SD House Taxation Committee Votes to Defeat ASC Tax Legislation

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SD House Taxation Committee Votes to Defeat ASC Tax Legislation

SDASCP makes a convincing case to shut down the bill

In the beginning of this month, South Dakota House Majority Whip Tim Goodwin (R) introduced HB 1246, which if enacted would have imposed a new tax on ASCs, set at 6 percent of gross receipts.

When ASCA reached out to the South Dakota Association of Specialty Care Providers (SDASCP) about the measure on the day of introduction, the organization was already working on defeating the proposal. SDASCP President Jack Kaup said that they were in talks with their lobbyist on how best to oppose the measure but welcomed any suggestions ASCA had. South Dakota shut down elective surgeries in response to the pandemic for a brief period in 2020—from April 6 to April 28—impacting revenues at ASCs in the state. Besides the official restrictions, the impact of the pandemic resulted in higher costs for ASCs as they worked to make themselves even safer in the face of COVID-19.

While legislators propose new or increased taxes on organizations as part of plans to plug budget holes, they also sometimes introduce them because of personal relationships. Lobbyist Michael Shaw who was working with SDASCP on the issue, said that Representative Goodwin had introduced the measure on behalf of a constituent who made a convincing enough case to introduce the bill. “I did visit with Representative Goodwin and he advised that this was a constituent bill. We didn’t discuss much further,” Shaw said.

Shaw, working with his partner Douglas Abraham and Kaup, already had a plan to convince legislators that this was not good policy. “Our primary strategy was to oppose this as a new income tax in a state that does not tax income,” Shaw said. “This is not what we do in South Dakota, single out a narrow segment of private businesses, and, in effect, double tax them.” In a state that prizes its low-tax, business-friendly environment, the proposal just did not make sense. A bill like this sends the message that South Dakota is closed for business, he added.

With the messaging set, Shaw wanted to move quickly to shut down the proposal, which meant getting it in front of its committee during a hearing as soon as possible. The measure had been referred to the House Taxation Committee on February 4—the day following its introduction—and was on the agenda to be heard on February 11. During the hearing, Representative Goodwin testified that the proposal had been in the works for a while and acknowledged it might not be ready for “prime time” before turning the testimony over to Larry Tueber, MD, testifying in support of the bill. Tueber argued that ASCs represent an economic inefficiency in the state’s healthcare market, stating that the ownership structure of many centers leads to a large amount of money flowing out of the state to corporate partners. He argued that more than $50 million leaves the state in the form of distributions from ASCs and specialty surgical hospitals each year, “… without any tax liabilities in South Dakota.” He was the only person to testify in support of the legislation.

Opponent testimony followed. Tueber’s testimony. Shaw opened by saying it seemed the opponents were suggesting there was not a level playing field in South Dakota: “I don’t believe that’s the case. If the playing field is slanted, I ask you where are the hospitals and clinics that are being disadvantaged by the ASCs and specialty hospitals? Look around the room. They are not here: that’s telling.” Grassroots testimony from surgery centers in the state helped to provide the perspective of those that would be directly impacted by the proposal and dispel the image proponents had painted of surgery centers. “Grassroots efforts on the local level were very effective in reaching out to committee members,” Shaw said. In addition, a representative from the state department of revenue spoke on behalf of the department and the governor’s administration in opposing the legislation, as well as representative of the state Chamber of Commerce and Industry.

At the end of the testimonies, the committee moved, by a unanimous vote, to defer the measure to the 41st legislative day, which is a maneuver used in South Dakota to kill legislation in committee, given that the Legislature only meets for 40 legislative days. While the proposal is dead for 2021, Shaw noted the issue was not likely to go away.

Write Stephen Abresch with any questions.