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Legislature Rejects Mining Taxes That Make Millions For Neighboring States

SD Legislative Research Council

A proposal to tax bentonite and limestone died a quick death Wednesday in the South Dakota Legislature; meanwhile, other states are making millions from those very taxes. 

The bill came from Sen. Ryan Maher, R-Isabel. His vast legislative district in northwest South Dakota includes the area near Belle Fourche where bentonite is mined. Bentonite is used in dozens of things, from detergents to drilling fluid. 


But while South Dakota taxes the severing of gold, silver and other materials from the ground, it does not have a severance tax on bentonite. There’s also no South Dakota severance tax on limestone, which is mined in the Black Hills and is used in cement and other products. 


Some other states have severance taxes on bentonite and limestone. In Wyoming, for example, counties made $5.7 million last year taxing both items, and the state made $1.7 million. Montana also taxes bentonite and limestone.


So, when Maher learned that the South Dakota School of Mines & Technology in Rapid City needs money to replace its Mineral Industries Building, he had an idea. Why not put a tax on bentonite and limestone, and use the proceeds for the building? He said the revenue projection for the combined taxes is up to $2 million per year. 


“This building is probably five years down the pipeline, and should this bill pass, they could actually start stockpiling some of this cash, because the money goes into the Bond Redemption Fund,” Maher told the Senate Taxation Committee on Wednesday, “and, lo and behold, in five years you might have $10 million saved up.” 


Opponents of the bill said mining taxes drive up the cost of road construction, homebuilding and other activities that use mined materials. Opponent testimony came from representatives of the Associated General Contractors, the South Dakota Chamber of Commerce & Industry, the Home Builders Association, and the Rapid City company Pete Lien & Sons. 


The governor’s office sent Jason Evans to testify against the bill. 


“It should come as no surprise that the Department of Revenue is here opposing this bill,” Evans said. “You see, this is a new tax that would increase the tax burden upon South Dakotans. And as the governor has expressly stated many times, this is in direct conflict with her pledge to protect South Dakotans from tax increases.” 


Nearby states, including North Dakota, Wyoming and Montana, reap big tax revenues from natural resources such as oil, natural gas and coal. Sen. V.J. Smith, R-Brookings, wonders why South Dakota is afraid to do the same with its own natural resources. 


“We always envy these places because there’s stuff underground, and they’re getting a lot of stuff because of it. And yet we would shy away from taxing because that’s the South Dakota way,” Smith said. “I’m not a big fan of taxes, but geeminy Christmas, you know, those people in Montana and Wyoming and North Dakota aren’t apologizing for taxing the stuff they got.” 


A Senate committee rejected Maher’s bill 5-2. But more than one senator thanked Maher for bringing attention to potential funding methods for the building project at the School of Mines. One was Sen. Gary Cammack, R-Union Center. 


“The bill that was brought sounds like it has encouraged some discussion between the industry partners and the School of Mines, and I believe that’s very encouraging,” Cammack said.