Two-thirds of South Dakotans support an initiated measure that would prohibit the state from collecting sales tax on "anything sold for human consumption, except alcoholic beverages and prepared food,” according to a scientific poll co-sponsored by News Watch.

The statewide survey of 500 registered voters, also sponsored by the Chiesman Center for Democracy at the University of South Dakota, showed that 66% of respondents are for the 2024 ballot measure, with 26% opposed and 7% undecided.

That means public support for Initiated Measure 28, which would eliminate the state's 4.2% sales tax on groceries, has increased since a November 2023 poll that showed 61% of registered voters in favor of it.

Supporters call the measure a long-overdue effort to take the tax burden off low-income families and individuals. South Dakota is one of just two states, along with Mississippi, that fully taxes food without offering credits or rebates.

Opponents criticize the wording of the measure as broader than just groceries. They said it could cause a budget crunch by preventing the state from collecting sales tax on “consumable” items such as tobacco, toothpaste and toilet paper.

“This is not a food tax repeal – it’s a consumables tax repeal,” said Nathan Sanderson, executive director of the South Dakota Retailers Association, which publicly opposes the measure.

'Should have been done 20 years ago'

Rick Weiland of Dakotans for Health, the petition group that sponsored IM 28, noted that Gov. Kristi Noem pushed for repealing the grocery tax during her 2022 re-election effort. In announcing the campaign pledge, Noem said the tax cut  would "put hundreds of dollars in the pockets of the average South Dakota family.”

“This affects people of modest means who are just trying to put food on the table,” Weiland told News Watch. “It should have been done 20 years ago, which is why you’re seeing a super-majority of South Dakota voters in support of it.”

Mason-Dixon Polling and Strategy conducted the poll May 10-13. Those interviewed were selected randomly from a telephone-matched state voter registration list that included both landline and cellphone numbers. Quotas were assigned to reflect voter registration by county. The margin of error is plus or minus 4.5 percentage points.

Concerns about budgetary impact are more pronounced since state legislators voted to lower the general sales tax rate from 4.5% to 4.2% during the 2024 legislative session. It sunsets, or expires, in 2027.

Sanderson echoed concerns raised by Attorney General Marty Jackley in his ballot explanation that IM 28, by interrupting collection of sales tax for certain items, could “affect the state’s obligations under the tobacco master settlement agreement and the streamlined sales tax agreement.”

Opponent: Plan will trigger income tax

Not taxing “consumables” and losing those revenue streams could result in an annual state budget downturn of at least $176 million, according to Sanderson, on top of the $104 million estimated annual revenue loss from the general sales tax cut.

Sales taxes are the largest source of state government revenue in South Dakota, one of seven states without a state income tax.

“I believe this measure was drafted the way it was for one of two reasons,” said Sanderson, who served as a policy adviser to former Gov. Dennis Daugaard. “Either it was designed to force South Dakota to implement a state income tax to replace the lost revenue or it was drafted incorrectly. Either way, it’s highly problematic.”

Weiland pushed back strongly on those assertions, calling them "fear tactics and misinformation" and noting that the Legislative Research Council played a role in changing the measure's language.

As for the notion that Dakotans for Health is surreptitiously trying to trigger a state income tax, Weiland called the theory "ridiculous."

"Mr. Sanderson needs to do his homework before he makes such wild allegations about our secret intentions," said Weiland, a former South Dakota Democratic Party candidate for U.S. House and U.S. Senate. "With 94 Republican and 11 Democratic legislators in Pierre, (Republicans) can do anything they want. I don’t think passing a state income tax will ever be part of their legislative agenda."

Debate over municipal food tax rates

It’s been an eventful petition process for Dakotans for Health, which had to re-submit language for the measure in November 2022 after then-Attorney General Mark Vargo issued a ballot explanation saying the measure would impact the ability of municipalities, and not just the state, to collect sales tax on groceries.

That interpretation differed from that of then-Legislative Research Council director Reed Holwegner, who noted in a 2022 fiscal summary that “municipalities could continue to tax anything sold for eating or drinking.”

Most municipalities collect 2% on groceries on top of the state tax rate. Weiland’s group added specific language to the measure after Vargo's explanation to maintain that they could continue to do so.

But opponents cite a state law that states cities and towns can charge a sales tax if the tax "conforms in all respects to the state tax ... with the exception of the rate," which would not be the case if the state food tax is repealed.

“Cities and towns can only tax the same items as the state,” said Sanderson. “So despite the language in IM 28, if the state cannot charge a tax on ‘anything for human consumption,’ neither can a municipality.”

Jackley’s current ballot explanation notes that “judicial or legislative clarification of the measure will be necessary.” Since it’s an initiative measure and not a constitutional amendment, it’s reasonable to assume that state legislators will address it during the 2025 legislative session if it passes.

This story was produced by South Dakota News Watch, a nonpartisan, nonprofit news organization. Read more in-depth stories at sdnewswatch.org and sign up for an email every few days to get stories as soon as they're published. Contact Stu Whitney at stu.whitney@sdnewswatch.org.