South Dakota: We Tax Food, Not Gold

The South Dakota Department of Regulation and Revenue sent out its Taxation newsletter this week. I receive it because I carry a sales tax license just in case I sell any paintings. (I haven't generated any revenue for the state since 2002; feel free to help reverse that situation by ordering a painting!)

The newsletter says that the 2007 Legislature passed HB 1151 "exempting the gross receipts from the sale of coins, currency and bullion from sales tax." Primary sponsor Representative Gordon Pederson (Republican, Wall, District 30) argued the measure was a "fairness bill" that would bring us to parity with other states, help small investors, and draw more business and coin trade shows. The state made $34,000 a year in sales tax revenue on coin, currency, and bullion sales; Rep. Pederson said the increase in tourism and related sales (coin collectors books, display hardward, etc.) would make up for the lost revenue.

There was a fair amount of back-and-forth over the bill in the House Taxation Committee on February 1. Perhaps recognizing the odd prioritization of gold and silver over food, Representative Marc Feinstein (Democrat, Sioux Falls, District 14) made a noble effort to hoghouse the bill to reduce the sales tax on food by 1%. Pederson said coin buyers go to Iowa and other surrounding states to avoid our sales tax; shouldn't the same logic apply to the many more folks who buy groceries? The committee didn't think so; they killed the Feinstein amendment, hassled and wrassled, and finally, five days later, recommended the bill for passage, which it received.

So there's South Dakota's taxation logic: We will tax people buying necessities like bread, broccoli, and baby formula. But we won't tax people with money to spare for luxuries like gold coins or platinum.

Plus, when Rep. Pederson talked about the differences between our tax system and Iowa's, he failed to mention that Iowa has corporate and personal income taxes. We've been told that state income tax of any sort would kill business in South Dakota. Yet Iowa also has 7 Fortune 500 companies, while South Dakota has none. Hmm -- it seems than when it comes to sensible tax policy, our legislators are so busy listening to special interests that they fail to see the big picture.

More reading on taxes and economic development:

--Don Monkerud, "Better Working Conditions Lead to Better Economy," Share the World's Resources, 2005.
--the study Monkerud cites: James Heintz, Jeannette Wicks-Lim, and Robert Pollin, "Decent Work in America: The State-by-State Work Environment Index," Political Economy Research Institute, University of Massachusetts-Amherst, 2005.
--Jamie Smith Hopkins, "Cutting Taxes Is Bad for Business, Says Md. Expert's Study," Baltimore Sun, Business, p10, 2004.03.23, reprinted cfed.org:

[Study author and Washington College economics department chairman Robert G.] Lynch insists that high-quality services, not lower taxes, encourage economic development. Labor costs alone far exceed state and local tax expenses for businesses, he said, so good schools - and decent transportation networks, public safety and similar services - help companies keep expenses down.

He offers Minnesota as an example. The state has a higher business tax burden than its neighbor South Dakota - and a higher per capita income after taxes, higher average yearly pay growth and higher employment growth. Its residents are more highly educated, its roads and bridges are better maintained and its business failure rate is lower, Lynch said. [emphasis added]

--the study Hopkins cites: Robert G. Lynch, "Rethinking Growth Strategies: How State and Local Taxes and Services Affect Economic Development," Economic Policy Institute, 2004.