Controversy surrounds plan to end food tax by ballot measure

If Gov. Kristi Noem doesn’t fulfill her campaign pledge to repeal the South Dakota sales tax on food during the 2023 legislative session, voters may get a chance to decide the issue on the 2024 ballot.

But there’s already controversy about the wording of a proposed ballot measure and its potential impact on tax revenues.

Dakotans for Health, a grassroots organization that pushes for policy change through citizen initiatives, submitted proposals in July 2022 for both an initiated measure and a constitutional amendment that would prevent the state from taxing “anything sold for eating or drinking by humans, except alcoholic beverages, tobacco or prepared food.”

If either the initiative or constitutional amendment gets enough signatures to make the ballot and is ultimately approved by voters, it would eliminate the 4.5% state grocery tax that has been a target of legislative reform for decades, mostly by Democrats.

Dakotans for Health announced Nov. 28, 2022, that the group has re-submitted language for a proposed ballot measure to repeal the state sales tax on food. The move came amid a conflict in interpretation of the measure between the Legislative Research Council and Attorney General Mark Vargo. The new language clarifies that the measure applies only to the state 4.5% grocery tax and has no impact on the taxing authority of municipalities.

As reported by News Watch on Nov. 16, the LRC submitted a fiscal note in October 2022 estimating that the state could lose $119.1 million in annual revenue by eliminating the state grocery tax if the measure passed. The LRC further stated that “municipalities could continue to tax anything sold for eating or drinking.”

That language differed from the official ballot explanation later released by Vargo on Nov. 9, which stated, in part, that the measure “prohibits the state, or municipalities, from collecting sales or use tax on anything sold for eating or drinking by humans,” adding the mention of municipalities.

Dakotans for Health founder Rick Weiland said those differing documents put his group in a “very untenable position” in terms of collecting signatures because the scope of the proposal was not clear. The new proposed ballot language contains the following: “Our new language adds one additional clarifying sentence, ‘This provision has no effect on the taxing authority of municipalities.’”

“It doesn’t make any sense to circulate a food tax repeal ballot measure with contradictory state information, so we are resubmitting and are asking the LRC and the Attorney General to expedite their review, explanation, and fiscal note,” Weiland said in a statement. “Since we cannot move forward until the LRC and the Attorney General complete their work, which normally takes three to four months, time we could be circulating petitions and collecting signatures, we are asking them to expedite their work.”

According to the nonpartisan Center on Budget and Policy Priorities, South Dakota is one of only three states that fully taxes food without offering credits or rebates for the poor, which repeal supporters say has a disproportionate impact on low-income families and individuals.

The food tax proposal continues a trend of using ballot measures to push for progressive priorities such as reproductive rights and Medicaid expansion at the ballot box in South Dakota rather than relying on the state legislature, where Republicans maintain a 94-11 advantage over Democrats heading into the 2023 session, which begins Jan. 10.

Bills aimed at repealing or reducing the food tax during the 2022 legislative session fell short, as they have in past years. Noem held a press conference Sept. 28 in Rapid City – six weeks before her re-election – trumpeting a proposal to eliminate the food tax. Her proposal comes at a time of rising inflation but also increased state revenue. She balked at calling a special legislative session to address the issue, and some legislators expressed concern over how the state will replace more than $100 million in lost revenue that would result.

“Someone needs to hold their feet to the fire,” said Dakotans for Health founder Rick Weiland of Sioux Falls, whose group also plans to put a constitutional amendment on the 2024 ballot to legalize but regulate access to abortion.

Yet as the food tax removal measure has taken shape, Weiland said the measure is being hamstrung by Attorney General Mark Vargo, who was appointed by Noem after Jason Ravnsborg was impeached and removed from office in June 2022.

The Legislative Research Council, which provides statutory and legal guidance for proposed ballot initiatives, submitted a fiscal note in October 2022 estimating that the state could lose $119.1 million in annual revenue by eliminating the state grocery tax if the measure passed. The LRC further stated that “municipalities could continue to tax anything sold for eating or drinking.”

That language differs from the official ballot explanation later released by Vargo on Nov. 9, which states, in part, that the measure “prohibits the state, or municipalities, from collecting sales or use tax on anything sold for eating or drinking by humans.”

Adding municipalities to the amendment would make it illegal for cities such as Sioux Falls and Rapid City to collect their own tax on groceries, which has not been proposed by Dakotans for Health or the governor. Most municipalities collect 2% on groceries on top of the state tax rate.

Sioux Falls City Attorney Stacy Kooistra wrote to Vargo’s office during the public comment period, asserting that such a ban would “significantly impact both our general fund and capital fund, which will likely result in the reduction of services and capital investments.”

Weiland, a former Democratic nominee for U.S. Senate who lost to Mike Rounds in 2014, said his group’s ballot effort is in a holding pattern because they can’t collect signatures for a petition that has conflicting statements from the LRC and Vargo’s office.

“Basically, the left hand didn’t know what the right hand was doing in the state capital,” said Weiland. “We’ve got a ballot explanation that says one thing and a fiscal note that says another. They’ve created a real problem for us and for the people we’re trying to help. It doesn’t make any sense to circulate (the petition) when the explanation says it affects municipalities and the fiscal note that says it doesn’t. Even if we get a favorable result, they’re in conflict. It will be confusing. People aren’t going to sign it.”

