Sales tax agreement brings in millions but limits South Dakota

(The Center Square) – South Dakota’s membership in a multi-state sales tax agreement has brought in millions in sales tax revenue over the years but limits what the state can do with its tax base, according to the South Dakota Department of Revenue.

South Dakota has been a member of the Streamlined Sales and Use Tax Agreement since its inception in 1999. The agreement dictates that member states must have a single tax base for all state and local jurisdictions, a single rate in each jurisdiction, uniform administration of exemption certificates, sourcing rules, and uniform definitions of products and services.

Officials from the Department of Revenue told the Study Committee on County Funding and Services Wednesday that South Dakota has collected over $78 million in state tax and $28 million in city tax from its 10,255 streamlined sales tax registrants since 2005.

At the time of Streamline’s creation, U.S. Supreme Court decisions had limited the ability of states to levy taxes on businesses not physically present in the state.

Currently, 23 states are full members of the Streamlined Sales and Use Tax Agreement and follow its rules.

“These rules don’t tell us what the states can tax or what they can’t tax, it just says that all states must tax the same items and those items must have the same tax rate throughout the whole state,” said Doug Schinkel, the business tax director for the Department of Revenue. “So each state gets to choose what they tax, but Streamline creates the definitions of those items and products that can be taxed and we must follow those definitions. And that’s key because it simplifies things for business.”

The Department of Revenue said Streamline’s rules decrease the cost of tax compliance and minimize the burden on taxpayers by allowing businesses to file, report, and pay sales and use taxes for all jurisdictions to one location.

“These rules were developed and implemented simply because we wanted to make it as simple and as easy and as inexpensive as possible for those remote sellers, those Streamline participants, to do business not only in our state but in other states as well,” said Schinkel.

In 2018, a U.S. Supreme Court ruling known as the Wayfair decision said that states could require sellers to collect sales taxes on sales delivered to locations within their state, even if there was no physical presence of that business in the state. South Dakota’s membership in Streamline was cited as one of the deciding factors in the ruling, according to Schinkel.

“It’s very important for us to remain in compliance with Streamline,” said Schinkel. “And to do so, the key point, I think, for this committee here today, is any local taxes that are imposed, the same rate is across that full jurisdiction.”

The committee asked whether a tax could be implemented or imposed in rural areas of a county but not in a municipality, said Schinkle.

“The answer is no, if we want to remain in compliance with Streamline,” Schinkle said, stating local jurisdictions must have the same sales tax rate throughout the jurisdiction.

Rep. John Mills, R-Brookings, asked why the state doesn’t have a 6.2% sales tax across the board.

“It’s uniform. It’s complete, it’s easy to do. We’re making it too difficult,” Mills said.

Schinkel replied that he didn’t personally disagree but felt municipalities would not go for the idea.

“The state of South Dakota is very, very cautious and very, very jealous of the right to the sales tax,” said Sen. Jim Bolin, R-Canton. “I think everybody should keep that in mind. That’s been my observation for 15 years.”