Can a small South Dakota tourism town like Keystone use the proceeds from an additional 1% municipal sales tax adopted under SDCL 10-52-8 to buy, build, and maintain city parking lots to support local businesses and tourism?

Plain-English summary

Keystone, the South Dakota town near Mount Rushmore that depends heavily on tourism, was preparing to enact an additional 1% municipal sales tax under SDCL 10-52-8. The town wanted to use the new revenue to purchase, construct, and maintain city parking lots, on the theory that better parking would promote the town and its businesses. The town's representative asked AG Roger Tellinghuisen whether that use was authorized.

Tellinghuisen said yes. SDCL 10-52-8 authorized the tax "for the purpose of land acquisition, architectural fees, construction costs, payments for civic center, auditorium or athletic facility buildings, including the maintenance, staffing and operation of such facilities and the promotion and advertising of the city, its facilities, attractions and activities." Two prior AG opinions had read that authority broadly:

• Official Opinion 84-46 had held that, reading SDCL 10-52-8 alongside SDCL 9-12-11 (the general fund appropriation authority), a city could fund grants to industries willing to locate in the city, lend funds to those industries, construct facilities, or lend without consideration to attract them.
• Official Opinion 86-16 (Meierhenry) had concluded that a municipality could use SDCL 10-52-8 funds to construct, operate, and maintain a non-profit historical and educational society, reasoning that city councils were the best judges of what promotes their community.

Against that backdrop, a municipal parking lot in a town built around tourism (Mount Rushmore visitors generate Keystone's economy) was at least as promotional as a heritage center. Tellinghuisen held the use was authorized.

Currency note

This opinion was issued in 1987. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. SDCL 10-52-8 may have been amended since 1987 and the specific permitted uses may differ today. Anyone planning a sales-tax-funded project should check current SDCL Chapter 10-52 and current Department of Revenue guidance.

What the opinion meant at the time

Keystone is the South Dakota town near Mount Rushmore whose economy turns on tourism, which is why the opinion describes it as "a town noted for tourist attractions." Tellinghuisen's opinion let the town use the extra-penny sales-tax revenue for parking infrastructure that would support that tourist trade.

The broader interpretive move was the cumulative reading of the prior opinions. Official Opinion 84-46 launched the broad reading of SDCL 10-52-8 (read together with SDCL 9-12-11); 86-16 (issued by AG Meierhenry) extended it to a nonprofit historical and educational society; this 1987 opinion extended it to parking. The pattern was clear: in the AG's words, "city councils throughout our state can make the proper determination for the use of funds raised within their communities."

The opinion did not address constitutional limits on municipal expenditures for private benefit. A parking lot is municipal infrastructure even if it benefits adjacent private businesses; that is a different question from a direct grant to a private business. Official Opinion 84-46 had blessed grants to industries, but neither opinion developed the constitutional question.

Common questions

Q: Is this opinion still good law?
A: SDCL 10-52-8 has been amended several times since 1987. The general principle, that cities have broad latitude to spend municipal sales-tax revenue on infrastructure that supports their promotional and economic-development goals, broadly persists. Specific uses should be verified against current SDCL Chapter 10-52 and current AG opinions.

Q: What tax was at issue here?
A: The opinion addressed the "additional one percent sales tax" Keystone was enacting under SDCL 10-52-8. The statute, as quoted in the opinion, allowed that revenue to be used for land acquisition, construction of civic center, auditorium, or athletic facility buildings, and "the promotion and advertising of the city, its facilities, attractions and activities." Current municipal sales-tax rates and rules should be checked against present SDCL Chapter 10-52.

Q: Can a city use sales-tax revenue for a direct cash grant to a private business?
A: Official Opinion 84-46 (cited in this opinion) said a city could fund grants to industries willing to locate in the city. These AG opinions did not develop the constitutional public-purpose limits that might apply to such spending. A city contemplating a direct grant should consult current case law on those limits.

