1,000/value
– Taxes on $500K farm = $681 to $660 (-$21)
Homeowners
– Levy from $3.048 to 2.954 per $1,000/value
– Taxes on $500K home = $1,524 to $1,477 (-$47)
Commercial
– Levy from $6.308 to 6.113 per $1,000/value
– Taxes on $500K business = $3,154 to $3,056 (-$98)
TAXES | ECONOMIC DEVELOPMENT: SB 120 - increase an amount of property value owned by a local industrial development corporation that is exempt from taxation.
Many economic development organizations in South Dakota have established industrial parks or have purchased land to be available for future businesses to purchase. Under current law, they do not pay property taxes on the first $750,000 of value for the land.
SB 120 increases the amount value of the land that an economic development organization can own without paying taxes from $750,000 to $2.5 million dollars. Several questions had to be answered for this bill to pass. First, will schools or cities/counties lose money because of the increase in tax exempt property? Answer is NO. The schools will get the same amount of money because there will be an increase in the state-aid funds. Cities/counties will get the same amount of funds because the amount of revenue not being paid by the development organization will be paid by ALL other taxpayers.
This brings up the second question, will there be a cost shift to other taxpayers? The answer is YES. It is true that all other taxpayers will share the cost of the revenue that will no longer be paid by the development organization. The amount of that tax shift will be microscopic as demonstrated by the charts below.
These charts show that in a county with a huge tax base, the increase in taxes on a $500 thousand property will be less than a penny. In a county with a smaller tax base, the increase will be about 50-cents for each the city and the county which will cost anyone owning a $500 thousand property one dollar total. Conclusion – yes, it’s shifty but mighty small. PLUS, if it leads to a new business worth hundreds of thousands of dollars, that new value will shift taxes lower, a shift which everyone will support.
Examples of cost shift for SB 120:
• Pennington County – $12.6 Billion Tax Base
– County Mil Levy = 4.771/1K
– Exemption of $2.5 million = $11,928 dollars that will shift to the entire $12.6 billion tax base
– Increase to Taxpayers < 0.00009 mil (or dollars per thousand of taxable value)
– Increase to $500 thousand property = half of a penny – Property inside the city will pay a second half a penny
• Brule County (Chamberlain) - $1.1 Billion Tax Base
– County Mil Levy = 4.51/1K
– Exemption of $2.5 million = $11,275 dollars that will shift to the entire $1.1 billion tax base
– Increase to taxpayers < 0.001 mil
– Increase to $500 thousand dollar property = 50 cents (property in the city will pay another 50 cents)
SALES OPPORTUNITIES: HB 1060 - modify provisions related to procurement for the state and other purchasing agencies.
Tax money is precious. Precious enough that when governments are spending that money there are a great number of procedures and processes that are used to make sure the money is spent correctly. These include getting numerous bids and documenting every step of the purchasing process.
This makes perfect sense, especially when buying huge, expensive equipment but is a bit of overkill when just buying printer cartridges. This is why a less rigorous process was established years ago for purchases that were less than $25,000. Now, fifteen years later, that $25,000 limit will barely cover the cost of can of coffee.
HB 1060 increases the limit for the less rigorous purchasing process from $25,000 to $50,000. This is a good move that makes it easier for government to purchase smaller items from businesses. Capitol-ism thought some members would like to know about the change.
BUSINESS REGULATION: HB 1185 - prohibit certain restrictions in employment contracts, list of occupations that cannot have non-compete clauses
Non-compete agreements are complicated. Non-compete clauses are generally used to prevent someone from working for one business to build skills and a clientele to then quit and go into the same business, thus competing against the former employer while trying to pilfer the previous clients.
This can be viewed as unseemly, rude and if the employee has agreed to a non-compete clause, it can be subject to legal action. South Dakota limits any (and all) non-compete clauses to a period of time that cannot exceed two years in length.
There are often intense discussions about non-compete clauses that deal with which businesses should be allowed to use them, or if any business sectors should be prohibited from using them. This brings up the substance of HB 1185 which establishes an entire list of professions (mainly in the healthcare sector) that will be prohibited from seeking non-compete clauses in employment contracts.
This list it too long to publish as part of this report, but here is a link to the bill:
(If a link fails to work, please copy and paste in the address bar of your web browser.)
https:/mylrc.sdlegislature.gov/api/Documents/251251.pdf Note: as a guide to how to read a bill. The bill lists sections of the current law that are being changed. Items that have overstrikes (like this) are being taken out of the law; items that are underlined are being added to the law. This bill has a list of jobs or professions that are being added to the list of jobs that are prohibited from having non-compete agreements. Be sure to read the last paragraph.
