Stances varied on IM 28 effects

The City of Custer, Town of Hermosa and Custer School District are among the entities that are wary of the possible passage of Initiated Measure 28 during the General Election this November, as all three entities say they stand to lose  significant portions of general fund money.
IM 28, otherwise known as the Prohibit Food and Grocery Taxes Initiative, seeks to eliminate the state’s sales tax on “items sold for human consumption” other than alcohol and prepared food.
The City of Custer stands to lose between $360,000 and $400,000, mayor Bob Brown said, and the state Department of Revenue has estimated Custer will lose around $425,000, city finance officer Laurie Woodward said. To determine how much money the city would lose, Woodward said, category reports were pulled from the Department of Revenue and groceries and related categories were calculated.
The possible loss of funds has been discussed a couple of times at Hermosa Town Board meetings and throughout its budget process, said town finance officer Terri Cornelison.  The South Dakota Municipal League has estimated that the town would possibly lose $52,000 annually, which Cornelison said would be a significant loss of revenue.
At the Custer School District, property taxes and state aid—funded through sales tax—is used for funding education across the state, meaning a decrease in state sales tax could also mean less money for the school district.
Custer School District superintendent Mark Naugle said the exact impact is not known, but the potential for a large impact looms.
“The potential impact to education is big, because then where are we going to find the funding? That is the key,” Naugle said.
The state’s Legislative Resarch Council (LRC) released a four page fiscal analysis on IM 28, in which it said there could be a total reduction in state revenues between $133.6 and $646.2 million, depending on the interpretation of the phrase “human consumption.”
A food-only interpretation could see a reduction of $133.6 million, representing 9.3 percent of the state sales tax, while a broader interpretation could see a reduction of up to $646.2 million, which would be 46.5 percent of state sales tax and 100 percent of tobacco taxes.
The vague language of IM 28 has been a large source of debate in the months leading up to the election, as what is sold for “human consumption” has been interepreted many ways. The LRC wrote there are 36 statutes that include the phrase “human consumption,” most of which reference food products intended to be ingested into the human body or describe what is not meant for human ingestion.
“Another interpretation of ‘human consumption’ includes more than just food,” the LRC analysis reads. “The assumption in this case is, if the intent of the measure was to limit its application to food only, the word ‘food’ would have been used.’”
Some people have said paper and cleaning products would be included, while some have even suggested gasoline would fit the definition. One can get deep into the weeds sorting out what could and couldn’t be taxed as there have been questions as to whether a soda out of a cooler at a gas station would be taxed at a different rate than a fountain soda (prepared vs. unprepared) and whether food out of a hot case at a grocery store would be subject to the tax. Prepared food is defined in state statute as “food that is sold heated or with utensils.”
“It’s clear that IM 28 is a trap that would force significant cuts to education, healthcare and state services,” said Rapid City businesswoman and South Dakotans Against A State Income Tax Coalition member Erin Krueger in a press release. “Don’t take the bait; vote no on IM 28.”
“We’ve known since day one that IM 28 was poorly drafted,” said Nathan Sanderson, South Dakota Retailers Association executive director and treasurer of the coalition. “IM 28 eliminates sales tax far beyond just groceries—that is indisputable. South Dakota voters should kill this  irresponsible measure.”
 However, proponents of IM 28 say the wording of the measure is being made to be much bigger of a deal than it is, and the state legislature or court system will ultimately define human consumption.
“Other states have figured out how to define what is considered food and not unfairly tax its citizens.  South Dakota can too,” said Mary Wheaton of the Custer County Democrats. “Our legislators must be open-minded and willing to research how this has been done elsewhere and devise a plan that considers what many of their constituents are asking for, while meeting the needs of our state economy.”
Another member of the Custer County Democrats, Mike Trier, said he was instrumental in drafting legislation during his career and that while IM 28 is not written in the way he would choose, the legislature is able to revise it so it more clearly addresses food items.
“Keep in mind, correct use of the term ‘consume’ means eating. Tobacco is burned or spit, not eaten,” he said. “While ‘consume’ is commonly used inaccurately to refer to using up anything, that isn’t correct. If the legislature refuses to clarify the measure, then any detriment is their responsibility.”
While Sanderson said tobacco and over-the-counter medications would be included among items for which the state could no longer collect sales taxes, Rick Weiland of Sioux Falls, who is the sponsor of Initiated Measure 28, said they are not included, according to a Keloland report.
“This is a food tax, a grocery tax,” Weiland said. “All we’re trying to do is give some relief to people that are struggling at the grocery line to put food on their table, and this tax disproportionately affects people of low income.”
