The Big Picture
South Dakota has been wrestling for years with soaring property taxes squeezing homeowners, farmers, and renters alike. More than two dozen bills this session have tried to fix the problem.
Considered today (Friday), Senate Bill 243 took the most creative swing yet — aiming to eliminate owner-occupied property taxes first and replacing the revenue with a flat $1.50 fee on retail transactions. On Friday, that swing missed.
A similar proposal is already being circulated as a constitutional amendment for the 2026 general election ballot. That initiated measure, sponsored by Mike Mueller, Julie Frye-Mueller, and Matt Smith of Rapid City, was approved for circulation Nov. 3, 2025, by the South Dakota Secretary of State.
What the Bill Would Have Done
Introduced by Sen. John Carley, R-Piedmont, SB 243 would have imposed a $1.50 tax on each retail transaction of $15 or more, and 10 percent on purchases under $15. Revenues would have flowed into a new state property tax replacement fund using a “waterfall” structure — eliminating owner-occupied residential property taxes first, then agricultural property taxes, then commercial, as funds allowed.
Carley told the committee the Legislative Research Council estimated the tax would generate roughly $800 million annually — enough to cover the approximately $400 to $500 million in statewide owner-occupied property taxes, with money left over for some agricultural relief.
“So you’ll see in this plan, it’s a smaller tax and it has better coverage for just that owner-occupied,” Carley said.
Carley noted that Florida’s House passed a similar owner-occupied property tax elimination the night before the hearing.
“The great state of Florida passed, 80 to 30 in their House, abolish the owner-occupied property tax. That was just last night,” Carley said. “And I think this follows in that same line of effort.”
Why Opponents Said No
The opposition was broad.
Derek Johnson of the Bureau of Finance and Management called the flat $1.50 cap “a declining revenue source for an ongoing, growing need.” He argued that the fixed amount loses purchasing power as inflation rises while property tax obligations continue to grow. The 10 percent rate on purchases under $15 is also deeply regressive — taxing a $10 purchase at 10 percent while a $600 purchase is taxed at just 0.25 percent.
Nathan Sanderson of the South Dakota Retailers Association put the fairness problem in concrete terms.
“My point is this, you’re paying the same on that transaction of twenty bucks with this transaction tax as you do on a new mattress, or a boat, or a car, or a four-wheeler, or a can of paint, or a whole variety of things,” Sanderson said. “That’s the opposite of good tax policy.”
Mitch Rave of the Greater Sioux Falls Chamber of Commerce warned the bill would gut local control from counties, municipalities, and school districts. Sara Rankin of the South Dakota Municipal League said the shift to a consumer-spending-based system created serious structural risk.
“Police officers and firefighters cannot be scaled back based on monthly retail receipts, and bond payments do not pause during recessions,” Rankin said.
Sam Matson of the South Dakota Association of County Officials testified the bill would cut county funding by two-thirds. Angela Ehlers, mayor of Presho, a Lyman County community of about 500 people, spoke on her own behalf. She warned that small towns like hers — already losing business to big-box stores in larger cities — could see their grocery stores and lumber yards disappear as shoppers consolidated purchases to avoid the 10 percent rate on small transactions.
“A lot of people make the day-to-day transactions — get a gallon of milk and a loaf of bread — and this is just going to force or encourage people to go to the big towns,” Ehlers said. “We’ll lose our grocery store. We’ll lose our lumber yard.”
The Rural Fairness Problem
A senator who voted to kill the bill acknowledged its core rural equity problem. Sen. Amber Hulse, R-Hot Springs, whose District 30 covers Fall River, Custer, and Pennington counties, described what the fee structure means for constituents who cannot do one-stop shopping.
“Our poor families or families that live in more rural areas are going to be paying one-fifty, one-fifty, one-fifty, one-fifty where people in Rapid City and Sioux Falls, they can go to Sam’s Club or Walmart and buy everything all at once, get their prescriptions all at once in one big transaction,” Hulse said. “And so that’s one of the things that I struggle with.”
A Committee That Struggled to Decide
Committee rules require a majority of the members elected to take final action. With several members absent for much of the hearing, the committee took an initial vote that did not settle the bill. After members returned, the committee revoted 4-3 to send Senate Bill 243 to the 41st day, killing it for the session.
What’s Next
Senate Bill 243 is dead for the 2026 legislative session. The Mueller-Frye/Mueller initiated constitutional amendment covering similar ground remains in circulation. Voters could see a version of the property tax replacement question on the November 2026 ballot. Legislators say they continue to work through more than two dozen other property tax relief proposals before the session ends.
