South Dakota would start collecting sales taxes from many out-of-state internet retailers this fall under a bill the Legislature's budget-writing committee endorsed Tuesday ahead of this week's special legislative session to implement a U.S. Supreme Court ruling that cleared the way for the changes.
Lawmakers gather Wednesday at the Capitol for the special session to consider Gov. Dennis Daugaard's legislation, which would allow the collections to start Nov. 1. A second bill the panel recommended would require marketplaces that handle payments such as eBay to collect sales taxes for sellers on their platforms.
"After working with the Department of Revenue and consulting with legislative leaders, I am proposing two bills that will allow the state of South Dakota to benefit from the national tax fairness victory that we led," Daugaard said in an earlier statement announcing the measures.
It was a South Dakota case that led to the U.S. Supreme Court's decision in June to overturn two decades-old high court decisions that have made it tougher for states to collect sales taxes for certain purchases online. But even after the victory, South Dakota hasn't been able to enforce its online sales tax requirement because of an injunction in place under state law.
That injunction would be lifted under the proposal allowing the state to start collecting the sales taxes, with the companies involved in the state's case exempted as court proceedings continue.
Members of the Legislature's Interim Joint Committee on Appropriations convened Tuesday to discuss the legislation, endorsing the first unanimously and the second on a 15-3 vote. Republican Sen. Deb Peters urged support of the measure allowing the taxes to be collected, called Senate Bill 1, saying it's time to "get moving and going forward."
"Senate Bill 1 is ... 'Hooray we won, oh my gosh, now what do we do?'" Peters said.
The sales tax obligation applies to sellers outside the state who do more than $100,000 of business in South Dakota or more than 200 transactions annually with state residents under a law passed in 2016.
South Dakota has estimated it loses about $50 million annually to e-commerce. But any future sales tax windfall isn't likely to result in major new state spending, because current state law aims to give gains from the new collections back to taxpayers.
The governor has said the special session won't address a provision in state law that requires a 2016 sales tax hike for teacher pay be scaled back if the state is able to collect tax on the online purchases. Under the law, the state's 4.5 percent rate is to be rolled back by one-tenth of a percent for every additional $20 million the state reaps, with a floor of 4 percent.
Decisions on changing or maintaining that law will fall to a new governor and set of state lawmakers after Daugaard leaves office in January 2019.
Lawmakers at this week's special session are also set to debate an unrelated third bill on the timing of the new governor's inauguration in January. The proceedings will include an address from Daugaard to legislators during the joint session.
The state's last special session was held in 2017 to create rules governing the use of lakes on private land for recreation.