- Jan
18
2013
Our motley-crew bill of the morning comes from Senator Tim Begalka (R-4/Clear Lake), who offers Senate Bill 91 to reduce and ultimately repeal the contractor's excise tax. Right now in South Dakota, if you hire a contractor to shingle your house or wallpaper your office, that contractor has to tack 2% on your bill and remit that cash to Pierre. That was the money Governor Dennis Daugaard wanted to tap last year to create a big slush fund for his big corporate buddies who build really big projects.
South Dakotans rejected that idea in November. Senator Tim Begalka thinks a better use of that money is to leave that money in all of our contractors' pockets, big and small. His Senate Bill 91 would drop the contractor's excise tax rate a half-percent each year until it goes to zero in 2016.
Senator Begalka is one of the GOP's own in-house opposition members who like bucking the mainline party leadership. Begalka himself bucked last session's GOP Speaker, Rep. Val Rausch, out of the Legislature in the primary. He brings along co-sponsors from his wing of the party, like the indomitable Rep. Stace Nelson (R-19/Fulton) and the biggest Ron Paul booster in the House, freshman Rep. Dan Kaiser (R-3/Aberdeen). But he also gets Dems Sen. Larry Lucas (D-26/Mission) and Rep. Scott Parsley (D-8/Madison) to sign on the bill.
Rep. Kathy Tyler (D-4/Big Stone City) isn't on the sponsor roster yet, but she may vote yes if SB 91 reaches the House. She sees the contractor's excise tax as an unpleasant South Dakota anomaly:
South Dakota brags of its business climate: no corporate income tax, one of the lowest per capita tax burdens in the country, and lots of space. But there is the issue of contractors’ excise tax. It’s a tax of 2.041% that is added to every construction project—from a $1000 shed to a multi-million dollar factory. No other state has it. I’ve been trying to figure out a way to get rid of it, but have come up with no solution, so it’s nice to see it being discussed by legislators. Other states don’t charge sales tax on labor or service fees. The problem is that it brings in over $90,000,000 per year to our state. With what do we replace it? Some legislators are looking at a corporate income tax or maybe a tax on farm land sales. Now that’s going to raise an eyebrow or two! [Kathy Tyler, "What Price Economic Development?" Kathy's Corner, 2012.12.27]
Senator Begalka has not included a replacement for the contractor's excise tax revenue in Senate Bill 91. Senator Begalka may not care; I could see him and some of his Mugwump co-sponsors going for a raw tax break and demanding offsets purely from spending cuts elsewhere. (Maybe co-sponsor Rep. Betty Olson will advocate eliminating the Game Fish & Parks Department.) But the contractor's excise tax is no small change. It jumped from providing $66 million in revenue in FY2011 to $83 million in FY2012 and an estimated $85 million in our current fiscal year. Passing Senate Bill 91 would knock about $23 million out of next year's budget and similar additional chunks in the following three years.
If Senator Begalka's motley crew want to pass Senate Bill 91, they will need to offer some suggestions on how to fill the $90-million budget hole they would create by canning the contractor's excise tax.
48 Responses to “Begalka Blasts Contractor’s Excise Tax with Senate Bill 91”
I guess they just want to treat contractors like other service providers and have them charge the 4% state sales tax and up to 2% city sales tax - wherever the work is done. Pretty clever, these mugwumps. Eliminating a tax entirely, but managing to raise taxes anyway.
Just another way South Dakota is backwards. They do not tax income, but they tax those who are producing new jobs and businesses. So In South Dakota if you just sit on your money rather than invest it, you can just keep sitting forever. If you invest in this small states economy, all those underpaid workers can get by without paying income tax, and you the investor/enterprenuer, can pay more.
If the legislature would consider the BEEF program, we could eliminate two unpopular taxes---contractor's excise tax and general levy on property taxes for education. Implementing BEEF would fully fund the school aid formula thus freeing up the state general fund to handle the loss of revenue from doing away the contractor's excise tax. How do we fund BEEF? A levy of no more than 1% on all gross revenue-earned and unearned--with no exceptions, allowances, deductions, or exemptions. The high school kid would pay on his first dollar he earns working at the DQ just like the CEO of Avera would pay on his first and last dollar also.
It would be replaced by either an increase in the sales tax for all of us, or by a new corporate income tax.
