- Associated Press - Friday, February 7, 2014

PIERRE, S.D. (AP) - Gov. Dennis Daugaard’s plan to stabilize the state’s income from the bank tax at $8 million to $10 million annually was sent Friday to the full House for consideration.

The House’s State Affairs Committee unanimously approved the measure, which will help protect state revenue from the bank franchise tax by taking into account changes in the way large banks provide services from locations in many states, state Revenue Secretary Andy Gerlach said.

Without the change, the state’s bank tax revenue could fall to about $4 million a year, he said.

The bank franchise tax is based on the portion of a bank’s property, payroll and receipts attributable to South Dakota. However, the current formula does not take into account modern practices by large banks because different parts of a transaction often occur in different states, Gerlach said. The bill would calculate South Dakota’s share of bank receipts on where a customer is located, rather than where the bank activity takes place.

“As the tax administrator for the state, I will say it’s good policy,” Gerlach said. “It allows us to really accurately determine where a transaction takes place based on where a customer is located.”

Large, multistate banks had told state officials that under the current law, very little of their business activity could be legally apportioned to South Dakota, Gerlach said. The measure will have little effect on small community banks, but will apply to large banks that conduct credit card operations and other multi-state services.

Daugaard had called for the change in banking laws in his State of the State address. The proposed change was crafted by state officials, the South Dakota Bankers Association and representatives of six large banks, including Citibank and Wells Fargo.

Curt Everson, president of the South Dakota Bankers Association, said Daugaard was correct when he noted that modern banking has changed with the growth of electronic transactions.

“Brick walls, bank buildings and state borders don’t mean what they used to in terms of how businesses conducts business, how banks conduct banking and how state’s should apply their tax laws,” Everson said.

Banks agreed to make some securities trading income subject to South Dakota tax to help shore up state revenue, Everson said.

No one testified against the bill Friday.

“It seems like a fair system that comports with modern-day banking,” said House Speaker Brian Gosch, R-Rapid City, a committee member.

House Majority Leader David Lust, R-Rapid City, said he took part in the work group that proposed the tax changes and was pleased that the banks collaborated with the state to find an appropriate way to tax banking. The banks agreed to be taxed in some areas that had not previously been subject to the tax, he said.

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