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.