BUSINESS REGULATION: HB 1162 - authorize employers to acquire and make available opioid antagonists.
Opioids Kill People.
Narcan is a drug that reverses the fatal effect of opioids in a way that will not harm a person who does not have opioids in their system. HB 1162 is new section of law that allows employers to have Narcan available in their business and assures licensed healthcare professionals they can give employers Narcan legally.
The vision here is that businesses with large crowds, like concert or shopping venues might put Narcan next to automatic defibrillators so an employee seeing someone that might be experiencing an overdose can administer an injection (or use a nasal spray) and reverse the damage done by the overdose.
As noted above, Narcan will not hurt anyone who does not have opioids in their system so it will not hurt some who gets injected after simply being knocked over by renegade toddler. Here is a link to HB 1162 https:/mylrc.sdlegislature.gov/api/Documents/246668.pdf. Note: as a guide to how to read a bill. The bill lists sections of the current law that are being changed. Items that have overstrikes (like this) are being taken out of the law; items that are underlined are being added to the law.
BUSINESS REGULATION: SB 189 - prohibit purchasing agencies from contracting with companies owned or controlled by certain foreign entities or governments.
There are foreign governments that are hostile to the United States and including the people that live here. Many of these foreign governments have a level of influence or even complete control of businesses in their country. Governor Noem made it clear that South Dakota would be keeping watch over foreign ownership of agricultural land from hostile countries. She also made it clear that the state government of South Dakota, or any other agencies conducting public purchasing, would not be doing business with hostile entities described in SB 189 as a “prohibited entity”.
What the heck is a “prohibited entity” other than something that can generally be described as icky? Here is the new language in the statute from SB 189:
19A) “Prohibited entity,” an organization, association, corporation, partnership, joint venture, limited partnership, limited liability partnership, limited liability company, or other entity or business association, including all wholly owned subsidiaries, majority-owned subsidiaries, parent companies, or affiliates, of those entities or business associations, regardless of their principal place of business, which is ultimately owned or controlled by:
(a) A foreign parent entity from the People's Republic of China, the Republic of Cuba, the Islamic Republic of Iran, the Democratic People's Republic of Korea, the Russian Federation, or the Bolivarian Republic of Venezuela; or
(b) The government of the People's Republic of China, the Republic of Cuba, the Islamic Republic of Iran, the Democratic People's Republic of Korea, the Russian Federation, or the Bolivarian Republic of Venezuela.
A prohibited entity does not include a citizen or legal permanent resident of the United States, or an individual foreign national;
BUSINESS REGULATION: SB 43 - revise certain provisions regarding money transmission.
There are 189 businesses in South Dakota that someone can use to transfer money, and they are regulated by the South Dakota Division of Banking. Surprised? Us too!
To Chamber members that remember the good old Western Union services, this bill addresses that known brand name and the other 188 businesses that include grocery stores, pharmacies, gas stations (aka convenience stores) and banks. The list now includes Amazon, eBay and even some of the crypto currency (aka new-fangled things).
SB 43 represents an ongoing effort by the agencies that regulate money transfers to make sure they have uniform rules across the country so the process operates smoothly wherever anyone wishes to transfer money.
The author of Capitol-ism does not have an MBA degree nor a degree in economics and will not attempt to explain any of the 11 pages of SB 43. It is important to make Chamber members aware of this bill.
Here is a link to the bill itself https:/mylrc.sdlegislature.gov/api/Documents/242563.pdf
And here is a link to the first hearing on SB 43 where you can listen to the person who is in charge of these regulations explain the bill’s intent. https:/sdpb.sd.gov/sdpbpodcast/2023/sco05.mp3#t=4170
WORKFORCE: HB 1055 - increase the dollar amount of South Dakota opportunity scholarships.
The idea for a scholarship program that would be an incentive for high school students to take more rigorous classes as preparation for “post-secondary” education was started by Governor Janklow, but was not funded. As the bill’s prime sponsor, Tony Venhuizen (R-Sioux Falls) explained that the scholarship was finally funded in 2004 as a $6,000 scholarship to be spread out over four years (technical college students were eligible as well).
In 2015, the total for each scholarship was increased to $6,500. Rep. Venhuizen calculated that college tuition and fees have increased by 15% over the past 8 years and HB 1055 increases the Opportunity Scholarship to $7,500. This money is paid out over three years with the first three years being $1500 each and final year being twice that amount at $3,000.
This scholarship has been designed to get students to prepare for post-secondary education and to stay in South Dakota for those college years. That is workforce development.
WORKFORCE: HB 1056 - modify the limit of consecutive terms for members of the Board of Technical Education.
