Why It Matters
South Dakota lawmakers have approved property tax relief measures that shift the tax burden from homeowners to all consumers through higher sales taxes, creating a trade-off that affects economic groups differently across the state. The legislature’s approach, championed by Governor Larry Rhoden and House Speaker Jon Hansen, raises concerns about how tax policy impacts residents who do not own property, potentially widening the gap between those who benefit from property tax credits and those who bear the cost through increased sales taxes on everyday purchases.
What Happened
During the 2026 legislative session in South Dakota, two major property tax relief bills gained approval. Governor Rhoden’s proposal allows counties to collect an additional half-percent sales tax, with revenues dedicated to property tax credits for owner-occupied homes. The measure targets counties experiencing the highest property tax increases, though implementation depends on individual county commissions deciding to adopt the tax.
House Speaker Jon Hansen’s bill takes a different approach, dedicating $114 million in ongoing state funding from a scheduled increase in the state sales tax to reduce the education mill levy portion of property taxes. The state sales tax, which dropped from 4.5% to 4.2% three years ago, is scheduled to revert to 4.5% in July 2027. Hansen’s bill captures part of that revenue increase for property tax relief before the scheduled sunset occurs.
Both measures prioritize reducing the property tax burden for homeowners while simultaneously raising sales taxes that apply uniformly to all consumers, including renters and other non-property owners.
By the Numbers
The governor’s office projects that counties implementing the half-percent sales tax will deliver property tax reductions of 10% to 25%, with an average savings of $660 per homeowner. For the state sales tax approach, officials estimate reductions of 14% to 22% on property taxes, translating to approximately $548 in savings for a home valued at $325,000.
The state sales tax adjustment represents a 0.3 percentage-point change, which translates to a one-penny savings for every $3.33 in consumer purchases. Hansen’s bill allocates $114 million in annual state funding toward reducing the education mill levy component of property taxes going forward.
Zoom Out
South Dakota’s approach reflects a broader national pattern of states attempting to address rising property tax burdens through alternative tax mechanisms. Several states have explored similar shifts from property taxes to sales taxes, framing the strategy as economic relief for homeowners. However, this approach creates a regressive impact because sales taxes take up a larger percentage of income for lower-income households compared to higher-income households.
The tension between property tax relief and sales tax increases appears across multiple states wrestling with revenue constraints and competing priorities. Some states have adopted homestead exemptions or circuit-breaker programs that target relief more narrowly, while others have pursued broader sales tax adjustments. South Dakota’s dual approach—allowing county-level implementation of additional sales taxes while also dedicating state revenue—reflects uncertainty about the most effective relief mechanism.
The economic impact of shifting from property taxes to sales taxes differs significantly based on residential and ownership status. In South Dakota, as in most states, renters and non-property owners pay sales taxes on purchases but receive no corresponding property tax credits, creating a disparity in the distribution of tax burden.
What’s Next
County commissions across South Dakota must decide whether to implement Rhoden’s half-percent sales tax option. The timeline and number of counties that will adopt this measure remain unclear, as the decision rests with local government entities responding to constituent pressure. The state sales tax component of Hansen’s bill will take effect as scheduled, with $114 million annually directed toward education mill levy reductions beginning in the next fiscal year.
The state sales tax increase is set to revert to its original 4.5% rate in July 2027 unless lawmakers take additional action. The sustainability of both property tax relief measures beyond their initial implementation periods will likely become a topic of legislative discussion in future sessions.
Implementation of these policies will provide data on actual savings for homeowners and the corresponding impact on state and local budgets. Policymakers will be able to assess whether the relief measures achieve their stated goals and whether the shift in tax burden produces unintended consequences for lower-income residents and renters across South Dakota.