BROOKINGS — Depending on who you’re listening to, repealing South Dakota’s sales tax on food will either be a godsend at the store checkout line or a nightmare that leads to state and municipal budget cuts that hurt taxpayers.

The debate over Initiated Measure 28 was front and center at a Brookings City Council study session on Tuesday night, with both sides making their cases on an issue that voters will have the final say on come Nov. 5.

Debate centers on the phrase “human consumption,” which, depending on interpretation, could cost state government coffers anywhere from $134 million to $646 million each year if IM 28 passes, according to the Legislative Research Council.

Proponents say IM 28 is focused solely on only removing the state’s 4.2% sales tax from grocery sales, while leaving intact municipalities’ — including Brookings — ability to collect a local sales tax on those groceries. It also wouldn’t affect the ability to collect taxes on sales of alcohol or prepared food.

Rick Weiland of Dakotans for Health, the driving force pushing for passage of IM 28, told councilors that a family of four would see between $500 and $600 in savings at the checkout each year if IM 28 passes.

Opponents contend the wording means IM 28’s passage would affect more than groceries, to the point that the state wouldn’t be able to collect sales tax on things such as toilet paper, vehicle repairs or tobacco. They also say a municipality’s ability to collect local sales taxes would be in jeopardy due to, in part, wording in current state statute.

Brookings could take a $1.6 million hit to its budget next year, Sara Rankin, the executive director of the South Dakota Municipal League, told councilors. Overall, she said, communities would face an estimated loss of $51.5 million.

The potential impact on Brookings drew the attention of Councilor Nick Wendell.

“I think there are potential broader implications for a community like ours: Nearly 25% of our workforce are state employees — either associated with colleges, universities, working in the public sector, in our schools, or other government agencies, or for the city of Brookings,” he said. “So when I think about impacts not just to the municipality but also potential cuts that could hit education and other public sectors, I think it could have a broader impact on workers in Brookings who are employed in those sectors.”

Wendell asked Weiland if IM 28 proponents had given any thought to replacing the tax revenue at state or municipal levels.

Weiland mentioned returning the current 4.2% sales tax to the 4.5% it was prior to the legislature reducing it in 2023. He also pointed to a statewide $1.4 billion in sales tax exemptions.

“It seems like anybody that’s got an association with membership and can hire a lobbyist and they can go to Pierre, they can get something for their members,” Weiland said. “I keep wondering who’s out there lobbying for the families that are spending upwards of 30% of their household income just to feed themselves, or the students here at SDSU that are having to buy groceries.”

Weiland said dozens of other states have taken action over the years — either getting rid of or reducing their sales tax on food, or initiating some kind of rebate program.

“If there’s a will, there’s a way,” Weiland said of finding solutions. “This can be done.”

Judicial, legislative issues

If voters approve IM 28 on Nov. 5, it’ll open another can of worms, according to the South Dakota Attorney General Marty Jackley’s ballot explanation. Jackleys says IM 28 requires judicial and/or legislative clarification — something the measure’s opponents also pointed to Tuesday night.

One of those was Nathan Sanderson, the executive director for the South Dakota Retailers Association.

“I think there would be some type of lawsuit to find out what exactly we mean here and then, of course, the legislature convenes in the second week of January and I’m certain that there would action to be taken,” he said.

Sanderson said remedies from the Legislature might be difficult. He pointed to comments from Sen. Tim Reed, R-Brookings — who also attended the study session — indicating it would take a two-thirds of legislators in both chambers to increase a fee or tax, or introduce a new tax or fee, in order to replace lost revenue.

If that’s not possible, Sanderson said, legislators would have to cut the state’s budget.

IM 28 would go into effect on July 1, 2025, if it’s backed by voters, Reed told Brookings Mayor Oepke “Ope” Niemeyer, even if lawmakers tweak it before then — but if judges get involved, all bets are off.

“If it goes into any kind of judicial process, a lot could happen,” Reed said. “There could be a stay on the law. They could just say, ‘We’re going to stop the law from going into effect until we make the decisions on this.’ I think the issue is, if you have both of those going on at the same time, it will be really confusing.”

Weiland added in his two cents as well, saying that if tweaks are necessary, they can be made at the legislative level.

“We don’t think they’re going be necessary — and I think all these are hypotheticals,” he said.

And if the courts get involved?

“If it gets to that point where someone’s suing because they want the tax off of toilet paper because it’s a consumable, the legislative intent — as I said, the voters are the legislature — what was their intent when they signed the petition to put this on the ballot?” Weiland said. “What did the fiscal note say? It wasn’t taking the tax off of tobacco or the tax off of paper, or the tax off of services — $390 some million dollars. No. It’s taking the state’s tax off of food, and that’s what you’ll see.”

IM 28 is one of seven measures voters will decide on come Nov. 5. Other measures include ones dealing with Medicaid work requirements, abortion rights and top-two primary elections. More information on every measure can be found on South Dakota Searchlight at https://southdakotasearchlight.com/voter-guide/2024/.

— Contact Mondell Keck at mkeck@brookingsregister.com.