South Dakota Legislative Bulletin 2-22-10

During the past two weeks the Legislature has introduced several general business bills that will affect your business. From unemployment to sales tax, the high points are covered below.

Also a bill was introduced for the state to comply with 2009 IBC. It also included a provision that vacation homes be required to have a sprinkler system installed. Similar legislation is being introduced into other states. Home builder associations and insurance companies are fighting the provision. The added costs and liability of a sprinkler system in single- and multi-housing does not necessarily outweigh the safety features when you look at the stats of injuries and deaths in those homes.

Our thanks to the South Dakota Retailers Association for their legislative monitoring and contribution to this bulletin.

Vacation home regulation

Senate Bill 68 is a bill which updates the Building Code standards to comply with the 2009 edition of the International Building Code. SB 68 has passed the Senate by a vote of 29 to 4, and passed the House Local Government Committee by a vote of 12 to 1.

The bill was amended in the Senate Commerce Committee to address concerns of the vacation home industry, among others. As originally introduced, the bill would have required vacation homes and specialty homes to have sprinkler systems, exit signs, and other safety features. The bill's sponsor, Sen. Jason Gant (R-Sioux Falls), amended the bill to clarify that the provisions of the legislation do not apply to specialty resorts and vacation home establishments that are constructed in compliance with the requirements of Group R-3 of the 2009 edition of the International Building Code.

As amended, the measure has the support of the Vacation Homes and Specialty Lodging Association of South Dakota, South Dakota Home Builders Association, South Dakota Manufactured Housing, the Building Chapter of the Associated General Contractors, and the South Dakota Housing Development Authority.

To view the entire bill, go to Bill Search and enter '68'

Unemployment Insurance

Senate Bill 186 is legislation which would revise the tax rates and surcharge structure of the South Dakota Unemployment Insurance program. The legislation would reduce the surcharge rate for 2010 and 2011, while raising the rates for the heaviest users of the fund.

The surcharge (currently 1.5% on the first $10,000 of taxable wages for each employee) was triggered when the UI Trust Fund dropped below $11 million at the end of September, 2009. This proposal would:

1. Increase the taxable wage base by $1,000 per year over the next five years. The 2010 wage base is $10,000. In the year 2011, that would go to $11,000 under this proposal. In 2012 it would increase to $12,000. In 2013 it would go to $14,000, and in 2015 it would be $15,000.

2. Revise the tax rate table. Currently, the maximum tax rate is 8.5%. Legislative Highlights This plan would take the top tax rate to 9.5%.

3. Revise eligibility for the zero tax rate. Assuming a $10,000 wage base, employers can now obtain the zero tax rate with $432 per worker in their account. Under this proposal, an employer would have to have $675 per employee in their account in order to be eligible for the zero rate.

4. Cap the surcharge at 1% in 2010 ($100 per employee, assuming a $10,000 taxable wage base), and at 0.75% in 2011 ($82.50 per employee, assuming an $11,000 taxable wage base). The surcharge applies to wages paid up to the taxable wage base amount.

5 Change the application of the surcharge starting in 2012 so that once a surcharge is triggered by a low Trust Fund balance, it would remain in place for four quarters. In addition, once the surcharge kicked in rates could increase up to the maximum,
but not drop. Currently, the surcharge is triggered when the Fund balance drops below $11 million at the end of any quarter, and the surcharge goes off when the Fund balance is above $16.5 million at the end of any quarter.

This proposal is close to revenue neutral for the year 2010.

Current UI law - 2010 figures (estimate)
$27.9 million Tax revenue
$44.2 million Surcharge
$71.1 million Total

- $400,000 Projected trust balance at end of the year

Proposed UI bill - 2010 figures (estimate)
$43.4 million Tax revenue
$30.9 million Surcharge
$74.4 million Total
$1.8 million Projected trust balance at end of the year

To view the entire bill, go to Bill Search and enter '186'.

