South Dakota Governor Praises Tax Foundation Ranking, Seeks More Control Over Tax Credits

January 31, 2011

South Dakota Governor Dennis Daugaard (R) delivered his State of the State address on January 11, in which he called for extension of a half-cent increase to the tourism tax, which would otherwise revert to 1% on June 30, 2011. The tourism tax, imposed on everything from campgrounds to carnival rides (click here for a complete list), brought in $8.4 million in revenue in fiscal year 2011, of which $1.8 million (2/3 of the ½% increase) went to the South Dakota Department of Tourism, to promote tourism.

Daugaard also spoke proudly about “South Dakota having the lowest per capita tax burden in the nation,” as well as the state’s top ranking in our State Business Tax Climate Index.

Governor Daugaard also called for increasing the size of the “Revolving Economic Development Initiative” (REDI) Fund, and limiting tax breaks from the Large Project Refund Program (LPRP) to projects that would not happen otherwise. Of course, that’s hard to know in advance, and South Dakota has a pretty good business climate that makes it unlikely that it’s attracting much additional business (or at least, desirable business) with some grants or credits.

Rather than reforming the program to give Governor Daugaard more power in selecting which companies are “worthy” of tax breaks, the legislature should consider scrapping the program altogether. The Governor is probably right that South Dakota is awarding tax credits for behavior that would have happened anyways, but that’s a flaw central to the REDI and LPRP funds.

More on South Dakota here.

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