Weiland noted to Keloland 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.”
Woodward points out the measure specifically states the items may not be taxed at all, as opposed to putting the rate of state tax at zero percent. The South Dakota Municipal League points out state statute prohibits municipalities from taxing anything the state cannot, so it contends municipalities will no longer be able to have up to a two percent tax on items for consumption because it will conflict with state law if the measure passes. The measure’s language does read it will not affect the up to 2 percent sales tax on groceries charged by municipalities in South Dakota.
Two-thirds of South Dakotans support the initiative, according to a scientific poll co-sponsored by South Dakota 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 percent of respondents are for the 2024 ballot measure, with 26 percent opposed and 7 percent undecided.
That means public support for Initiated Measure 28 has increased since a November 2023 poll that showed 61 percent of registered voters in favor of it.
South Dakota is one of just two states, along with Mississippi, that fully taxes food without offering credits or rebates.
Sanderson told South Dakota News Watch he belives IM 28 was designed “either to force South Dakota to implement a state income tax to replace the lost revenue or it was drafted incorrectly.”
Proponents of the measure have dismissed the thought that passage of IM 28 will lead to a state income tax as scare tactics.
“Using the threat of a state income tax to stop the repeal of a grocery tax is fearmongering,” Wheaton said. “If we can’t define what food is, how will we ever figure out how to create an infrastructure and manage a state income tax?  It’s a tactic to scare voters.”
“The amount of revenue lost to IM 28 is very small, roughly equal to that from the three-tenths of one percent reduction in the general sales tax rate the legislature adopted two years ago,” Trier said. “Adopting a state income tax for a small amount of revenue would be incredibly stupid fiscally because of the cost of creating and operating the new bureaucracy required to administer an income tax.”
Returning the general sales tax rate of 4.5 percent makes much more sense if revenue becomes a problem, Trier said, adding restoring the general sales tax rate to 4.5 percent will also avoid cities and counties from losing revenue.
If IM 28 is approved by the voters, Brown said, that means the city will have to find ways to cut that money out of its budget, get creative on possibly loaning money from one fund to another or seeking additional sources of revenue.
“It’s hard to cut emergency services,” Brown said, “so we would have to cut something else. Either way, some people are going to feel it and notice it, and some people won’t have a clue.”
Woodward said if the city were to raise the cost of services to try to make up a $400,000 loss on something such as an additional fee per household on sewer and water, that would actually cost the 861 accounts in town more money annually than the taxes on their groceries do if they spend $400 a week on groceries.
Tony Venhuizen is a state representative who serves on the state’s appropriations committee. He said IM 28 is too drastic of a measure for South Dakota.
“One hundred seventy-six million would require a seven percent cut across the board, to K-12 schools, tech schools, Medicare rates, state employee salaries,” he told South Dakota Public Broadcasting. “Seven percent, that’s what’s on the ballot here. If the people vote for this, they need to know when we come here in January, we are not going to be doing an increase for anything. We’re going to be making significant budget cuts. Seven percent budget cuts, the worst since the 2011 session. It’s just incredible to me that a person could be so irresponsible to put something like this on the ballot with absolutely no plan to pay for it.”
Brown said right now tourism dollars are helping fund the state through the 4.2 percent tax (it was 4.5 percent before the legislature lowered it during its 2023 session), but that will no longer be the case if the measure is passed.
“How do we find another way to get that? In the meantime, the residents are going to have to pick up the slack,” he said.
Trier said he supports the repeal of the sales tax on food because food is a necessity and the repeal will offset some of the adverse effects of inflation. He said the repeal will greatly assist middle and lower-income South Dakotans.
“It could reduce the cost of $100 of groceries by as much as $6.50. Removing sales tax from groceries will greatly benefit South Dakotans year-round,” he said. “The benefit to tourists will be minimal because they tend to eat at restaurants.”
Wheaton wondered if elected officials coming out against the measure have researched it honestly and objectively.
“How are almost all other states doing it, some without imposing an income tax?” she asked. “We have many other resources from gambling revenue, tourism, a general tax, etc. How are these being used, and is it efficient, wise and prudent use of our tax dollars?
“A majority of South Dakotans support eliminating the tax on food. Our legislators are being paid to represent the people of South Dakota.  Let’s get this done.”
Trier said  IM 28 gives citizens the opportunity to force the legislature to do what it should have done two years ago to fulfill Noem’s promise.
“IM 28 isn’t perfect, but legislation seldom is,” he said. “The desire for perfection should not prevent achieving what is good.”