SD tribes would lose millions for tribal government if state eliminates food sales tax

PIERRE – A food sales tax cut that passed a House panel Thursday morning has raised concerns for South Dakota’s nine tribal governments.

An official with the Bureau of Finance and Management estimated that the tribes would lose about $2 million in funding for tribal government operations if the food tax is eliminated, but admitted to lawmakers that “the issue has just arisen in the last couple days.”

The 4.5% tax on food brings in an estimated $102 million to the state total. Gov. Kristi Noem vowed to eliminate the tax during her re-election campaign and during her budget address last month.

Each tribal government in South Dakota has an agreement with the state to receive a portion of the food sales taxes that originate on its reservation. State Finance Commissioner Jim Terwilliger told the House Taxation Committee on Thursday that the question of how the food tax cut would impact tribal budgets has not been explored, but that there are “probably workable solutions.”

“There are some ways we can address those concerns so tribes aren’t adversely affected,” Terwilliger said.

Rosebud, Cheyenne River oppose ‘devastating’ bill

The food sales tax is only a portion of the tax revenues collected by the state on tribal reservations. The revenues include money from taxes on retail sales and services, use taxes, and excise taxes on cigarettes, tobacco, fuel and farm machinery. Food sales tax falls within retail sales and services and use taxes.

The percentage of tax revenue returned to tribal governments varies from tribe to tribe, and is based on agreements with the state. The Rosebud Sioux Tribe, for example, gets back 93% of retail sales and service tax revenue.

For Rosebud, the food sales tax accounts for roughly 25-30% of that figure, according to Whitney Meek, director of revenue for the tribe. A representative for Rosebud testified against the bill at the House Taxation Committee meeting.

“I don’t see how the tribe itself could afford to lose that kind of revenue,” Meek said, estimating that the Rosebud Sioux Tribe collects close to $2.5 million annually in various taxes from the state. Aside from taxes, tribal governments also receive funding from federal grants and land leases.

However, she thinks Rosebud “could handle” a 1-2% reduction in food sales tax. Two other bills, HB 1095 and HB 1096, would lower the state food sales tax rate and use tax rate to 2.5% and 3.5%, respectively.

 Sen. Ryan Maher is a Republican lawmaker representing Butte, Corson, Dewey, Harding, Perkins and Ziebach counties. He resides in Dewey County. (Courtesy of South Dakota Legislature)

The Department of Revenue has yet to provide South Dakota Searchlight with the monetary amounts received by tribal governments during fiscal year 2022.

The loss in revenue would be “devastating” for the Cheyenne River Sioux Tribe, according to Lynette Dupris of the Cheyenne River revenue department. The Cheyenne River Sioux Tribe also had a representative oppose the food sales tax bill at the House Taxation Committee.

“In order for a government to function, they need tax revenue,” Dupris said.

Cheyenne River has an 85% tax agreement with the state, which amounted to about $4.3 million in total tax revenue during fiscal year 2022.

“What do we have here? Just two grocery stores, a few convenience stores, a hardware store and a clothing store,” Dupris said. “That’s all we have here.”

The Cheyenne River Reservation is part of District 28, which includes most of northwestern South Dakota. Sen. Ryan Maher, R-Isabel, said the bill needs to find a way to “hold the tribes harmless.” He is opposed to the bill.

“The state would have to subsidize them to hold them harmless. I don’t know how that works, since food tax is a moving number and we’re in an inflated economy right now,” Maher said.

Tribes ‘should have been at the table already,’ Dems say

 Rep. Peri Pourier, D-Rapid City (Courtesy of South Dakota Legislature)

South Dakota Democrats held a press conference after the bill passed through the House Taxation Committee reprimanding the state for not having discussed the bill’s impact on its tribal governments beforehand.

“They should have been at the table already,” said Rep. Oren Lesmeister, D-Parade.

Tribes were not consulted prior to the introduction of the bill, he said, which he described as an insult to the state’s nine tribal nations. He urged Noem to reach out now, even if it would be “a little late.”

Rep. Peri Pourier, D-Rapid City and member of the House Taxation Committee, voted in favor of the bill and to pass it onto Appropriations in hopes that the bill could be amended to address tribal governments’ concerns.

“We have tribal nations who have sovereignty tied to this tax initiative… this wasn’t talked to tribal nations beforehand,” Pourier said during the hearing. “…They have to have an ability to say if they want this or not.”

Tribes taxing reservations themselves is a ‘sticky wicket’

If South Dakota’s food sales tax is eliminated, the tribal governments could collect food sales taxes themselves.

But the tribe is only able to tax non-tribal members when it’s consensual or when a non-tribal member is on Indian lands, which would apply to non-tribal members in Todd County, Meek said.

“It kind of gets into a sticky wicket with jurisdictional issues,” Meek said. “They have every right to dispute.”

Having the tax agreement with the state eliminates jurisdictional issues.

“It is a complicated issue. That’s why they have attorneys,” Meek said.

There are other issues complicating food tax collections on reservations, as well. About one-third of residents in counties located mostly within a reservation — such as Todd, Oglala Lakota, Dewey and Charles Mix counties — receive benefits through the federal Supplemental Nutritional Access Program (SNAP), commonly known as food stamps. People receiving SNAP benefits do not pay sales tax.

If the Rosebud Sioux Tribe enforced its own food sales taxes, Meek said she could easily see someone driving 13 miles off the reservation to White River to buy groceries.

Hiring people to collect the reservations’ taxes and developing an infrastructure for online sales would also be difficult, she said. The state has infrastructure for online tax remittances, having won the right to collect such taxes through a Supreme Court victory in 2018.

“There are only, say, 50 businesses located on the whole reservation, and over 1,000 for remote sales and internet sales,” Meek estimated. “How would we even begin to go about collecting that? I’d say that’s impossible. Send a tax return to Amazon and they’d laugh us off. We don’t have the teeth to enforce our laws on someone outside the reservation.”

The food tax proposal passed the committee with a 12-1 vote. It will now head to the House Appropriations Committee for further consideration.

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