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PIERRE | The governor’s top aide and a senior attorney for the Legislature gave their thoughts to lawmakers Wednesday on how state government could plan to start taxing sales of goods and services delivered to South Dakota customers from businesses without a physical presence inside the state.

Presentations by Tony Venhuizen and Wenzel Cummings to the Joint Committee on Appropriations came in the wake of the U.S. Supreme Court decision on June 21. The justices ruled 5-4 that South Dakota and other states could charge sales taxes on businesses known as remote sellers.

The high court previously barred states from the practice. Historically, many remote sellers, who rely on internet, catalogs or other mail for their marketing, hadn’t remitted sales taxes in the states that charge it, putting them at odds with in-state retailers that must collect and remit it.

A further complication was some businesses, such as Amazon, voluntarily began paying sales tax in South Dakota or other states, while third-party suppliers that stock and ship items for those businesses haven’t.

During the 2016 session, legislators raised the state sales-tax rate to 4.5 percent from 4 percent to provide property-tax relief and increase salaries for teachers. They also approved the remote-sales tax language in a separate measure that received little notice.

Sen. Jeff Partridge, R-Rapid City, linked them with an amendment to the sales-tax increase. It said the increase would be reduced by one-tenth of one percentage point for every $20 million of additional tax revenue from remote sales.

Venhuizen and Cummings said Wednesday one of the challenges now is interpreting the Partridge amendment.

“We are in complete agreement the language is quite ambiguous,” Cummings told lawmakers. He said the state’s current rate of 4.5 percent remains the law until the Legislature changes it.

He recommended the Legislature develop a process for triggering the tax rate’s reduction.

Venhuizen said Gov. Dennis Daugaard has less than six months left before he leaves office and therefore wants the new governor and the next Legislature to decide many of the matters next year. The current Legislature ended its regular session in March.

State Revenue Secretary Andy Gerlach and staff members were in Boston, Mass., at a sales-tax meeting Wednesday.

Earlier on Wednesday, Venhuizen confirmed to this reporter the governor was considering calling legislators back for a special session if necessary.

The reason? “That remains to be seen,” Venhuizen said later in the day. “He (Daugaard) wants to put the legislators on notice in case legislation is necessary to expedite implementation. As I mentioned today, Secretary Gerlach is meeting with his counterparts this week on this very issue.”

Venhuizen told lawmakers the U.S. Supreme Court returned the case Monday to the South Dakota Supreme Court. He said state Circuit Judge Mark Barnett would oversee further proceedings. In the meantime the remote-sales tax can’t be enforced yet because the lawsuit technically is still under way, Venhuizen said.

Hypothetically, the Partridge amendment would mean the first $20 million of new revenue from taxing remote sales would cut the sales-tax rate to 4.4 percent. At $40 million, the rate would drop to 4.3 percent, and so forth.

One catch Venhuizen identified was state government currently receives about $22.6 million per each one-tenth of one percent of sales tax.

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Partridge spoke to the committee by teleconference Wednesday about the intentions behind his amendment. He said:

* The $20 million threshold was based on the revenue level needed in 2016 to cut the tax rate by one-tenth of one percent.

* The $20 million referred to sales-tax revenue from businesses that didn’t comply with the remote-sales law, while tax revenue from businesses that voluntarily complied wouldn’t be counted against the $20 million.

* Legislators on the appropriations committee would track the flow of new revenue and propose any corresponding reductions in the tax rate.

State revenue officials shouldn’t be allowed to independently make changes, Partridge said. He is an appropriations member.

Venhuizen stressed that the governor wants legislators to deal with clarifying Partridge’s amendment during the 2019 session. Venhuizen sent a memo to the committee Tuesday.

Legislators asked only a few technical questions. “We will see how this plays out over the next few weeks and months,” said Rep. David Anderson, R-Hudson, one of the panel’s co-chairmen.

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