Great Faces, Great Places: Tourism Promotion in South Dakota

South Dakota’s tourism industry is a vital economic engine for the state. The signature attraction—Mount Rushmore—is a national icon that attracts thousands of visitors each year from around the world. Other tourist offerings include the annual Sturgis Motorcycle Rally, Wall Drug, Badlands National Park, historic Deadwood, pheasant hunting, and other attractions that highlight the state’s rich western heritage and sweeping prairie vistas. According to state estimates, tourism in 2010 had a $2.42 billion impact on the state’s economy. Visitors to South Dakota spend upwards of $950 million annually and the industry employs more than 33 thousand people. Additionally, tourism generated 20 percent of all state and local tax revenue in 2010. Without question, tourism is plays a major role in the state’s economic and fiscal condition.

To maximize the economic and fiscal benefits of tourism, South Dakota actively promotes visitor travel through its Department of Tourism. The department’s budget for 2010 was approximately $11.3 million dollars, funded exclusively through earmarked own-source tax revenue. The lion’s share of that revenue ($7.5 million) was derived from the state’s 1.5 percent ad valorem sales tax, and almost all of the rest came from a statewide gambling tax ($3.2 million).

The gambling tax is a straightforward levy on gambling revenue, but the tourism tax is more complicated. It is an excise sales tax with two layers: the first layer applies during the summer months to "visitor-intensive businesses" such as gift shops, festival vendors, and other businesses that earn half of their revenue between the months of June and September, and the second layer applies year-round to visitor businesses, including hotels, campgrounds, spectator events and car rentals.

Recently, the state legislature voted to extend the tourism tax which was set to expire in June of 2011. The governor and several lawmakers believed that the tax should be made permanent, but vocal opposition within the senate—many of whom believed that making a temporary tax permanent amounted to a tax increase—forced an amendment to the bill that would sunset the tax in 2012. Sen. Bruce Rampelberg, a Republican from Rapid City, was one senator who believed the tax should be made permanent. "Why would you want to kill the goose that lays the golden egg?” Rampelberg told the Rapid City Journal. “Is it a tax increase? Maybe. But it's working. We pay a lot of taxes for things that aren't working."

Recent academic research indicates that Rampelberg is right. Public tourism expenditures do have a positive impact on visitor spending. Accordingly, the majority of the state’s tourism expenditures finance advertising, marketing, and promotional activities.

Tourism expenditures are also directed toward the state’s historical preservation society, arts council, and other state heritage organizations. In my opinion, this is a wise use of tax revenue because it supports institutions that do not garner as much visitor spending, yet play a fundamental role in preserving South Dakota’s cultural heritage—a main visitor attraction. Overall, the state of South Dakota receives high marks for developing an appropriate and highly effective system to capitalize on its tourism industry.