Jim Leach, a Rapid City attorney who represents Dakotans for Health, said the group has two options. They can sue the state over the wording of the attorney general’s explanation or re-submit their ballot proposal and explicitly state that preventing the ability of municipalities to tax is not part of the measure. Both are lengthy processes that could endanger the group’s ability to meet the deadline for submitting signatures to get it on the 2024 ballot.

“I reached out to the Attorney General’s Office and have not received a response,” Leach told News Watch on Nov. 11. “I don’t understand what their reasoning is, but I do know that getting slowed down at this point is a big problem. The goal of this obviously is to allow the people of South Dakota to decide whether to maintain a state sales tax on food. Why not let the people decide?”

Asked if he thought the goal of the contradicting documents out of Pierre was to delay the petition-gathering process for political reasons, Leach said no.

“I’ve known Mark Vargo for more than 25 years and I have the highest regard for his integrity,” he said. “I’m certain that this is not something meant to gum up the works. I’m certain that this is a genuinely honest dispute, but I don’t have a clue what his thinking is.”

LRC Director Reed Hollweger, in a written statement to News Watch, noted that “only the state was specified” in Dakotans for Health’s final submission (after the LRC had asked for clarification) and that municipalities are not legally defined as agencies of the state. “Therefore, LRC concludes the proposed (ballot measures) would not prevent municipalities from imposing a sales tax on food,” Hollweger wrote.

Vargo declined an interview request for this story. Stewart Huntington, a spokesman for the office, told News Watch that Vargo, “has issued his ballot explanation and that serves as his statement at this juncture on the topic.” Vargo will remain as attorney general until Jan. 2, 2023, when Marty Jackley, who ran unopposed in 2022, officially takes office.

Battles over access to ballot

The passage of Amendment D in South Dakota’s Nov. 8, 2022 election, with 56% of voters opting to expand the state’s Medicaid program after years of legislative inaction, shed new light on the use of constitutional amendments to establish policy or principles through “direct democracy.”

Proponents cite the state’s Republican super majority and say the initiative process bolsters the constitutional right of citizens to petition the government regarding matters that merit consideration according to a prescribed percentage of the population. The process dates back more than a century in South Dakota and was extended to include constitutional amendments in 1972.

The number of verified signatures needed to qualify for the ballot is 5% of the total vote for governor in the last gubernatorial election (17,508 based on the 2022 turnout of 350,166), while constitutional amendments require 10% (35,016).

Opponents decry the out-of-state partisan influence that sometimes follows ballot measure petition drives, including paid circulators and advertising funds. They also question the use of constitutional amendments to pursue statutory changes to taxation or budgetary policy.

Initiated measures can be repealed by the state legislature or referred to the statewide ballot for reconsideration, while constitutional amendments are entrenched in the state constitution and can only be addressed through court challenges or a superseding amendment on a subsequent ballot.

Former Republican Speaker of the House Mark Mickelson, an outspoken critic of what he characterizes as misuse of the petition process by partisan or out-of-state interests, criticized the decision to pursue Medicaid expansion with an amendment rather than initiated measure.

“I’m vehemently opposed to putting stuff like that in the constitution. It’s bad practice, and it’s selfish,” said Mickelson, a Sioux Falls lawyer and accountant whose legislative stint ended in 2018. “Constitutional amendments are more to express general principles, not prescribe statutes. You can put in the constitution, ‘Those who cannot afford to pay for their own health care will be provided for by the government,’ and then that is fulfilled by statute, because you need to be able to adjust copay requirements and other elements. Things change, and you need some flexibility.”

Oregon voters narrowly passed a 2022 ballot measure changing the state constitution to explicitly declare affordable health care a fundamental right, the first state in the nation to do so. South Dakota Amendment D was aimed specifically at providing health care coverage to more than 40,000 additional low-income residents by broadening Medicaid insurance criteria as established by the Affordable Care Act, with the federal government covering 90 percent of the cost. 

Mickelson believes Amendment D could be challenged in court for violation of the “single subject” rule, a legal principle he helped get on the ballot in 2018 that was approved by voters. He was partly responding to Initiated Measure 22, a multi-layered campaign finance and ethics reform package approved by voters in 2016 that was later repealed by lawmakers with an emergency clause that ensured it could not be referred back to the ballot.

The single subject principle also provided legal grounds for a challenge of Amendment A in 2020, the constitutional amendment that legalized both medical and recreational marijuana with 54% of the vote. A separate measure on medicinal marijuana also passed the same year. Noem initiated a legal fight against Amendment A that ended with a South Dakota Supreme Court ruling in 2021 that declared the amendment unconstitutional because it involved three subjects – recreational marijuana, medical marijuana, and hemp. Recreational marijuana was brought back to the ballot in 2022 and was defeated with 53% of voters against it.