Eligibility for UI benefits
House Bill 1018, which expands eligibility for Unemployment Insurance benefits to part-time workers and to workers attending approved training was still awaiting a hearing in the House Commerce Committee when we went to print. Passage of this bill would allow South Dakota's UI Trust Fund to receive $11.7 million in federal stimulus funding.

To read the entire bill, go to Bill Search and enter '1018'.

Corporate income tax

By a vote of 9 to 6, the House Taxation Committee has rejected a plan to place a corporate income tax on the ballot in the November general election. House Joint Resolution 1002 was sponsored by Rep. Gerald Lange (D-Madison) and Sen. Frank Kloucek (D-Scotland).

Voting to kill HJR 1002: Representatives Cutler, Greenfield, Juhnke, Kirkeby, Lederman, Noem, Olson (Ryan), Russell and Solum.

Voting against the motion to kill HJR 1002: Representatives Feickert, Gibson, Hunhoff (Bernie), Kirschman, Lange, and Thompson.

Sales tax increase

Senate Bill 181 would temporarily increase the state sales and use tax to 5% from the current rate of 4%. Under the proposal, the increase would be in effect from May 1 to December 31, 2010. The purpose of the increase would be to help bridge the gap during the current state budget shortfall. Sponsored by Sen. Stan Adelstein (R-Rapid City) and Rep. Ed McLaughlin (R-Rapid City), SB 181 will be considered by the Senate Taxation Committee.

By a vote of 6 to 3, the Senate Taxation Committee voted no to SB 181.

Voting to kill SB 181: Senators Fryslie, Hansen (Tom), Howie, Jerstad, Maher, and Peterson.

Voting against the motion to kill SB 181: Senators Adelstein, Merchant and Nelson.

Municipal sales tax

By a vote of 10 to 3, the House Local Government Committee turned down a plan to allow cities to impose another one cent sales tax. Under the provisions in House Bill 1198, a city would have been required to specify a start and end date for the tax, and state the purpose for the tax, and the tax would have automatically been referred to a vote of the people.

Voting to kill HB 1198: Representatives Bolin, Cronin, Feickert, Frerichs, Kirkeby, Olson (Betty), Rausch, Romkema, Rounds and Vanderlinde.

Voting against the motion to kill HB 1198: Representatives Curd, Lederman and Solberg.

To read the entire bill, go to Bill Search and enter '1198'

Sales tax liability

Senate Bill 28 passed the Senate by a vote of 33 to 0, and is now awaiting a hearing in the House Taxation Committee. Under this measure, if the state changes a tax rate, it must provide 30 days' lead time before the change is effective, or merchants will be held harmless. This is intended to make sure that businesses have sufficient lead time to update cash registers and computers before a state tax rate changes. (There is already a law in place requiring local governments to provide 60 days' lead time before implementing a tax change).

To read the entire bill, go to Bill Search and enter '28'.

Court fees

House Bill 1081 has passed the House by a vote of 51-18. Introduced on behalf of the Unified Judicial System, this bill essentially doubles fees for filing court actions, and the revenue would be used to overhaul the court's computer system and allow users of the system the option of electronic filing.

South Dakota Retail Assn. was able to amend the bill in committee to "sunset" the increase in the small claims court filing fees effective July 1, 2015, meaning on that date, the fees for filing small claims court actions will revert to the rates in effect now.

To read the entire bill, go to Bill Search and enter '1081'.

Prepaid gift cards

Senate Bill 81 passed the Senate and now awaite a hearing in the House. Under existing state law, if a gift certificate or credit memo is unredeemed for five years, the money from the certificate or memo is to be turned over to the state's unclaimed property division.
SB 81 would exempt open-loop prepaid cards from the unclaimed property provisions. The legislation pertains only to the electronic cards that are loaded on a prepaid basis, and which can be used to make purchases at any business which accepts those types of cards - such as Visa gift cards, for example. However, closed-loop cards - gift cards issued by a specific business to be used in that business - would still be subject to the unclaimed property laws. SB 81 has been introduced by Sen. Tom Dempster (RSioux Falls) and Rep. Roger Solum (R-Watertown).

To read the entire bill, go to Bill Searchand enter '81'.