Pick your poison.
Rorschach:
Brilliant insight. I'll bet you're right!
I had BEEF for lunch today Charlie. But beyond that I don't have a clue what you're talking about.
Better Education Expects to be Funded
Rorschach, you're wrong. Sales tax is already paid on all materials and again taxed 2% excise along with labor getting the 2% hit.
So now we are excise taxing: product, sales tax on product and labor.
North Dakota charges no sales tax on food and labor.
It's always possible that I'm wrong, Les. But I don't think contractors pay sales tax on materials. Are you sure? Any contractors reading this?
Uuh, yea.
I have an excise tax license and I pay sales tax on all components. Now if you buy the siding to your house and I put it up, guess what, I pay excise on that whether I charge you for it or not, so will charge you excise on your purchase.
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I also have a sales tax license, it doesn't get me anything without tax being paid unless its wholesale purchases for retail.
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Begalka's looking better all the time no?
BEEF sounds bad. Don't tax me more just for whining edjucrats and fat cat administrators. Mr. Johnson if people liked your "Where's the BEEF" idea you'd be pitching it in Pierre right now in one of the legislatures.
Looking better Les? I also have a sales tax license. I have to charge 6% sales tax when I sell goods, and I have to charge 6% sales tax when I sell services.
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Yes, Begalka should be looking better than your original twistit would have had it Mugwumpin, though you libs just love every tax someone else pays.
Here we go slinging labels. Bottom line Les. When Begalka proposes a $90 million tax cut in a small state he needs to also propose how to make up the revenue elsewhere. Some Republican legislators are still bemoaning the voters' repeal of the inheritance tax 12 years ago because of the hole that left.
By the way Les. It's not fiscally conservative to propose a $90 million tax cut without proposing how to make up the revenue or where exactly to cut from the budget. Begalka is operating the way they do in DC. Here in SD we have a balanced budget requirement in our constitution.
Hey Les when a liberal has a new machine shed built on his farm, is he exempt from the excise tax? or do you just cover that tax for your customers? just askin
I mean lets get real here it is not you that pays the tax, it is anyone who has something built by a licensed contractor that pays the tax.
It may be a fairer system if contractors were given a sales tax exemption on materials and then they charged the appropriate sales tax on the end result, that way they would be just like any other business. I don't like this bill because to me it is like taking an eraser to a word in a sentence but then leaving that space blank, more thought needs to go into this. It does seem to me though that folks who use contractors do have a legitimate beef about the excise tax.
To propose getting rid of the excise tax is one thing----replacing that revenue is a must. Even with tax cuts you can't spend money you don't have. Let's fully fund the SAF--then we can address issues like eliminating the excise tax. Further question--if the excise tax were eliminated, would GDD still want a slush fund to play Santa Claus?
Hey Barry, note my original comment, Ror was wrong and still is no matter how much other crap he throws on the table.
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Now also note, it is the indomitable Roarsback who needs a shoulder later on for carrying the burden of having to charge 6% on service and labor.
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Return to my thoughts, I don't like the regressive tax system we have and a change will not come without an idea such as Begalkla's. It ain't perfect and you know darn well they won't pull 90mil without a replacement whether he has it in there or not.
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Aren't you a teacher Barry? Reading comprehension?
R: I don't see a provision in SB 91 that automatically kicks contractors into paying sales tax. I assume from Les's experience that they are already paying that sales tax on materials, so SB 91, by itself, is a tax cut. I will be listening closely for signs that Begalka and friends want to increase some other tax.
Charlie, what do you propose for new revenue besides limiting spending? You talk about fully funding without mentioning revenue sourcing.
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Our roads need a future for example but folks like Rep Hickey keep voting to tax the poor and elderly who don't drive much with fees while those of us who can afford a higher fuels tax that would generate millions from us, tourism, trucking etc go on with small(to us) fees.
Not sure here about the reading comprehension comment here Les. My comment to you had nothing to do with anything the Rorschach wrote and had everything to do with your comment about libs liking taxes that they don't have to pay. Libs pay this tax just like everyone else. Good try though to sidestep my comment and try to make this about Rorschach. It seems you are the one with a reading comprehension problem.
And teacher? Look at my writing ? Really?
