South Dakota Governor’s Grocery Tax Cut Push Meets Resistance From Fellow Republicans

South Dakota Gov. Kristi Noem addresses the Conservative Political Action Conference held in the Hyatt Regency in Orlando, Fla., on Feb. 27, 2021. (Joe Raedle/Getty Images)

South Dakota Gov. Kristi Noem’s push to cut a state tax on groceries has been met with opposition and noncommitment from fellow Republicans.

Noem, a fiscally and socially conservative Republican, cruised easily to victory and a second term in November 2022 with 62 percent of the vote.

On Jan. 17, Noem announced, along with prime co-sponsor state Rep. Mary Fitzgerald (R-District 31), HB 1075, a bill to “lower the state sales tax rate and the state use tax rate on food to zero percent.”

In 2022, as consumer goods prices spiked, reducing grocery prices found favor with elected leaders across the country.

The Republican governor’s tax-cutting initiative enjoys a solid base of support among South Dakota Democratic lawmakers, although Noem is still trying to win over some influential politicians in her own party.

Last year, the governor herself wasn’t certain that cutting grocery tax was wise fiscal policy. But in her State of the State address on Jan. 13, Noem gave considerable attention to the grocery tax cut.

Tax Cutter

Noem asserts that South Dakotans are especially in need of a grocery tax cut because of rapidly rising food prices caused by inflation.

South Dakota levies a 4.5 percent sales tax on groceries and is one of only three states that fully tax groceries without offering consumers a tax credit; 10 other states tax groceries but offer a way to recoup the money through the credit; and 37 states don’t tax groceries at all.

A woman shops for groceries at a supermarket in Monterey Park, Calif., on Oct. 19, 2022. (Frederic J. Brown/AFP via Getty Images)

“I have been to a lot of grocery stores across the state over the past few months,” Noem said in the State of the State speech. “Prices have increased so dramatically over the past two years that families are unprepared when they see the final bill in the checkout line. When I’ve been checking out groceries, about one in every four shoppers have had to put something back because they can’t pay for everything. Folks, South Dakotans need this relief.”

Noem says that abolishing the grocery tax will return more than $100 million to the people of South Dakota, which has a population of about 900,000.

Legislative Hurdles

Even as the governor makes the case that South Dakota residents need the tax relief, she faces opposition or noncommittal from Republican state lawmakers, including House Speaker Hugh Bartels.

“I’m waiting until the budgeting process is done. You’ve got to weigh the option of unfunded programs and tax cuts,” Bartels told the radio station KFGO.

The grocery tax cut is also competing with two tax cut bills in the South Dakota House: HB 1043, which would exempt an owner from being taxed on the first $100,000 valuation on the owner’s primary home, and HB 1052, an “Act to change the eligibility requirements of a property tax relief program for disabled veterans and surviving spouses.”

Noem maintains that South Dakota can afford the grocery tax cut. She says the state is fiscally strong enough to absorb the loss of tax revenue, and the benefit accruing to South Dakotans in the form of more money in their pockets can be obtained without a loss of public services.

According to a research document, “Eliminating Sales Tax on Groceries,” produced by the governor’s office, South Dakota’s “reserve fund balance is the largest in our history—20.5 percent of our overall budget.”

“We have a AAA credit rating,” it states. “And tax revenues for FY 2023 have beaten projections by $135 million through November 2022.”