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E-commerce: Business that is transacted by transferring data electronically, especially over the Internet. –


Is the tale of the three-legged stool coming closer to reality in South Dakota?

Some think so, based on yet another year of predicted revenue shortfalls in our state.

Gov. Dennis Daugaard said the upcoming state budget will have to be shored up with one-time money because tax collections are less than expected.

South Dakota depends heavily on a state sales tax to fund government services. The other major source of revenue is the property tax. South Dakota and six other states do not have a personal income tax, which is the so-called “third leg” of the stool.

Though there have been attempts over the years to implement an income tax, those efforts have been beaten back by foes who argue that adding another tax will simply mean higher government spending.

This debate ebbs and flows, but given that state sales tax collections are undermined by Internet purchases, it likely will be revisited.

One of the state’s most astute lawmakers on the tax and appropriations front, Sen. Deb Peters of Hartford, said that the continued growth of Internet commerce has had “a detrimental effect” on the state budget. Peters, a CPA, sponsored Senate Bill 106 last session. It attempts to force out-of-state companies to charge the state sales tax on purchases. The law requires remote companies to collect and remit sales taxes if they sell $100,000 in goods or have 200 or more separate sales each year. The law has been challenged in court.

Congress could level the playing field for Main Street retailers, but has not done so.

Max Behlke, National Conference of State Legislatures, puts it this way:

“In 1992, few people had personal computers, let alone bought anything online. Now, e-commerce is booming. . . . For the last five years, e-commerce grew by 15 percent each year and now accounts for 7 percent of all retail sales. While many people shop online for convenience, many do so because they do not have to pay taxes (even though they technically are required to remit them). . . . Thus, not only are the states losing billions of dollars each year in owed revenue, but also stores in communities across the country are forced to compete in an unequal marketplace.”

As online sales continue to expand, the dependence on the sales tax in South Dakota as a major revenue source will come under even greater pressure.

Dec. 7, 2016