Worth noting: Begalka's proposal does not repeal the excise tax on new or expanded power production facilities: http://legis.state.sd.us/statutes/DisplayStatute.aspx?Type=Statute&Statute=10-46C
...which is interesting, given that one of the Dems Begalka got on board, my friend Scott Parsley, works for East River Electric, which might enjoy seeing that tax go away, too.
Les, I know one contractor who says he's a socialist. He pays plenty of excise tax. He'll pay plenty of income tax when my secret plot comes to fruition with Begalka's help here. He'll be glad to pay it, because he knows that what's good for the society is good for him.
Obviously your comment had nothing to do with anything Ror had written Barry. I hope that's not typical of how you blog.
I am sorry there Les forgive me. I had forgotten that you had decided to change the subject of this post to "Rorschach Is Wrong" my apologies :-)
Obviously, you would rather be a monkey slinging feces than to have any accuracy for the original subject at hand Barry.
Ya know Cory, he doesn't pay a dime of excise or sales tax and neither do I as license holders for those unable to decipher the law from casual statements in our posts.
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We remit the customers tax payment to the state as an agent for the SD Dept Rev. We do pay though, as we are totally uncompensated and liable for any mistakes we make. Charge too much tax, we must remit it. Don't charge enough we must pay it ourselves.
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We had a great mix of socialism in our country, enough to make it work but not too much to make it fall. We've now got too many riding the system to keep it floating. You're school system could have dollars coming out of its ears if we didn't have the burden of the bloated social issues.
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Btw, Begalka is great proof the system works and will work for the best interests of the people if not destroyed in the process.
Les What is the problem here. You make the inane comment "though you libs just love every tax someone else pays" on this blog and I call you out on that comment and point out the as a contractor you don't pay it , you are just the collector of it. everyone who uses a contractor pays irregardless of their political leanings, I then make the commentary "I don't like this bill because to me it is like taking an eraser to a word in a sentence but then leaving that space blank, more thought needs to go into this. It does seem to me though that folks who use contractors do have a legitimate beef about the excise tax" about the subject at hand. You then go on to insult my ability to comprehend what I am reading. and now you think you need to chastise me for my bad blogging and call me a Monkey?
Are insults your only way to react when some one comments on your inane comment?
Barry, I minded nothing you said abut my inane comment as you call it.
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My original comment to this post was made to keep accuracy on the debate of potentially starting to change a regressive tax system.
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Telling me to get real because its not I who pays the tax when I'm the one correcting misinformation casually tossed? This appears to me that you stand with the guy casually throwing the feces in the beginning.
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And Les if you had kept your commentary where it started on the accuracy of the debate and resisted the inclination to throw an uncalled for and unfair jab out at Liberals, we would have never had this conversation. It wasn't me standing with Rorschach .You see Les I am a Liberal and I have have paid plenty of excise tax.
So whad a ya say lets bury it here?
I think it obvious my attitude had fallen by the 4th post when one post should have done. I'm sorry you had to take a comment so personally that I felt had a more distinct target Barry. I will be more precise the next time as you weren't and haven't been a target on my sights.
Les, I have given my answer about how to replace the funding lost by repealing the excise tax in an earlier post. Senator Begalka is aware of my BEEF idea. I'm sure he knows also that the revenue has to be replaced. BTW--as to roads, I'm in favor of higher fuel taxes to better our roads in this state. Increasing fees on vehicles, like you said, only hurts the elderly who may need a car but don't drive that many miles.
Fair enough Les . I think that generalizations of the labels that we put on ourselves and others are one of the biggest obstacles to solving our problems.
Back to the subject at hand any ideas on how to get rid of this excise tax without losing the revenue?
Go to fairtax.org . Have a good one Barry.
Until we get the fair tax, I will never pay my fair share as a ranch and business owner. That tax would work for the state as well as fed.
Cory, Les the name caller (grow up). I know Begalka didn't propose to replace the excise tax with the sales tax. But I was suggesting that would be the logical alternative to having a separate (and lower) tax rate on the work of contractors.
Now if Les is really against the regressive tax system in SD, why does he like the idea of eliminating a tax that applies to people with money to build things? And especially when the contractors excise tax is lower than the sales tax. If regressive taxes are a problem Les, this tax isn't one of them. I will await Progressive Les's call to eliminate the sales tax on food and for creation of an income tax.
