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Department of Revenue Proposes Raising Bank Franchise Tax Rate

Last updated on 2016.01.11

Oh my: somebody at the Department of Revenue had the same bright idea I did!

Last summer I noted that South Dakota's bank franchise tax, the income tax we charge banks which somehow doesn't kill our banking industry, follows a regressive scale that taxes banks 6% on the first $400 million they make each year, then imposes decreasing rates on higher income, to a miniscule 0.25% on bank income above $1.2 billion. The back of my envelope told me that a flat bank franchise tax of 6% on every dollar banks make would generate nearly $300 million more in revenue for state and local governments.

Comes now House Bill 1045, which proposes exactly that: repealing the lower rates, setting a flat bank franchise tax of 6% on every dollar of bank income. As I noted last summer, banking constitutes a higher-than-normal proportion of our state's economy. Banks generate a lot of wealth that we aren't tapping. Pass HB 1045, and you give the Legislature a lot of wiggle room to either cut other taxes or raise a lot of teacher pay and patch a lot of potholes. Bankers, are you game?


  1. lrads1 2013.01.07

    Don't jump up and down too soon. Remember the Gov talking in December about how they're having trouble with enforcing our peanuts assessment on the mega-interstate banks? They're tying the State up in legal never-never land, picking the state they want to pay tax in. Maybe this is a placeholder for a fix that would help with enforcement. Maybe it could be amended to include credit unions and Farm Credit while we're at it. ;)

  2. caheidelberger Post author | 2013.01.07

    I will restrain my jumping. It does seem unusual that any state agency answering to Dennis Daugaard would propose increasing taxes by almost $300 million. But I'm very eager to hear the testimony on this bill... or on the big hoghouse hiding around the corner.

  3. grudznick 2013.01.07

    I like it when you jump Mr. H. but your back-o-the-envelope math probably isn't as good as your debating-with-Frenchmen-wearing-hats skill. I remember you jumping into some math problem on the thousands of of employees you calculated that were being piled onto the taxpayer backs just recently and somebody had to talk you back down from the Millow Viaduct Tower.

    I agree this is interesting about raising taxes on banks but we should see how much the Revenuers say it will give us before we start counting our raises to good teachers. I'm just sayin...

  4. Donald Pay 2013.01.07

    I'm not sure why "combined reporting" couldn't be used with the bank franchise tax in SD. Corporations have used various schemes and loopholes to set up tax-exempt subsidiaries and funnel income that should be legitimately taxed in one state to some shell company. Combined reporting is one way to stop this.

  5. SuperSweet 2013.01.07

    Public school districts receive a portion of the bank franchise taxes that are collected in their school district. This should be changed. This is a state income tax that should be distributed on a per pupil basis to all school districts in the state, not just the district where the tax is collected. If sales taxes were distributed in the same manner that bank franchise taxes are distributed then the Sioux Falls School District would receive all the sales tax revenue from the Empire Mall and other retail outlets in Sioux Falls.

  6. Dana P. 2013.01.07

    I like the idea! Admittedly, I don't have high hopes that they would use that for good things like education, infrastructure, etc. It would more likely be used for the Crony-ville Express!

  7. jana 2013.01.07

    Hey reverend Hickey...make the bank charter tax rate equal to the highest rate the usury lenders charge. Oh yeah, and if they don't keep a minimum balance of well paid employees, add on a monthly fee.

    See, I think we can learn how to raise more revenues by imitating what the banks do to its consumers. I mean, could they really argue that the fees and rates are unfair?

    Tie these two issues together and have some fun.

  8. Douglas Wiken 2013.01.08

    SD bank tax laws probably go back to Democrat Tom Berry. I seem to remember that revenue has steadily declined as banks kept conning legislators into giving them more breaks. Do banks pay real estate taxes, or is the bank franchise tax a substitute for that too?

  9. Winston 2013.01.08

    The great irony of the bank franchise tax is that it is simply an income tax. A uniquely and specifically directed income tax levied against the most prosperous area of economic growth this state has seen in the last 32 years, that is the credit card industry. Yet conservatives for years have claimed a comprehensive corporate income tax would only destroy their economic development plans, but in actuality the expansion of the banking credit card industry, which is itself subjected to an income tax, was the driving force of their comprehensive economic development strategy to begin with.

  10. caheidelberger Post author | 2013.01.09

    Bingo, Winston. A truly fair HB 1045 would amend the bank franchise tax to apply this income tax to all businesses, maybe even all citizens. It would also create a progressive scheme that reverses the current rate schedule: lowest rate on the first millions, highest rate on the billions, not 6% on every dollar.

  11. grudznick 2013.01.17

    Maybe the $300 number is miscalculated.

  12. caheidelberger Post author | 2013.01.19

    Grudz, my sources and math are open. I welcome review and correction for the sake of informed public discourse.

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