The Board of Technical Education was created in 2017 after passage of a Constitutional amendment in 2016 (Amendment R). This board is best described as the “Board of Regents” that oversees the four technical colleges in South Dakota.
When it was created, the members of the Board of Technical Education were to serve a three-year term, with a limit of two terms or six years. That is the shortest term of service of state boards and many have no limits at all.
Members of the Board of Regents serve two terms that are six years each for a total of twelve years. HB 1056 gives members of the Board of Technical Education three terms that remain as terms of three years for a total of nine years. This should allow members of this board to have enough years of service to provide high quality leadership for the technical colleges.
MISCELLANEOUS: SB 55 - prohibit ranked-choice voting.
Chamber members are known to be interested in public policy and that includes keeping an eye on elections. Several states and cities have adopted a voting method known as “ranked-choice voting”. Under this system, voters don’t simply vote for a single candidate, they put numbers by each candidate to indicate which one is their first choice, followed by their second choice.
As votes are counted, if none of the candidates receive a majority of votes then the candidate with the least number of votes (meaning ranked as #1) is dropped off the list and the ballots for the candidate are reviewed for which candidate is ranked second. Then each of those candidates is given the second-choice votes. This continues until a candidate receives a majority of votes.
Not in South Dakota.
SB 55 makes it clear that South Dakota will NOT be using ranked-choice voting. Here is the text of SB 55:
Section 1. That chapter 12-1 be amended with a NEW SECTION:
The State Board of Elections may not authorize and a political subdivision may not adopt or enforce in any manner a rule, resolution, charter provision, or ordinance establishing a system of voting for any office where:
(1) Voters rank candidates in order of preference;
(2) Tabulation proceeds in rounds where in each round either a candidate is elected or the last-place candidate is eliminated;
(3) Votes are transferred from elected or eliminated candidates to the voter's next-ranked candidate in order of preference; and
(4) Tabulation ends when a candidate receives the majority of votes cast or the number of candidates elected equals the number of offices to be filled.
Sleep well South Dakota voters.
WORKFORCE: Effective July 1st but Not from the Legislature. Passed by the People as Amendment D – Medicaid Expansion
Medicaid is health insurance for low-income people. It is NOT welfare. Payments are sent directly to doctors, hospitals, clinics and nursing homes. Medicaid costs are shared between the state and the federal government.
South Dakota has not offered Medicaid to adults without children and has only offered Medicaid to women with children for a limited amount of time.
Amendment D was approved last November and is taking effect on July first. It was placed into the state’s constitution that South Dakota would participate in the federal program known as Medicaid Expansion. The term “expansion” means coverage is offered to adults that have not previously been eligible in South Dakota and it increases the income level to 138% of poverty.
The fact that adults will now be eligible and the increase in level of income means people working in entry level jobs will be able to get health insurance through Medicaid and be able to see doctors when they are not feeling well as opposed to waiting until they are seriously ill.
People with access to healthcare services live healthy lives and can be part of the workforce that is so desperately needed in the South Dakota’s economy. The South Dakota Chamber of Commerce and Industry supported Amendment D as a workforce stabilizing policy.
Not Effective July 1st. Effective on January 1st, 2024
Taxes/Fees: HB 1011 - revise employer contribution rates.
Unemployment Insurance, now known as Reemployment Assistance, is a jointly run state and federal program that provides assistance to people when they become unemployed through no fault of their own. Designed to soften the impact on employees affected by layoffs or business closures, this is an employer funded program.
A business’s contribution rates are determined by the past experiences regarding whether or not they have employees that left the business for reasons other than being fired and have filed claims.
The contribution rate is a percent of each employee’s wages applied to the “Wage Base” which in South Dakota is currently set at $15,000. In South Dakota, a business can earn a rate of “zero” which means they no longer have to pay into the fund. For businesses that have a rate, the percentages start at 0.05% (0.05 x $15K = $75/employee) and have a maximum rate of 9.3% ($1,395/employee). The new schedule will decrease all contribution rates with the maximum rate decreasing from 9.3% ($1,395) to 8.80% ($1,320).
This new schedule is possible because South Dakota’s Trust Fund has more than $180 million dollars in it which means it can sustain a major economic downturn with the funds available. This balance is available thanks to Governor Noem’s decision to put COVID/Pandemic money into the Trust Fund to replace major benefits that were paid out during that time. The largest payout for benefits from the RA Trust Fund was during the Pandemic and that totaled $98.5 million (2020).
HB 1011 also addresses changes in the UI surcharge system by having future surcharges kick in at a higher level of the UI Trust Fund balance but with lower rates; and most significant, it allows the surcharge payments to be credited to an employer’s account
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