South Dakota Gov. Larry Rhoden speaks to the media on Jan. 29, 2026, at the Capitol in Pierre. His bill to authorize an optional county sales tax advanced Wednesday in the Legislature. (Photo by Joshua Haiar/South Dakota Searchlight)
A proposal to let counties reduce homeowner property taxes by charging a sales tax advanced Wednesday at the South Dakota Capitol in Pierre, while an effort to maintain a lower statewide sales tax rate failed.
The county sales tax plan is from Republican Gov. Larry Rhoden. It would let counties levy up to a half-percent sales tax and use the money to offset the county’s portion of property taxes on owner-occupied homes, in the form of credits to property owners.
The Senate Taxation Committee voted 7-0 to send the bill to the Senate with a “do pass” recommendation.
Searchlight Report podcast
Listen to voices from South Dakota politics and policy.
Also available on Spotify, Apple Podcasts and YouTube.
Rhoden’s budget commissioner, Jim Terwilliger, testified in favor of the bill.
“It’s optional,” Terwilliger said. “It’s targeted at the areas of the state that need property tax relief the most.”
Those areas, the governor has said, include greater Sioux Falls and the Black Hills, where in-migration has driven up home prices and property taxes. Those are also areas with lots of visitors who pay sales taxes.
Counties are not currently allowed to impose a sales tax. They rely on property taxes, as do public schools. Cities receive revenue from property taxes and sales taxes. The state is reliant on sales taxes. In addition to the state’s 4.2% sales tax, cities can charge up to 2%, and cities can also charge another 1% on alcohol, restaurants, lodging and event tickets.
The bill says a decision by county commissioners to impose a sales tax could be petitioned to an election. If sales tax collections exceed what’s needed to offset owner-occupied property taxes, the remaining money would be used to reduce property taxes for agricultural and commercial property.
Opponents raised concerns about equity. South Dakota Retailers Association Executive Director Nathan Sanderson warned that when a county imposes a sales tax, shoppers from outside the county would pay higher sales taxes without receiving the property tax relief.
More tax bills receive action
That bill now heads to the full Senate, where Senate President Pro Tempore Chris Karr, R-Sioux Falls, failed to convince his colleagues Wednesday to reconsider his bill that would make a temporary statewide sales tax reduction permanent.
Lawmakers and then-Gov. Kristi Noem lowered the state’s sales tax rate from 4.5% to 4.2% in 2023, and scheduled the reduction to expire in 2027. Karr wants to make the reduction permanent, but his bill failed on a 17-17 tie Tuesday, with one senator absent. Karr made a reconsideration motion Wednesday, but the motion failed 16-17 with two senators absent.
U.S. Rep. Dusty Johnson, an opponent of Rhoden’s for the Republican nomination for governor in June, has proposed capturing revenue from the scheduled sales tax increase to provide statewide property tax credits to homeowners.
In related action on Wednesday in the House, a bill from Republican Majority Leader Scott Odenbach, of Spearfish, to change how owner-occupied and commercial property is valued passed 38-29 and will head to a Senate committee.
Instead of looking at the annual increase in property values, the bill would require counties to use an eight-year market average to set taxable values for individual properties (after excluding a county’s highest and lowest property values). The idea would be to blunt the impact of spiking valuations. The bill would also bar a tax shift to agricultural land to cover any losses and place the onus on school boards to adjust budgets if necessary.
