PIERRE, S.D. (KELO) — A panel of South Dakota lawmakers is saying no to giving data centers a 50-year exemption from sales taxes.
The House State Affairs Committee voted 9-3 on Wednesday to kill House Bill 1005. The decision came after a hearing that ran more than 100 minutes.
The prime sponsor, Republican Rep. Kent Roe of Hayti, said the incentive would attract large data centers to South Dakota. Roe said data centers would pay substantial amounts of property taxes at a time when many people are complaining their property taxes are too high. He noted that 40 states offer financial incentives to data centers, including South Dakota’s six neighboring states.
But Republican Rep. Jon Hansen of Dell Rapids pointed out that the legislation called for the state revenue secretary to decide whether a data center meets the qualifying criteria. Hansen said that information would be confidential under the legislation and the public wouldn’t know.
Hansen is a co-sponsor of Senate Bill 135, sponsored by Republican Sen. Chris Karr of Sioux Falls, that would specifically bar tax exemptions and financial incentives for data centers.
Steve DelBianco, president of technology trade association NetChoice, said he made a similar proposal six years ago but the Noem administration wasn’t interested. DelBianco said he focused on seeking tax breaks in other states.
It is possible that Roe or another House co-sponsor could attempt to revive the legislation through what’s known in Capitol jargon as a smokehouse motion. That would require having a majority of the 70 House members agree to debate it.
Hansen asked Roe whether the sales-tax exemption would apply to new purchases of equipment by data centers already operating in South Dakota. Replied Roe, “Yes, it would impact them, but it doesn’t touch the property taxes they’re generating.”
Roe said a data center proposed near Toronto in Deuel County would pay approximately $4 million per year in property taxes and the Deuel County government’s budget is $11 million.
The first opponent to testify was Erik Oftedahl, a member of Toronto’s fire department. He said the volunteer group doesn’t have the training or equipment to handle a fire at a large data center filled with computers and technology. His wife, Michelle Oftedahl, said the arrival of a data center would drive up land prices and hurt farmers.
The only legislator to testify against the tax break was Republican Rep. Dylan Jordan of Clear Lake. “We should have a fair-rate tax across the board,” Jordan said. He added, “Just remember, the many people who want this are elected officials.”
Republican Rep. Greg Jamison of Sioux Falls attempted to amend Roe’s bill, so that the duration of the tax exemption would link to the amount of investment in a data center. He said the amendment would have capped the tax exemption at 35 years for data centers costing more than $750 million, with smaller data centers receiving tax exemptions of shorter lengths. The committee however rejected the amendment on a voice vote.
Republican Rep. Tim Reisch of Howard argued that the committee should recommend the House approve the bill. He said there’s no benefit to South Dakota taxpayers by saying no, because data centers of the hyperscale size are locating in states that offer incentives, rather than in South Dakota. “One hundred percent of zero is zero,” Reisch said.
Republican Rep. Brandei Schaefbauer of Aberdeen made the motion calling for the bill to be defeated. Democratic Rep. Eric Emery of Rosebud then tried to instead send the bill to the House floor with no recommendation, so that all of the House could consider the bill’s merits. But Republican Rep. Marty Overweg of New Holland disagreed, calling it “bad committee policy.” Emery’s substitute motion failed and the committee returned to Schaefbauer’s motion.
Voting yes to kill the bill were Republicans Jessica Bahmuller of Alexandria, Spencer Gosch of Glenham, Hansen, Leslie Heinemann of Flandreau, Karla Lems of Canton, Schaefbauer, Overweg and Scott Odenbach of Spearfish, and Democrat Erin Healy of Sioux Falls. Voting no were Emery, Jamison and Reisch.
