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Monday, November 12, 2007

South Dakota Has an Income Tax!

The next time you hear South Dakota officials bragging about how South Dakota has no income tax, feel free to laugh heartily in their faces.

Examples:
  1. SDCL 10-37-8 authorizes the consideration of earnings in pipeline tax assessment: "In assessing any pipeline company and its equipment, the Department of Revenue and Regulation shall take into consideration the gross earnings and the net earnings for the entire property, and per mile, for the year ending December thirty-first preceding, and any and all other matters necessary to enable the department to make a just and equitable assessment of pipeline property."
  2. SDCL 10-33-11 uses similar language to authorize the consideration of "gross earnings and net incomes" in assessing taxes on telephone companies.
  3. SDCL 10-29-10 includes "revenue ton miles" in the valuation of flight property for taxation.
  4. And of course, there's SDCL 10-43, the chapter imposing "Income Tax on Banks and Financial Corporations."

Not that income tax is a bad thing. 43 states tax personal income; 46 tax corporate income. Those states are not experiencing mass outmigration or languishing in economic depression.

And someone explain me this: the standard response to proposals for an income tax is that income tax kills economic growth. But the banking industry, the only industry I can see explicitly singled out for an income tax in South Dakota, is South Dakota's biggest industry, contributing $4.4 billion to the state economy in 2005 (agriculture? only $2.0 billion -- see the BEA stats) Funny -- we have an income tax on banks, and banks still manage to contribute more the state economy than any other sector.

What got me going on this topic this morning was a suggestion I came across in a pamphlet from the WEB Water Development Association on the TransCanada Keystone pipeline. Given WEB's understandable concerns about pipeline leaks that could breach their water pipes (oil eats rubber gaskets) and contaminate groundwater, WEB urges the state (p. 20) to tax the pipeline at a rate of 10 cents per barrel. (At $100 a barrel, that's a tax of 0.1%). Such funds would be used to cover the costs of emergency response and clean-up (which TransCanada expects we'll do ourselves -- WEB pp. 17-18).

A pipeline tax is a post of its own. For now, consider how much fairer and simpler a straight per-barrel pipeline tax or corporate income tax would be than the the current system. Under current law, Transcanada has no idea how much it will pay in taxes in South Dakota. Its taxes will be based on a completely arbitrary assessment (a.k.a. guess) performed by bureaucrats in Pierre who will look at income, stock capitalization, and all sorts of other factors to come up with a magic number (a.k.a. guess) describing the alleged value of the property. That's how property tax works for everyone: bureaucrat's best guess.

It would be much simpler to admit we're already doing income taxes and reform the system to take the guesswork out. Tell corporations, "You make money; we get X%." Simple, honest, and fair.

1 comment:

  1. Our lack of a State Corporate Income Tax and the most liberal banking and credit card laws in the country are why T. Denny Sanford can donate $400 Million plus other projects, and why so many Banks are building fantastic new buildings like the First American Bank & Trust Building in Brookings and so many other new Bank buildings and credit card expansions in Sioux Falls. Remember a few years ago when Citicorp was audited and found to owe the State of SD MILLIONS in additional tax dollars, but the State settled for a lesser amount rather than audit for the full amount and risk losing Citicorp as an employer. We're not auditing every bank or credit card operation each year, so how many millions are sliding under the rug. The lack of corporate income tax does not necessarily attract companies, nor would it cause them to leave. They like our cheap, reliable labor force too much!

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