“When they packaged recreational marijuana with medical marijuana, it passed,” Mickelson said. “That got thrown out because they combined (recreational pot) with two other subjects and stuck it in the constitution. When they ran it alone, it lost. That’s why you can’t take two good ideas and one bad one and throw it on there. We need to limit these questions to something that’s straightforward and addresses one topic.”

Out-of-state money draws scrutiny

Mickelson and others, including former GOP governor Dennis Daugaard, have railed against out-of-state money being used to fund petition drives and promotional campaigns for ballot measures. Marsy’s Law, a victims’ rights measure that voters approved in 2016 after a prominent ad blitz, was bankrolled by California billionaire Henry Nicholas, whose national network has passed similar laws in 13 states. The South Dakota law was amended in 2018 to address unintended consequences involving law enforcement operations and transparency.

When Weiland spearheaded a 2016 effort to promote Initiated Measure 22, the campaign finance and ethics reform package, much of the funding came from Represent.Us, a Massachusetts-based group focused on political transparency. Weiland also touted Amendment V that year, an effort to institute non-partisan primaries in South Dakota for all elections except presidential contests, boosted by $200,000 from New York-based Open Primaries.

Americans for Prosperity, the Koch brothers-funded conservative group, helped support the opposition to both those measures.

In 2018, with support from Daugaard, Mickelson led a petition push to get Initiated Measure 24 on the ballot, aiming to ban out-of-state financial contributions to ballot committees. The measure passed with 56% of the vote but was overturned in court, with a judge ruling that it violated political free speech and interfered with the transfer of money from one state to another.

“They did it because they were tired of ballot initiatives,” said Leach, who represented Dakota Free Press liberal blogger Cory Heidelberger in the lawsuit. “There isn’t much progressive money in South Dakota, so the theory was that by banning out-of-state money, they could shut down ballot initiative measures favoring progressive causes.”

The battle was far from over. The state legislature in 2019 passed House Bill 1094, creating a state registry of petition circulators and required them to submit personal information and wear ID badges. Leach and Heidelberger sued again, saying the law violated circulators’ First Amendment rights based on their political viewpoint, and the law was struck down.

Then came Senate Bill 190, passed in 2021 with a similar objective as HB 1094 but focused solely on paid circulators, citing the state’s need to protect the integrity of its elections. U.S. District Judge Larry Piersol issued a preliminary injunction in response to a lawsuit from Leach and Dakotans for Health, and on Nov. 1, 2022, the Eighth Circuit Court of Appeals – three judges appointed by Donald Trump – upheld the injunction, calling the law’s pre-circulation disclosure requirements “intrusive and burdensome…as such, they are a severe burden on speech.”

Heidelberger’s group, SD Voice, also won a court victory to shift the deadline to submit IM petitions to six months prior to an election, as opposed to a year before the election in the case of constitutional amendments. Because that case is under appeal, though, Leach said they can’t count on the submission deadline being any earlier than Nov. 5, 2023, for the 2024 election.

The number of votes required to approve a measure is the same for initiated measures and constitutional amendments, but only because voters rejected Amendment C, which was placed on the 2022 primary ballot and would have required a 60% vote for ballot measures that raise taxes or spend $10 million in general funds in their first five years. With signatures already being collected for the amendment to enshrine the right to abortion in a Republican-controlled state, Weiland anticipates more challenges on the way.

“I do know that there are legislators out there who simply don’t believe in the initiative process,” said Weiland, who worked as a senior advisor to former Democratic Sen. Tom Daschle. “I think that they will continue to try to cripple it.”

All eyes on state legislative session

In 2004, the South Dakota Democratic Party gathered enough signatures to put a state food tax repeal on the ballot after legislative attempts to eliminate the tax fell short.

Opponents of the effort, including then-Gov. Mike Rounds, warned that passing the repeal would likely reduce state aid to education and children’s health programs. “You don’t just rip $43 million out of the budget without having to make substantial cuts in programs,” Jerry Apa, a Republican from Lead who chaired the Senate Appropriations Committee, said at the time.

Voters responded to that message and rejected the measure by a margin of 68% to 32%, followed by years of failed attempts by state legislators to lower the tax on food or exempt groceries from the general sales tax rate.

The fact that Noem threw her political weight behind dropping the food tax could change the dynamic in Pierre, but it’s unclear if the proposed ballot question influenced her decision to make it a campaign issue. The governor’s office did not respond to News Watch questions about the food tax ballot measure, but she has stated that she believes the state has the resources to offset the loss of revenue.

“I know that she knew [the ballot measure] was in the hopper, but I’m clueless as to what impacts her thinking,” Weiland said. “One thing I do know is that we agree with her stance on this, even though she was late to the dance. By saying that she doesn’t even have any fiscal concerns that we can cover this, she’s already taken one of the big arguments off the table.”

One thing is certain: If the state legislature finds the votes to repeal the state’s tax on food during the 2022 session and Noem signs it, Weiland’s ballot measure – and the current controversy over the proposal’s wording – becomes a moot point.

“I would love to have the Legislature step up and do this,” Weiland said. “This whole process from submitting language to getting a petition on the streets is a 3- to 4-month timeline, and then you’ve got to collect thousands of signatures. It’s not a very easy thing to do, and unfortunately the legislature keeps trying to make it more difficult.”