Q: Could Keystone use these funds for a parking ramp instead of a surface lot?
A: The opinion did not distinguish between surface lots and parking structures. Both would presumably qualify as promotional municipal infrastructure under the AG's broad reading. A parking ramp would likely face the same analysis.

Q: What if a parking lot benefits one business more than others?
A: Tellinghuisen treated the parking-lot question at a general level. A specific project that disproportionately benefited one private owner could face a public-purpose challenge. The AG opinion frames the question as one of municipal discretion; the constitutional limits remain.

Background and statutory framework

South Dakota cities can adopt a municipal sales tax under SDCL Chapter 10-52. The provision at issue here, SDCL 10-52-8 in its 1987 form, authorized the tax for land acquisition, architectural fees, construction costs, payments for civic center, auditorium, or athletic facility buildings, and "the promotion and advertising of the city, its facilities, attractions and activities."

SDCL 9-12-11 provided cities with general fund authority for city activities. The 1984 AG opinion had read 10-52-8 and 9-12-11 together to give cities broad latitude. Tellinghuisen's opinion continued that approach. The aggregate effect across the AG opinions of the era was to give municipalities, especially tourism-dependent cities, wide discretion to deploy sales-tax revenue for economic development.

The opinion's brevity (under 500 words of substantive analysis) reflects the established line of authority. Tellinghuisen treated the parking question as an easy extension of the existing framework rather than as a question requiring independent analysis.

Citations and references

Statutes:

• SDCL 10-52-8 (municipal sales tax for civic facilities and promotion)
• SDCL 9-12-11 (general-fund appropriations for city activities)

Cases: None cited.

Prior AG opinions:

• Official Opinion 84-46 (broad reading of SDCL 10-52-8; grants to industries)
• Official Opinion 86-16 (Meierhenry; nonprofit heritage center funding)

Source

• Landing page: https://atg.sd.gov/OurOffice/OfficialOpinions/opinionhtml.aspx?id=200

Original opinion text

Use of sales tax funds in promotion of municipalities

Dear Mr. Warder:

You have requested my official opinion on the question of whether the Town of Keystone, which is attempting to enact an additional one percent sales tax [] under § 10-52-8, may use the money derived from such tax for the purchase, construction and maintenance of city parking in the Town of Keystone in order to promote the town and businesses located therein.

So far as applicable that section reads in part as follows:

... the tax shall be levied for the purpose of land acquisition, architectural fees, construction costs, payments for civic center, auditorium or athletic facility buildings, including the maintenance, staffing and operation of such facilities and the promotion and advertising of the city, its facilities, attractions and activities.

Official Opinion 84-46 held that pursuant to SDCL 9-12-11 a city may appropriate money from its general fund to promote city activities and held:

In my view, the legislature intended, as it did in SDCL 9-12-11, for this purpose to be broad in scope so as to allow cities freedom and leeway in their tax expenditures.

That opinion went on to hold construing §§ 9-12-11 and 10-52-8 together:

A city might use moneys collected under § 10-52 to fund grants to industries willing to locate in the city, lend funds to industries willing to locate in the city and construct facilities or lend without consideration to industries willing to locate within the city.

Subsequent to that opinion, Official Opinion 86-16, issued by Attorney [] General Meierhenry, determined that a municipality might use funds collected under the authority of § 10-52-8 to fund the construction, operation and maintenance of a non-profit historical and educational society. The Attorney General held:

I believe that the city councils throughout our state can make the proper determination for the use of funds raised within their communities and to determine whether or not those operations promote the city or its attractions and activities.

It would appear to me, and I so hold, that a municipal parking lot in a town noted for tourist attractions would have at least as many promotional aspects for the municipality as would the development of a heritage center.

The answer to your question is therefore that the Town of Keystone may use funds from the extra penny sales tax to carry out the activity described in your request.

Respectfully submitted,

Roger A. Tellinghuisen

Attorney General