Rapid City expected to lose $2 million following repeal of internet tax

RAPID CITY, S.D. (AP) — Rapid City is expected to lose more than $2 million in state funding over the next two years following the congressional repeal of South Dakota’s tax on internet service.


The 2016 Permanent Internet Tax Freedom Act, which required South Dakota to stop taxing internet services by mid-2020, is projected to lead to a $700,000 loss in state funding next year and $1.4 million the following year for Rapid City. The South Dakota Municipal League estimates that it will result in a total revenue dip of $7 to $10 million for all of the state’s municipalities by 2021.

“There’s no way for anybody to make that up,” said Yvonne Taylor, the league’s executive director. The group opposed the mandate.

South Dakota began to collect sales tax from some out-of-state internet retailers and from sales platforms such as eBay in November 2018. The tax applies to retailers that conduct more than $100,000 worth of business in South Dakota annually or more than 200 transactions a year. The tax is expected to be phased out in South Dakota by June of 2020.

The league projects the state government could potentially lose between $10 million to $15 million in internet service tax revenue the first full year the repeal takes effect, the Rapid City Journal reported.

Because the repeal will take effect partway through fiscal year 2020, Rapid City will receive approximately half the normal amount of revenue from the tax. But the tax will not be collected at all in 2021, leading Rapid City to an expected loss of approximately $1.4 million, according to city Finance Director Pauline Sumption.

In the meantime, sales tax revenue growth should be able to sufficiently offset the loss, Sumption said. According to budget projections for next year, Rapid City will collect $29,427,111 in sales tax revenue, up about 1% from 2019.