(Associated Press) Farmers, ranchers and agricultural equipment dealers urged South Dakota lawmakers on Tuesday not to let one industry "carry the burden for the entire state" by applying sales tax to fertilizer or farm machinery repair.
South Dakota's agricultural economy would be harmed if both lose their tax exemptions, farmers and equipment dealers said.
Representatives of businesses, newspapers and radio and television stations also urged the legislative panel to scrap a proposal to tax advertising services, saying it would be impossible to enforce and would hamper companies' efforts to find new customers and expand.
The Sales Tax Review Committee is trying to identify additional goods and services that could be subject to the 4 percent sales tax in an effort to help fund state government.
The committee started by reviewing a list of exemptions that cost the state an estimated $527 million annually in lost sales tax revenue, though decided at its first meeting in June to keep most of them. Lawmakers will study 16 items that, if taxed, would provide about $86 million in additional revenue, according to a 2009 study.
State Revenue Department officials said Tuesday that taxing those 16 items likely would bring in much less annual revenue.
Major exemptions still being studied by the committee include advertising services, agricultural fertilizer sales and the sale of parts and repairs for farm machinery. The committee will make final recommendations later to the full Legislature, which will have the final say on removing tax exemptions in the session that begins in January.
The Legislature balanced this year's state budget by cutting spending by about $127 million, but lawmakers expect to have a tough time balancing next year's budget. Applying the sales tax to additional goods and services is one way to generate additional revenue.
The 4 percent state sales tax is expected to generate about $720 million this year, or about two-thirds of state government's $1.1 billion in general revenue. State tax officials estimate that applying the sales tax to agricultural fertilizer and pesticides could raise about $25 million in revenue, but lawmakers already have decided to keep the tax-exempt status for pesticides. Officials said they are not sure how much revenue would be raised by taxing fertilizer.
When the Legislature changed the tax rate from 3 percent to 4 percent for the sale of agricultural machinery in 2006, it also made parts and labor for machinery repairs exempt as a trade-off. Applying the tax on machinery repairs and parts could raise an extra $4.5 million a year.
Chet Edinger, a farmer near Mitchell, said his family farming operation expects to spend $112 an acre for fertilizer in corn fields next year. That amount would increase by $4.48 an acre if the sales tax was applied, he said, adding that a tax on machinery repair also would drive up costs.
"Be careful in taxing just one industry to carry the burden for the entire state," Edinger said, noting that agriculture should not be singled out.
Sioux Falls lawyer Matt McCaulley, a lobbyist for the South Dakota Corn Growers Association, said fertilizer should be exempt from the sales tax because it's in input that produces a final product, similar to tax-exempt inputs used in manufacturing.
Chris Palon, a farm equipment dealer in Sioux Falls, said taxing farm machinery repairs and parts could drive away his customers from nearby communities in Iowa and Minnesota. Those farmers might buy in their home states because they would pay less tax, he said.
A tax on advertising would raise an estimated $7 million a year, but the Legislature has rejected that idea many times in the past three decades.
David Bordewyk, general manager of the South Dakota Newspaper Association, said advertising is just an input used to increase a company's sale of goods or services, and the end product is already taxed. A tax on advertising would lead to a reduction in advertising, which in turn would lead to a decline in business sales, he said.
No other state applies a sales tax to advertising because it's so difficult to determine how to apply the tax, Bordewyk said.
"An ad tax is not a new idea. It's just a bad one," Bordewyk said.
Steve Willard, president of the South Dakota Broadcasters Association, agreed that advertising cannot be taxed because it's impossible to define.
"You can't enforce it. You can't define it," Willard said.