Deep Dive – Taxes

March 3, 2025
Seal SD Liberty

Below is a detailed, technically rich version of South Dakota’s plan to eliminate property taxes and replace them with a Gross Receipts Tax (GRT), crafted for tax enthusiasts who crave granular data and analysis. This version also directly engages skeptics—particularly those who prefer higher taxes for funding public services or equity—by addressing their concerns through a Liberty-minded lens. It emphasizes individual freedom, limited government, and economic fairness, balancing technical depth with principled arguments to satisfy both tax geeks and those wary of tax reductions.

South Dakota Property Tax Replacement: A Liberty-Driven GRT Blueprint for Tax Geeks

South Dakota’s property tax system undermines the Liberty ideal of secure property ownership by tying homes and land to perpetual government payments, often threatening foreclosure for non-payment. This plan abolishes property taxes entirely, replacing them with a Gross Receipts Tax (GRT)—a low-rate, broad-based levy on business revenues. Designed to protect individual rights and curb government overreach, it offers a robust, data-driven alternative that satisfies tax aficionados while dismantling objections from advocates of higher taxes who prioritize expansive public funding.

The Liberty Imperative: Why Property Taxes Are Unjust

A Liberty-minded framework champions personal freedom, limited government, and the sanctity of property rights. Property taxes violate these principles:

  • Threat to Ownership: Annual levies mean the state effectively holds a lien on your property—if you can’t pay, you lose it. This contradicts the Lockean notion of property as an inalienable right.
  • Economic Distortion: Taxing improvements (e.g., homes, factories) penalizes investment, reducing economic liberty and growth—a perverse incentive for a free-market state.
  • Regressive Impact: Fixed-income homeowners, especially rural elderly, bear a heavier burden, clashing with fairness, a cornerstone of Liberty.

The GRT shifts this burden from individuals to economic activity, safeguarding homes and fostering a freer, more dynamic economy.

GRT Mechanics: A Tax Geek’s Playground

The Gross Receipts Tax (GRT) is a flat tax on all business revenues (not profits), applied at every transaction stage. Here’s why it’s a technical masterpiece:

  • Structural Simplicity: No deductions, exemptions beyond a revenue threshold, or complex credits—pure revenue × rate. Compliance costs drop from ~$200/property assessment to ~$50/business filing annually.
  • Robust Base: Unlike sales tax (final sales only) or income tax (profits), GRT captures all economic flows, minimizing volatility. South Dakota’s ~$65 billion GDP (business revenue) provides a rock-solid foundation.
  • Low Rate Viability: At 2.5%, it raises $1.625 billion, matching property tax revenue ($1.6 billion), proving a broad base sustains services without high rates.

Technical Comparison to Alternatives

  • Sales Tax:
    • Base: ~$25 billion (consumer sales); GRT: $65 billion (all receipts).
    • Rate Needed: 6.4% vs. 2.5% for GRT—higher consumer burden.
    • Pyramiding: None vs. minimal (GRT’s low rate mitigates).
  • Income Tax:
    • Base: ~$20 billion (taxable income); GRT’s broader base wins.
    • Complexity: High (deductions, evasion); GRT’s simplicity rules.
    • Liberty Impact: Punishes work vs. neutral activity tax.
  • Property Tax:
    • Base: ~$80 billion (assessed value); GRT shifts from static assets to dynamic flows.
    • Incentive: Discourages building vs. neutral growth impact.

Revenue Precision

  • Property Tax (2022): $1.6 billion
    • Schools: $960 million (60%)
    • Counties/Local: $480 million (30%)
    • Infrastructure: $160 million (10%)
  • GRT at 2.5%: $65 billion × 0.025 = $1.625 billion
    • Allocation matches property tax split, with $25 million buffer for adjustments.

Implementation: A 2-Year Technical Rollout

A 2-year transition balances speed with stability:

  • Year 1:
    • Property tax reduced 50% ($800 million cut).
    • GRT at 1.25% ($812.5 million).
    • Shortfall ($787.5 million) bridged via reserves ($500 million available) and short-term bonds (~$300 million, repaid Year 2).
  • Year 2:
    • Property tax eliminated.
    • GRT at 2.5% ($1.625 billion), fully funded.

Execution Specs:

  • Legislative Push: Special session to pass enabling laws, constitutional amendment for permanence.
  • Tech Build: $15 million one-time cost to adapt sales tax software for GRT—quarterly filings, auto-calculated, minimal burden.
  • Revenue Stabilization: 5% buffer ($81 million) for unforeseen dips, adjustable via rate tweaks or cuts if over-collected.

Challenges and Solutions: Engaging High-Tax Advocates

Tax geeks thrive on dissecting challenges, and those favoring higher taxes (often for equity or robust services) raise valid concerns. Here’s how the GRT addresses them, rooted in Liberty principles that reject bloated government while ensuring fairness.

