Eliminate certain property taxes levied on owner-occupied single-family dwellings, and to increase certain gross receipts tax rates and use tax rates.
HB 1019 would eliminate the school district general fund and special education property tax levy on owner-occupied single-family dwellings by setting that levy to zero for those homes beginning in 2026. The bill states that the lost property tax revenue would be replaced by increases in a range of state gross receipts and use taxes, with the stated intent that school districts receive the same overall funding and that other classes of property are not affected. It also includes a temporary structure: the tax changes would take effect January 1, 2026, and the amendments to the affected code sections would be repealed on June 30, 2027, causing the law to revert unless further action is taken.
To offset the property tax reduction, the bill raises the state sales and use tax rate from 4.2% to 5% in several chapters and applies that higher rate to retail sales, many services, utilities, telecommunications, passenger transportation, rentals, farm machinery and irrigation equipment transactions, amusement devices, and rental vehicles. It also updates school finance formulas so that the owner-occupied levy is removed from the school district general fund and special education fund calculations, while adjusting statewide aid and local effort provisions to preserve the relationship between local property taxes and state education funding. In addition, the bill amends related tax provisions to align the higher rate across multiple excise and use tax statutes and repeals a prior session law section.
The overall sentiment reflected in the available voting history appears mixed to negative in committee. One vote on a do-pass motion failed 2-9, while a later motion to defer the bill to the 41st legislative day passed 10-1, suggesting significant hesitation about advancing the proposal in its original form. No committee transcript is available, so the recorded votes are the main indicator of legislative reaction.
The main point of contention is the tradeoff between property tax relief for owner-occupied homeowners and higher consumption taxes that would affect a broad range of purchasers and businesses. Supporters appear to be focused on shifting school funding away from homeowner property taxes while preserving school revenues, but opponents or hesitant members likely questioned the breadth of the sales and use tax increases, the impact on consumers and businesses, and whether the replacement revenue would adequately and fairly substitute for the lost property tax base. The bill also raises policy questions about its temporary repeal date and whether the funding changes would remain stable beyond 2027.
HB 1019 would substantially revise South Dakota tax law by setting the school district general fund levy and special education levy for owner-occupied single-family dwellings to zero, while increasing the state sales tax and use tax rate to 5% across numerous taxable goods and services. It would also amend school finance statutes to recalculate local effort, state aid, and levy formulas so that school funding is intended to remain whole despite the property tax reduction. Affected parties include homeowners in owner-occupied single-family dwellings, consumers of taxable goods and services, businesses subject to gross receipts and use taxes, rental vehicle operators, and school districts that rely on property tax and state aid revenue.
The available voting record suggests the bill did not have strong committee support at the time of the recorded action. A do-pass motion failed by a wide margin, while a subsequent motion to defer the bill passed overwhelmingly, indicating that members were not ready to advance the proposal and may have preferred to delay further consideration. Because no transcript is available, the specific arguments are not recorded, but the votes point to caution and division rather than consensus.
The central controversy is fiscal and distributive: the bill shifts the burden from owner-occupied homeowners to a broader base of sales and use tax payers. That creates potential concern for regressivity, since sales taxes can fall more heavily on lower-income households and on businesses purchasing taxable inputs. Another likely point of contention is whether the proposed replacement revenue would truly match foregone property tax revenue for school general funds and special education, especially given the bill’s temporary repeal structure and the complexity of the school funding formulas it amends. The recorded committee votes suggest at least some members were unconvinced that the tradeoff was ready to move forward.