For those of you who yearn for a brand new state income tax, I reckon you'll have quite a fight on your hands in a red state like ours, especially in light of apparent trends in a few other states ...
http://www.foxnews.com/politics/2013/01/19/republican-governors-plans-for-no-state-income-tax-lauded-criticized/
In my hand as I write this comment, I have a receipt from a furnace installation that was done at Crazy Cat Cove (the property I recently sold, south of Lead) on October 3, 2011.
I see that I was charged 2% tax (presumably contractor's excise tax) but no sales tax or any other tax.
So evidently, if we get rid of the contractor's excise tax, we could indeed impose the sales tax instead and actually get more revenue.
Either way, the contractor does not have to absorb the loss. It's the buyer who pays.
Maybe this will answer the questions above, posed about whether or not contractor's excise tax must always be imposed in addition to sales tax.
If any doubt remains, one could of course call the Department of Revenue and ask them, unless, of course, one is afraid of getting tracked, for example, in the event one has routinely failed to pay use tax for years and yearss and yearsss.
I might also mention ... if we get a state income tax, we will see, on our return, a line for use tax paid. Enter 0, and you will trigger an audit. Trust me on this one. So if you're getting away with not paying use tax now, and yet clamoring for a brand new income tax, take note: If you get your wish, you shall also receive your just reward.
Stan - Pretty sure that only those filing profit or loss from a business would have to worry about use tax on State income tax forms. Maybe you had some other experience?
When I lived in Wisconsin and filed personal income tax returns, there was always a line for use tax.
Let's face it -- most South Dakotans probably don't even realize that they owe use tax, profit from business or not.
The only exception would be someone who actually makes no out-of-state purchases and uses the product in-state. A rare bird, indeed, in this e-commerce age.
So a line for use tax, with an automatic audit trigger in case of a 0 entry, would bring in more revenue for the state, over and above the income tax itself.
Stan you may have had a unique experience but, sales tax is charged to someone on supplies and the entire job is billed the 2%. Whether it shows or not most contractors don't give away 4%+ and stay in biz.
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Mugwumpwin, you really are a special case aren't you!
I have to report and pay use tax now because, as a sole proprietor, I must have a sales tax license and file a sales tax return annually.
Even though all my income is exempt because it comes from out-of-state sources and also falls into a special category (royalties), I get caught with the use tax bill.
Ordinary employees don't have to file sales tax returns so the state never gets the use tax from them, unless they voluntarily pay it.
With a line for use tax like they have on Wisconsin personal income tax returns, the state would be able to go right after you if you didn't pay the use tax.
If they wanted to, which they might not. I guess in Wisconsin a lot of people did put 0 on that line, and got away with it.
I'm just sayin' ... If it's bureaucracy you want, then with an income tax, I guarantee you will get it, and the headaches that go with it.
All this is moot, I guess ... Neptune will turn into a star before South Dakota gets a personal income tax.
LOL, Neptune huh? If Kurtz were here it would be Uranus.
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The fairtax.org is no income tax Stan. I'm not sure how that was interpreted into my statement of the fair tax here. It is a sales tax with exemptions for all normal living expenses so it doesn't hit the low income as do our regressive taxes at the moment. It is 18% +/- and would hit all the corrupt cash that is spent.
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I pay income tax but nothing compared to my children who do not own a business and pay up to 30%. I spend everything I make and would pay somewhat more than I do now. The low income folks mostly buy used cars and there is no fair tax on used or anything used as I read it. The large spenders as those quoted to be paying much less tax than their secretaries would finally start paying closer to their share.
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I hope people try to get educated on this tax and get "progressive" with it before they wring more it of the working class wring more it of them.
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You are right on the use tax Stan, there is hardly a resident that isn't guilty of the use tax payment or lack there of. I'm not so sure I'm not guilty when shopping in Mt and hauling it home. For sure the Internet is full of that abuse if you will call it that.
Darn iPads, should be "wring more out of the working class."
[I know the feeling, Les! I just got a new tablet, and its autocomplete wreaks all sorts of havoc on my typing.]
Les "wring more out of the working class." that should be Apple's new slogan :-)
Yep, they got me and every little bugger I know that can't hardly make food costs has an IPhone.
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