A lot of times, when lawmakers or the governor propose controversial bills, they reach out to stakeholders to try to smooth out differences in private before legislation hits committee.
That didn’t happen with HB 1045, a bill to simplify the state’s bank franchise tax by removing special, descending rates for income over $400 million per year. Instead all bank income would be taxed at a flat rate of 6 percent.
The banking industry, and officials with Citibank, the only South Dakota bank that has ever crossed that $400 million mark, say they don’t know why the state is proposing the measure and plan to oppose it.
State officials tell me they see the clause as obsolete, since no South Dakota bank has made more than $400 million per year since 2007 or 2008, and changes in the banking industry such as new federal laws mean that might not be an issue again.
Theoretically, current law allows for huge savings for banks. The rate falls rapidly from the 6 percent base rate down to 1 percent for any revenue between $500 million and $600 million, then half a percent from $600 million to $1.2 billion, and just a quarter of a percent above that.
For a bank with $500 million in revenue, they’d save a few million per year with the regressive rate (a technical term). But a bank with $1 billion in revenue would save $30 million compared to a flat 6 percent rate.
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