Challenge 1: Sectoral Equity

  • High-Tax Critique: Low-margin sectors (e.g., retail, agriculture) pay more relative to profits than high-margin sectors (e.g., tech).
  • Data Dive: A grocer with 2% margins pays $2.50 per $100 revenue (125% of profit), vs. a tech firm at 50% margins paying 5% of profit. Pyramiding (taxing supply chains) could amplify this.
  • Solution:
    • Tiered GRT: 1.5% for low-margin sectors (e.g., agriculture, groceries—20% of base, $13 billion), 2.5% elsewhere. Revenue: $195 million + $1.3 billion = $1.495 billion. Gap ($105 million) offset by trimming non-essential spending (e.g., administrative bloat).
    • Exemption Threshold: $100,000 revenue floor excludes ~30% of businesses (small firms, ~$6.5 billion base), reducing burden.
    • Liberty Fit: Protects productive sectors without expanding government—fairness through market logic, not handouts.

Challenge 2: Administrative Load

  • High-Tax Critique: New systems cost money and effort, risking underfunding if botched.
  • Data Dive: Property tax assesses ~300,000 parcels ($5 million/year); GRT tracks ~50,000 businesses. Initial setup: $15 million; annual cost: $2 million (vs. $5 million now).
  • Solution:
    • Leverage Existing Tools: Integrate GRT into sales tax portals—businesses already report sales, adding GRT is a line item.
    • Compliance Lite: Free software, quarterly filings, audits via revenue cross-checks (e.g., bank records).
    • Liberty Fit: Shrinks bureaucracy (fewer assessors), keeping government lean while funding essentials.

Challenge 3: Economic Pass-Through

  • High-Tax Critique: Businesses raise prices, hitting consumers and possibly shrinking services.
  • Data Dive: Studies (e.g., New Mexico GRT) show ~50–70% pass-through. At 2.5%, price hike ~1.25% (e.g., $1 burger → $1.01). Property tax savings: $500 million for businesses, $1.1 billion for households.
  • Solution:
    • Phase-In: 1.25% to 2.5% softens shock—businesses adjust pricing gradually.
    • Net Gain: Savings ($1.6 billion) exceed GRT costs ($1–2/household daily), boosting disposable income.
    • Liberty Fit: Frees individuals from direct tax burdens, letting markets—not mandates—handle costs.

Challenge 4: Service Funding Stability

  • High-Tax Critique: Lower taxes might cut schools or roads, harming equity and growth—key concerns for big-government advocates.
  • Data Dive: Schools need $960 million. GRT at 2.5% delivers $975 million (60%). Counties ($487.5 million) and infrastructure ($162.5 million) stay whole.
  • Solution:
    • Locked Allocation: Statutory formula (60-30-10) ensures no cuts—revenue-neutral by design.
    • Over-Collection Rule: Excess >5% ($81 million) triggers rate cuts or rebates, not new programs—Liberty demands restraint.
    • Liberty Fit: Funds essentials without growing the state—services stay, but freedom grows.

Challenge 5: Higher-Tax Ideological Pushback

  • High-Tax Critique: “Taxes fund progress—why shrink revenue when we could expand services?”
  • Liberty Response: More taxes erode freedom, empowering bureaucrats over citizens. Property taxes stole $1.6 billion yearly from homeowners; GRT spreads that across economic activity, preserving individual control. Data backs this: states with lower tax burdens (e.g., SD, TX) see higher growth (3% vs. 2% national average, 2010–2020).
  • Solution: Cap GRT at 2.5% via constitutional amendment—voter supermajority (⅔) required for increases. No backdoor property tax revival without referendum.
  • Liberty Fit: Limits government to its proper role—protecting rights, not redistributing wealth.

Industry and Regional Impacts: Tax Geek Edition

  • Agriculture: No land tax saves ~$300 million (avg. farm: $5,000/year). GRT on sales (1.5%, $5 billion base) = $75 million—net savings $225 million.
  • Manufacturing: Property tax relief ($100 million) exceeds GRT ($50 million on $2 billion revenue)—growth catalyst.
  • Tourism: GRT on $4 billion receipts = $100 million; new hotels (no property tax) boost revenue long-term.
  • Sioux Falls: High-value homes save $3,000–$5,000/household; GRT spreads cost to urban commerce.
  • Rural Areas: Land-heavy regions gain most—avg. savings $2,000/farm vs. $50–$100 GRT.

Safeguards: Hard Limits on Government

  • Rate Cap: 2.5% max, voter referendum for increases (⅔ approval).
  • Use Restriction: GRT only replaces property taxes—no new spending.
  • Transparency: Annual audits, citizen oversight board (no politicians).
  • No Reversal: Property tax ban in state constitution—voter-only reinstatement.

Conclusion: Liberty Meets Precision

This GRT plan marries technical rigor with Liberty principles, eliminating property taxes in 2 years while ensuring revenue stability. It outmaneuvers high-tax advocates by proving less government intrusion delivers more freedom and fairness—without sacrificing schools or roads. For tax geeks, it’s a masterclass in broad-base, low-rate design; for South Dakotans, it’s a ticket to unburdened ownership and economic vitality.