Committee-endorsed plan would use some state revenue growth to reduce property taxes

The Senate Taxation Committee endorsed a bill 4-3 recently that would create a new fund to offset taxes for all South Dakota property tax categories, using a portion of the state’s annual general fund revenue growth to fill it.

The bill is one of several major property tax proposals moving through the legislative process. Some other proposals were rejected by the House and Senate.

Senate Bill 199, sponsored by Sen. Mark Lapka, R-Leola, would transfer 25 percent of the annual increase in general fund revenues starting in August of this year. In the years following, the state would continue transferring 25 percent of the annual revenue increase, plus an amount equal to the prior year’s transfer. 

Derek Johnson, state economist with the Bureau of Finance and Management, opposed the bill, saying it is “simple” at first glance, but that “the mechanism it uses is problematic” because it limits budget flexibility for the Legislature.

“This bill substitutes intentional decision making with automatic transfers. It creates structural commitments without flexibility, limits legislative authority and reduces accountability,” Johnson told lawmakers. “Property tax relief should be pursued through thoughtful appropriations, not formulas that lock us into permanent obligations.”

The committee rejected two other property tax relief proposals, including a bill to establish a new transaction tax to fund property tax reductions, and a resolution asking voters to amend the state constitution to reset property taxes to 2020 and then limit property tax increases to a flat rate until the property is sold. The Senate State Affairs Committee postponed action on a similar resolution after deadlocking 4-4 on whether to endorse it.

The Senate rejected a bill that would have raised the maximum home valuation that could be exempt from property taxes through a disabled veterans tax relief program from $200,000 to $300,000. The Legislature last raised the maximum value in 2024.

Opponents, including U.S. Air Force veteran and Rapid City Republican Sen. Taffy Howard, were primarily concerned that the increase would result in a “tax shift” toward other property owners. 

“Our service should never be used as political cover for avoiding real property tax reform,” Howard said. “South Dakotans are frustrated because the system itself need structural reform. Carveouts and expanding exemptions do not fix the system; they simply rearrange who pays.”

In 2023, 2,808 households were approved for the program, according to data from the South Dakota Department of Revenue.

In the House of Representatives, lawmakers voted 65-2 in support of a bill, already approved by the Senate, that puts aside $425,000 to pay property tax refunds to qualifying disabled veterans and elderly people. It’s a companion to Senate Bill 21, which boosts the annual income eligibility level for both categories of refund, both of which have been available since the 1970s. The latter bill has not been heard on the House floor yet.

Other bills meant to address property taxes are still working through the legislative process, including proposals that would use revenue from an optional county sales tax or an increase in the statewide sales tax rate to reduce taxes for homeowners.

Makenzie Huber is a lifelong South Dakotan who regularly reports on the intersection of politics and policy with health, education, social services and Indigenous affairs. Her work with South Dakota Searchlight earned her the title of South Dakota's Outstanding Young Journalist in 2024, and she was a 2024 finalist for the national Livingston Awards.

South Dakota Searchlight is part of States Newsroom, the nation’s largest state-focused nonprofit news organization.