South Dakota ranked 3rd most regressive state tax system - KSFY News - Sioux Falls, SD News, Weather, Sports

South Dakota ranked 3rd most regressive state and local tax system in the nation

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The latest nationwide "Who Pays?" study ranks South Dakota as the third most regressive state and local tax system in the nation. 

The study shows that the lowest wage earners in the state are paying a larger percentage of their income toward taxes than households with higher incomes. 

Every state has a different tax system that affects those percentages.  In South Dakota, the state does not collect an income tax but relies heavily on sales tax for income.   

Some say it's the cause of the state's regressive tax system but others in the state also say it's one reason South Dakota's economy is so strong. 

"South Dakota has one of the lowest tax burdens in the country and that's why we're consistently ranked as one of the most business friendly places," said Representative Mark Mickelson. 

The state's lack of income tax is one reason why our tax burden is considered lower than most states. 

"Seven states in this union don't have state income tax and South Dakota is one of them, we depend mainly on our sales tax," said Professional Tax Consultant Charles Azzara with Azzara tax service. 

Joy Smolnisky with the South Dakota Budget & Policy Project says the state's sales tax system takes a higher percentage of income from low wage earners. 

"Under a consumption tax, people in the lowest incomes pay the highest percentage of their income because they have to spend all of their income in order to meet their basic needs," said Smolnisky. 

That means every dollar a low income family and spends for things like groceries, clothes and housing is taxed by the state, while most high income families do not spend all of their yearly income. 

"They can actually save money, they can invest it, put it in a retirement account, by stalk at At&T and those transactions are not taxed," said Smolnisky.  

While higher wage earners pay a much smaller percentage of their income towards the state's taxes, they generally end up spending more money. 

"What we collect at the state government is dollars, not percentages and the tax burden on the higher income folks, they will pay more in dollars," said Representative Mickelson. 

"What you purchase is what you pay in taxes, so if you can afford a $300,000 boat, you pay three percent on that boat," said Azzara. 

Smolnisky says an income tax system is more progressive as it taxes a percentage of a person's entire income; however, she also says the "Who Pays?" study is not an argument against a sales tax system; it's simply data to show the impact a state's tax system can have on resident of every income level.

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